Policy renewal requires the insured to be alive to form a valid insurance contract, the Sixth Circuit recently ruled. in Bobby Davis et al. against Westfield Ins. a companyCase No. 21-2797 (6 Cir. March 14, 2022), Della Shields received an annual homeowner’s insurance policy covering her home in Muskegon, Michigan from 2013 until her death in March 2018. Shields was the only insured person in annual policy announcements.
At the time of Shields’ death, her adult daughter, Yvonne Jones, lived with her at home in Muskegon. Jones qualified as “insured” under the policy because she was a “resident”[] of the family” and was “a relative” of Shields. Another of Shields’ adult children, Bobby Davis, was Shields’ custodian prior to her death. Jones and Davis shared ownership of the home with their mother. The 2017-2018 policy in effect at the time of Shields’ death contained a death clause, which Specify that in the event of the death of “the person mentioned in the advertisements,” the insurance company “will insure the legal representative of the deceased but only in respect of the estate and property of the deceased covered by the policy at the time of death.”
Unaware of Shields’ death, the insurance company issued a renewal of the insurance policy in June 2018 to run through June 2019. Shields was again the only named insured. Davis continued to deposit money into Shields’ bank account to cover the premiums, and the insurance company continued to deduct payments from Shields’ account.
In March 2019, a fire destroyed Shields’ home, and Davis filed a claim under the policy. After investigation, the insurer rejected the claim and canceled coverage on the grounds that it was unaware that Shields had died when it issued the policy renewal in June 2018. The insurer refunded all premiums paid under the 2018-2019 policy.
Davis, representing her mother’s estate, filed a lawsuit with her brother Jones against the insurance company in Michigan state court, and the insurance company referred the case to federal court. Davis and Jones have filed claims relating to breach of contract, repair, violations of the Michigan Standard Business Practices Act, and equitable closure. The insurer applied for an expedited ruling, arguing that the document issued to Shields in June 2018 was void because Shields was dead at the time of renewal. The district court agreed and issued a summary judgment to the insurance company.
On appeal, Davis and Jones argued that the summary judgment was improper because the court might award a June 2018 policy reform by replacing Jones with Shields as the insured. However, the court held that in order to obtain fair compensation for repair and damages for breach of contract, plaintiffs must first prove the existence of a valid contract. To this end, the plaintiffs argued that the policy renewal in June 2018 was not an offer to enter into a “new” contract, but rather a continuation of the contract already in place between the insurer and Shields.
The court did not agree, arguing that the plaintiffs failed to prove that the insurer and Shields intended to renew the June 2018 contract to be one continuous contract. The court noted that there was nothing in the 2017-2018 policy to indicate that the parties intended for the insurance company to renew the policy after Shields’ death. In fact, the inclusion of the death clause suggests the opposite. Because the 2018 policy did not constitute a continuing contract with the 2017 policy, the court considered the renewal announcement merely an offer for Shields to enter into a new contract – and Shields lacked the ability to agree to that offer due to her death. While the court did not explicitly say this, it did point out that the death clause would only apply if the insured was alive at the time of renewal and then died during the life of the insurance contract properly renewed.
The court also held that the insurer’s issuance of the June 2018 renewal announcement and acceptance of premiums from Shields’ bank account did not constitute an implied contract in fact with the Shields’ property because there was no indication from the facts in the record that the insurer had actual or deductive notice of Shields’ death prior to the loss of fire. In fact, the plaintiffs admitted that they did not notify the insurance company of their mother’s death and continued to deposit the money into their mother’s bank account from which the insurer had deducted the premiums. While the court held that the shares might have weighted in favor of the plaintiffs, as the insurance company’s risks were not different if the policy had been issued to Jones rather than her mother, the court stated that it did not have the ability to award just compensation for the repair in the absence of a valid contract.
Finally, since there was no contract as a matter of law, the court held that the insurance company had not been equitably dropped from the denial of coverage. The court explained that the equitable closure does not create a contract that the parties have not entered into. Since the June 2018 document renewal announcement did not constitute a valid contract, the court confirmed an expedited ruling in favor of the insurance company.
Based on the court ruling in Davis, the renewal of the policy for the deceased insured constitutes an offer without acceptance, and a “meeting of minds” is not required for a valid insurance contract. In the Sixth Circuit, insurers can, therefore, cancel the policy and return the premiums if they later discover that the insured has died during a previous policy period and they renew the policy without informing them of the insured’s death.
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