Insurer is bound by erroneous coverage amount listed on application form

Law Reporter, Dec 1998

Fleming v. Monumental Life Ins. Co., 154 F.3d 1001 (9th Cir. 1998).

The Ninth Circuit Court of Appeals held that an insurer was bound by a mistake on its life insurance application form that indicated a greater amount of coverage than was actually available under the policy.

Here, a man purchased a group life insurance policy through his mortgagee that was convertible to an individual policy When he later chose to exercise the conversion privilege, the insurer sent an application and letter indicating the available coverage was about $231,500. After he had submitted the completed application and a check, the man died. Shortly after, the insurer sent him a letter indicating the actual coverage was only $18,000-the maximum amount under the group policy's schedule of benefits. The man's beneficiary informed the insurer of the man's death and demanded benefits of about $231,500. The insurer refused, and the beneficiary sued, seeking specific performance. In a bench trial, the court found in favor of plaintiff.

Affirming, the Ninth Circuit noted that the application and letter contained sufficient information to objectively manifest defendant's intent to provide the insured with almost $231,500 of individual life insurance. The court said that by completing the application, signing it, and submitting it along with a check, the insured accepted defendant's offer of coverage in that amount.

The court rejected defendant's argument that the contract was the result of conversion from a group policy to an individual policy and, thus, its terms were limited by provisions in the application, group policy, and certificate. This argument ignores the objective manifestations defendant's representative made to the insured through the application, letter, and confirmation of the policy, the court said. The application stated that any individual policy issued on the application was not a continuation of the group insurance. This supplanted any purported limitations on coverage found in the application, group policy, or certificate, the court reasoned.

Accordingly, the court concluded defendant must pay damages for breaching the contract.

Plaintiff's Counsel:

Jonathan P. Meier, Seattle, Wash.

Stephen J. Sirianni, Seattle, Wash.