Insured Has No Duty to Read Policy if Insurance Agent Misrepresented the Terms
The Third Circuit Court of Appeals recently touched on a question that is frequently encountered (and answered differently) by courts in all jurisdictions. In Tran v. Metropolitan Life Ins. Co., the Court applied Pennsylvania law to determine whether an insured’s failure to read a policy warranted summary judgment against him in a case against the insurer. The Third Circuit reversed the District Court’s summary judgment, stating that the insured has no duty to read a policy in a case alleging misrepresentation or fraud by the insurer or the insurer’s agent.
There is a virtual snake’s nest of issues surrounding defenses based on an insured’s failure to read a policy. Is it sufficient if the insured reads the policy, but does not recognize the practical importance of a particular provision? Must the policy unambiguously address the insured’s concern, or if vague, does the insured have a duty to further inquire? Is the insured’s business savvy relevant? What if the insurance agent affirmatively tells the insured that the policy is what the insured requested? Assuming the insured did breach a duty to read the policy, what effect does that have in a suit to enforce coverage – a comparative fault reduction, an absolute bar to recovery, or equitable consideration?
A good rule of thumb for insurance purchasers: read your policy when it arrives, and ask questions immediately. A good rule of thumb for insurance companies: keep policies as clear and unambiguous as possible, and don’t count on policy language to save you if your agent oversells the policy.