In its recent decision in A.P. Pino & Associates, Inc. v. Utica Mutual Ins. Co., 2012 U.S. Dist. LEXIS 92472 (E.D.Pa. July 3, 2012), the United States District Court for the Eastern District of Pennsylvania had occasion to consider the application and enforceability of a retroactive date in a professional liability policy.
Utica Mutual insured A.P. Pino & Associates (“APA”) under two consecutive Life Insurance Agents and Brokers Errors and Omissions policies for the periods October 15, 2009 through 2010 and October 15, 2010 through 2011. Both policies contained an October 15, 2009 retroactive date and stated that coverage was unavailable for wrongful acts that took place prior to this date.
Prior to October 15, 2009, APA’s principal, Pino, was insured under a professional liability policy issued by a different carrier. The named insured was Pino rather than APA. It was only when Pino decided to grow his business and hire a number of producers that he decided to switch carriers and purchase a policy in APA’s name. He claimed to have selected Utica because Utica offered prior acts coverage. Such coverage, however, was not automatically granted. Utica determined whether to offer prior acts coverage, or use a retroactive date, based on whether the insured was a new business entity or an entity with prior errors and omissions coverage. Because APA had not previously been insured under a professional liability policy (i.e., because Pino’s prior coverage was in his name only), Utica decided to treat APA as a new business and thus issued the policies with a retroactive date concurrent with the inception of the first policy issued to APA, i.e., October 15, 2009.
Although the retroactive date was fully disclosed in all phases of the underwriting for both policies (i.e., the quotes, binders, etc.) and was clearly identifiable in the policies themselves, Pino later claimed that he was not aware of the retroactive date, or its effect, until he later sought coverage for a loss. The loss involved a lawsuit filed in November 2010 by an APA client arising out of Pino’s advice concerning life insurance. Because the advice was given in Spring 2009, Utica denied coverage based on the October 15, 2009 retroactive date. APA, nevertheless, argued that Utica had a duty to defend and indemnify APA based on its reasonable expectations that the policies issued by Utica provided prior acts coverage, or in the alternative, that the policies should be reformed to reflect these expectations.
The court agreed as an initial proposition that the retroactive date was clearly and unambiguously stated in the policy. Pino’s assertion that he “did not read the policies” did not require the conclusion that Utica could not enforce the retroactive date. As the court explained, “if a policy is ‘plain and free of ambiguity, and could have been readily comprehended by [an insured] had he chosen to read them,’ then the parties are bound by the signed agreement.” The court further held that the doctrine of reasonable expectations did not compel a different result, since the doctrine is limited to “unsophisticated non-commercial insureds” and only to protect insureds from deceptive language. Noting that Pino was not an unsophisticated insured and that the retroactive date was not the result of insurer deception, the court found the doctrine inapplicable.
APA also argued that the policies should be reformed to provide the prior acts coverage it had requested when it applied for the initial policy. Specifically, APA argued that a mutual mistake existed because APA was mistakenly treated by Utica as a new business enterprise. The court rejected this argument on the basis that Utica’s treatment of APA as a new business was not based on a mistake, but rather based on APA’s lack of prior insurance coverage. The court further rejected APA’s argument that there was a unilateral mistake on Utica’s part, explaining that:
While Plaintiffs may have been unilaterally mistaken that APA would receive prior acts coverage, Plaintiffs have not presented a scintilla of evidence that Utica engaged in either active fraud or had good reason to know of Plaintiff’s unilateral mistake, thereby precluding reformation of the policy.