Renewal is a New Contract

Claim that $16 Extra Premium on Renewal is Bad Faith FailsShow more

Peter Gottlieb claimed that the price he agreed to pay Amica Mutual Insurance Company to insure his home was $16 too high because it was based on an excessive coverage limit. Claiming as well that other Amica insureds paid too much to insure their homes, he filed this putative class action. After the district court dismissed part of Gottlieb's complaint for failure to state a claim and entered summary judgment he appealed.

In Peter Gottlieb, individually and on behalf of all persons similarly situated v. Amica Mutual Insurance Company, No. 22-1074, United States Court of Appeals, First Circuit (December 30, 2022) disposed of the class action claims.

FACTUAL BACKGROUND

Gottlieb owns a home in Burlington, Massachusetts. In 2015, he purchased a homeowners insurance policy from Amica that covered him from March 10, 2015, through March 10, 2016. The coverage limit for replacing his house in the event of a loss was $311,000, for which Gottlieb paid a $730 premium. The policy also contained an endorsement providing additional coverage of up to 130% of the coverage limit if Gottlieb agreed to certain conditions, including that Amica could adjust the coverage limit and the premium "in accordance with" "property evaluations [Amica] make[s]" and "[a]ny increases in inflation." The policy contained no other language allowing Amica to increase coverage limits.

No loss occurred during the one-year term of the policy. The proposed premium for the renewal policy was $795 ($65 more than the premium for the original policy). Sixteen dollars of the increase was due to a higher coverage limit for Gottlieb's house ($321,000 versus $311,000). Amica arrived at that coverage limit based on a multiplier calculated by a company called E2Value, Inc., which projected costs for Gottlieb's zip code based on various data sources. The rest of the increase was irrelevant to the suit.

Gottlieb sued Amica, claiming that the increased coverage limit on his house and premium in the 2016-17 violated the terms of his contract with Amica. Gottlieb argued that the endorsement in his original policy limited how Amica could set the coverage limit in the renewal policy. Gottlieb also argued that even if Amica did not explicitly breach the policy, it breached the implied covenant of good faith and fair dealing.

The district court found that the 2015-16 and 2016-17 policies were two separate contracts, so setting the initial coverage limit in the latter could not have violated the former. Moreover, the initial contract imposed no restrictions on how the new coverage limit in the renewal contract could be set. No covenant of good faith and fair dealing extended or created a freestanding obligation to use the within-term rules contained in the first policy for selecting the starting point of the renewal policy.

ANALYSIS

Gottlieb's breach of contract claim begins with the original policy's limitation on Amica's unilateral ability to change the coverage limit of $311,000 and the corresponding premium upon which the parties had agreed when they entered the contract. Had Gottlieb sought coverage from another insurer upon expiration of the policy, it is clear that no breach could have been claimed.

The parties did not go their separate ways. Instead, they entered into a new policy – the renewal policy. In so doing, they agreed upon a new, slightly higher coverage limit of $321,000 (as compared to $311,000 in the prior year) and a corresponding premium of $795. During the term of that renewal policy, Amica never sought to charge Gottlieb more than that agreed-upon $795.

Because the original policy did not limit Amica's freedom in proposing a coverage limit for the renewal policy, Gottlieb's breach of contract claim fails.

Gottlieb's claim for breach of the implied covenant of good faith and fair dealing fares no better. The implied covenant is not a catch-all for altering the terms or scope of a contract. The covenant may not, however, be invoked to create rights and duties not otherwise provided for in the existing contractual relationship, as the purpose of the covenant is to guarantee that the parties remain faithful to the intended and agreed expectations of the parties in their performance.

Amica's changes to the dwelling limit during the term of the original policy did not apply to the setting of the initial coverage limit in the renewal policy. The covenant of good faith and fair dealing does not secure this benefit that the contract never guaranteed in the first place. Nor did Amica do anything to deprive Gottlieb of the reasonably expected benefits of the policy.

The policy plainly governs the relationship between the parties and the subject matter of the dispute (Gottlieb's premium), so Gottlieb's equitable claims are foreclosed here.

In sum, the court was unable to conclude that Amica, by deception, sold Gottlieb coverage he could never use. He has thus not shown that he was injured by Amica.

ZALMA OPINION

Class Actions become viable when there are enough - thousands - of victims can claim to have lost a small amount. Gottlieb tried, by claiming a $16 claim, was worth millions because Amica has thousands of customers. The problem was, however, that a renewal policy is really a new and separate contract from the original policy. Since Gottlieb agreed to accept the new policy with new limits at the new premium established that he received what he paid for, nothing more and nothing less. A waste of money for defense counsel by Amica and a waste of the time of the court since there was simply no claim and no loss.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

Subscribe and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.

Go to substack at substack.com/refer/barryzalma Consider subscribing to my publications at substack at substack.com/refer/barryzalma

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

Write to Mr. Zalma at zalma@zalma.com; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.