An insurer’s continued acceptance of premium payments from an insured after denying that insured’s claim for noncompliance was not a waiver. The case is Sinjel, L.L.C. v. Ohio Cas. Ins. Co., 2024 U.S. App. LEXIS 20778 (5th Cir. 2024). Please note that this opinion is unpublished and therefore has limited precedential value.
What Happened
Sinjel, L.L.C. purchased a commercial property with hopes of renovating the building on the property. In order to protect their future investment, Sinjel procured insurance from Ohio Casualty Insurance Company. The policy included builder’s risk provisions as a safety measure against loss while the renovations were ongoing. The scope of the policy, however, “limited coverage to a vacant ‘existing building’ for 60 consecutive days from the inception date of this policy unless building permits have been obtained and rehabilitation or renovation work has begun on the 'existing building’” (emphasis added). According to the policy, an “existing building” meant “a building or structure that was constructed and standing prior to the inception of this policy and that [would]l undergo renovation or rehabilitation.”
Unfortunately, Sinjel’s property suffered fire damage the year after it was purchased. Sinjel filed a claim with Ohio Casualty a few months later. When the carrier’s adjuster met with the lone member of Sinjel, the member confessed he hadn’t known of the damage until the week before the meeting. He also admitted he did not think anybody has visited the property since the purchase had been finalized more than one year prior.
Ohio Casualty conducted an investigation and concluded that coverage was unavailable. The property had been purchased sometime in 2019, and the loss had occurred in late 2020, well outside the initial 60-day window specified in the policy. Also, as of the time the claim was submitted, Sinjel had neither procured building permits nor commenced renovations on the now-damaged building. Ohio Casualty formally denied Sinjel’s claim and specifically stated the denial was not a waiver of any policy defenses that were or would be available in the event of a suit. However, after denying Sinjel’s claim, Ohio Casualty allowed the policy to continue during the remaining policy period, though the coverage was nonrenewed at the next anniversary date.
Litigation
Sinjel sued Ohio Casualty, alleging breach of both contract and fiduciary duty as well as bad faith. Sinjel sought a judgment on the pleadings regarding liability, while Ohio Casualty moved for summary judgment. The carrier argued that the policy, and therefore all of its conditions, had been in effect at the time of the fire, which occurred more than 60 days after the policy became effective. Based on Sinjel’s admissions regarding the lack of building permits or renovations, Ohio Casualty had had a valid reason to deny the claim. Sinjel countered this argument by claiming Ohio Casualty had waived its right to denial when it continued accepting Sinjel’s premium after the carrier knew of Sinjel’s non-fulfillment of the policy conditions.
The district court denied Sinjel’s motion and ruled in favor of Ohio Casualty. Sinjel appealed.
What the Appellate Court Said
Before the judges of the Fifth Circuit, Sinjel reiterated its argument that Ohio Casualty’s continuance of the policy after it discovered Sinjel had not complied with the policy terms operated as a waiver of the carrier’s right to deny the claim.
Applicable law stated that “an insurer may waive its right to forfeit or rescind an insurance policy by continuing the policy in force after learning of facts that would permit it to avoid the policy” (Highlands Ins. Co. v. Allstate Ins. Co., 688 F.2d 398 (5th Cir. 1982)). The standard of proof regarding an alleged waiver of “an important provision of an insurance contract” had to demonstrate the waiver by “clear and convincing” evidence.
The facts of the case–which were not in dispute–showed that Ohio Casualty learned of Sinjel’s noncompliance with the policy when the claim was reported and denied the claim, but continued accepting premium payments until the policy was nonrenewed eight months later. According to Sinjel, Ohio Casualty’s continued acceptance of the premium in the face of knowing Sinjel had not adhered to the policy conditions operated as a waiver of the company’s right to deny the claim. Sinjel referenced two earlier cases from the Fifth Circuit, Pitts v. American Sec. Life Ins. Co., 931 F.2d 351 (5th Cir. 1991) and New York Life Insurance Co. v. Dumler, 282 F. 969 (5th Cir. 1922), where the judges stopped two different insurers from denying their respective insured’s claims after the insurers had learned of the insured’s noncompliance with the terms and conditions of the policy at issue.
The judges of the Fifth Circuit in the present case acknowledged these findings. However, they pointed to differences in the cases’ timelines: The conduct of the insurers in Pitts and Dumler that operated as a waiver occurred before the claims were denied. Ohio Casualty’s continued acceptance of Sinjel’s premium payments–the behavior Sinjel claimed was a waiver–occurred after coverage was denied. Ohio Casualty learned of Sinjel’s noncompliance in late February, and the denial letter, which was explicitly “based on the coverage limitation and Sinjel's admission that it had not begun renovations,” was issued before Ohio Casualty accepted any more premium payments from Sinjel.
Conclusion
As the court put it, “Ohio Casualty cannot be said to have waived its right to rely on the coverage limitation to deny a claim after expressly relying on it to deny that same claim.” The award of summary judgment to Ohio Casualty was affirmed.
Editor’s Note: This case shows why the timeline of a claim is so important. In Pitts and Dumler, when the insurers learned the insureds had not complied with the policy, they did not take action, such as warning the insureds that their noncompliance could jeopardize coverage. Later, the court said the insurers had waived the noncompliance because they knew the insureds had not complied with the policy but done nothing to correct the insureds’ behavior.
Ohio Casualty denied Sinjel’s claim based on noncompliance shortly after the carrier learned of Sinjel’s noncompliance. The continued acceptance of Sinjel’s premium payments, rather than showing Ohio Casualty waived Sinjel’s noncompliance, only showed that Ohio Casualty intended coverage to apply for subsequent claims. In other words, if another loss had occurred under Sinjel’s policy after the claim at issue in this case, Ohio Casualty may have covered that claim.
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