MICHAEL PAPUC | Attorney at Law San Francisco


Insurance Contracts can be re-written (reformed) to include representations of coverage made by captive agents of the carrier

by Michael Papuc
Attorney at Law
44 Montgomery Street, Suite 2405
San Francisco, California 94104

San Francisco Attorney Michael Papuc represents policy holders (“insureds”) in lawsuits against their insurance companies for bad faith claims handling.

When a claim is presented to an insurance carrier, the carrier will always rely on the terms of the written insurance contract. Some carriers have captive agents, who work only for a single insurance company, such as State Farm or Allstate. Often when the carrier undertakes to change policy language, resulting in reduction in homeowners coverage, the captive agent undertakes sales spin, promising that this is not a big deal because the insurer has its own people inspect the home, to make sure there are enough policy limits to cover the home int he event of total loss, even though the written insurance policy will say otherwise. Keep in mind that the captive agent is the agent of the insurance carrier, and not the gent of the policy holder insured. The representations of the captive agent will often bind the insurance carrier, and are subject to the insurance company’s duties to the insured.

This is where the law of reformation comes in. Reformation is an equitable remedy that allows a court to alter or rewrite a written agreement which fails to conform to the parties’ oral or other prior agreement as the result of fraud or mistake. Civil Code, sec, 3399 states as follows:

“When, through fraud or a mutual mistake of the parties . . . a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved, so as to express that intention....”

The California Supreme Court described the purpose of reformation as follows:

“The purpose of reformation is to correct a written instrument in order to effectuate a common intention of both parties which was incorrectly reduced to writing.” (LeMoge Electric v. San Mateo County, 46 Cal.2d 659, 663 (1956).)

See also American Home Ins. Co. v. Travelers Indem. Co. 122 Cal.App.3d 951, 963 (1981) (purpose of reformation is “to make a written contract truly express the intention of the parties.”) (Emphasis added.)

Civil Code, sec. 3401 provide as follows:

“In revising a written instrument, the court may inquire what the instrument was intended to mean, and what were intended to be its legal consequences, and is not confined to the inquiry what the language of the instrument was intended to be.”

The representations of the captive agent, which are binding on the carrier can be construed to be part and parcel of the insurance policy, making the insurer liable for breach of contract, if it denies or withholds benefits of a claim the captive agent said would be fully covered, and liable for bad faith if it can be shown that the carrier unreasonabley withheld insurance policy benefits.


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