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'Renewal' Means More of the Same for Insurance Policies

By Jonathan R. Tung, Esq. on October 23, 2015 | Last updated on March 21, 2019

What does the word 'renewal' mean? The answer to that question could have greater legal import that you might expect. In fact, that question essentially sums up the legal issue that was the core of Indian Harbor Insurance v. F&M Equipment, Ltd.

The 3rd Circuit Ruled on October 15 that "renewal" -- at least in the context of insurance terms -- means "more of the same."

Renewal in Insurance Policies

To many lay people, the word "renewal" is encountered regularly in the context of their auto insurance, phone plan, or medical plan. Two arguable meanings to the word can be mad. One: that renewal means a signing of a new contract with different or similar terms with the same company. Or two: a signing of a contract with the same company under the same terms.

The 3rd Circuit voted for interpretation number two.

Indian Harbor Insurance

The original controversy arose when a plaintiff insured sued its insurer, arguing that a promise to offer a renewal by the insurer meant a new offer of the original contract terms. The insurer demurred on this point and countered that "renewal" means basically the meaning of option one, above.

The court was not convinced. It agreed with the 8th Circuit opinion on this matter. From the get-go, the 3rd Circuit opined that if the defendant's interpretation were allowed to control, it would mean that the original agreement in which it entered with the plaintiffs was not supported by valuable consideration. Why? Because any party can make an offer on different terms.

So, a promise to make an offer at some future date without the limitation of substantially similar terms is essentially worthless. And since the backbone of contract is consideration, "renewal" can only mean one thing: that a contract offer must contain the same or nearly the same terms as the original contract.

If Not the Same, Then NEARLY the Same ...

"Same" is a very nice brightline rule, but the court left an unfortunate (unfortunate if you like clean rules) gap. It included that a "reasonable change in price should not alone render a new contract a nonrenewal. But the remaining terms must be recognizable extensions of the initial [p]olicy."

In the facts at bar, the changes were obvious: new times, prices, and coverage. But the language will no doubt have insurance litigators scrambling to divine what meaning should be afforded "recognizable extensions."

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