Law School Case Brief
OneBeacon Am. Ins. Co. v. Travelers Indem. Co. - 465 F.3d 38 (1st Cir. 2006)
The critical limitation in a contract reformation case is the burden of proof: to be entitled to reformation, a party must establish that the undisputed material facts fully, clearly, and decisively show a mutual mistake. Although the classic case for reformation is when the mutual mistake can be traced to a typo or transcription error, a scrivener's error is not a prerequisite for reformation. Mutual mistakes justifying contract reformation may result simply from the parties' inattention.
In this diversity case, appellee Travelers Indemnity Company of Illinois ("Travelers") sought to recover under a motor vehicle liability policy that appellants OneBeacon America Insurance Company and Pennsylvania General Insurance Company (collectively, "OneBeacon") had issued to Leasing Associates, Inc. and LAI Trust (collectively "LAI"), a vehicle leasing agency. Travelers settled a vehicle liability suit for $ 5,000,000 on behalf of Capform, Inc., which had leased the vehicle involved from LAI. Citing the OneBeacon/LAI policy, Travelers demanded that OneBeacon reimburse Travelers $ 1,000,000, the policy's limit. Although OneBeacon has admitted that its policy with LAI may be read to extend coverage to the Capform vehicle, it protested that the parties never intended such a result. Accordingly, OneBeacon asked the district court to reform the policy in light of "mutual mistake." On cross-motions for summary judgment, the district court refused to reform the policy and ordered OneBeacon to pay the $ 1,000,000 to Travelers.
In light of “mutual mistake”, should the motor vehicle liability policy of insurance in question be reformed?
On appeal, appellant OneBeacon challenged the district court's conclusion that the evidence was insufficient to warrant reformation, arguing that the undisputed facts conclusively show that neither OneBeacon nor LAI intended insurance coverage under the OneBeacon policy for LAI lessees who did not individually apply for, and pay for, that coverage. The mutual mistake urged by OneBeacon was that the policy's broad definition of an "insured" extended coverage to LAI's lessees who had not independently insured the vehicles with OneBeacon. OneBeacon also contended that there was no public policy justification for refusing to reform the policy to conform to the parties' intent. The United States Court of Appeals for the First Circuit agreed with OneBeacon. The Court noted that under the Massachusetts law, a written contract may be reformed if its language did not reflect the true intent of both parties. In the case at bar, the Court held that there were compelling evidence (i.e., lease agreement and the course of conduct) to show that neither OneBeacon nor LAI intended insurance coverage under the OneBeacon policy for LAI lessees who did not individually apply for, and pay for, that coverage. According to the Court, OneBeacon met their burden to provide full, clear, and decisive proof of mistake, and there were no equitable barriers to reformation. In our view, LAI's lease agreement, particularly when taken together with the lease supplement specifically addressing insurance, is compelling evidence that LAI intended that its own insurance coverage for a particular vehicle would terminate once the vehicle was leased. OneBeacon met its burden to provide "full, clear, and decisive proof of mistake." The district court's summary judgment for appellee Travelers was reversed. The district court was directed to enter summary judgment for appellant OneBeacon providing for reformation of the policy.
Access the full text case
Not a Lexis Advance subscriber? Try it out for free.