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Rhode Island Supreme Court Adopts When the Insured Receives Notification of Policy Updates or Renewal Notices Reflecting the Error

Recently, the Rhode Island Supreme Court in Faber v. McVay, 155 A.3d 153 (R.I. 2017), the court held that Rhode Island's three-year statute of limitations against an insurance agent began to run when the insured received an update of the changes made to his policy after the insured changed carriers and also began to run when the insured received notice of renewal of the policies after the agent or agency informed him that his policies would be reviewed.

In this case, the plaintiffs were Charles Faber, M.D. and his wife. The insurance agent was Francine McVay and various insurance agencies. From 1998 until her retirement in 2005, McVay was Dr. Faber's insurance agent. Throughout the insurance relationship, Dr. Faber expressed a desire to obtain the best and maximum insurance coverage. From October 2002 to October 2003 Dr. Faber's automobile insurance was written with Vigilant Insurance Company and included $5,000,000.00 of UIM coverage. In late 2002, Dr. Faber inquired with McVay as to whether a different carrier could provide the same coverage for a reduced premium. It was alleged that McVay reported to Dr. Faber that he could obtain the same coverage and lower his premium payments by contracting with Progressive for $250,000.00 in UM coverage and with Vigilant for an umbrella policy of $5,000,000.00, which included UIM coverage within its coverage. There was a dispute regarding what actually took place, however. McVay testified that she informed Dr. Faber that the policies were different and that they would "come back and bite him in the ass." Nevertheless, Dr. Faber directed McVay to make the change, which reduced his premium by $4,951.00. Unfortunately, the umbrella policy with Vigilant, while providing $5,000,000.00 in excess liability coverage, did not include UM protection. Dr. Faber was, thereafter, sent notices of these changes, which included succinct summaries of the coverages. It was undisputed that he failed to read the coverage update. Over the years he received notices that detailed his automobile insurance coverage, usually after he added or removed vehicles from the policies. Dr. Faber testified that he did not read those notices, but filed them in a drawer because he relied on McVay's insurance expertise. Dr. Faber assumed that his automobile policies provided maximum coverage for UM.

McVay retired in 2005. At that time, Dr. Faber retained the agency where McVay worked for his insurance needs. His new agent, Lauren Albright, informed him that the agency would review the policies and that the doctor would be advised if additional coverage was necessary. Once again, Dr. Faber received notice as to the terms and coverage of his automobile insurance.

In 2007 Dr. Faber was injured in an automobile accident. After exhausting the tortfeasor's insurance coverage of $250,000.00, Dr. Faber attempted to submit a claim to Vigilant for his excess damages. At that time he was informed that the Vigilant policy did not provide UM coverage, but only insured excess liability. Dr. Faber recovered the $250,000.00 from Progressive. Then, in 2009 Dr. Faber sued McVay. McVay and the agency filed a motion for summary judgment based upon Rhode Island's three-year statute of limitations. Dr. Faber's attorneys responded that the discovery rule tolled the limitation period because Dr. Faber could not reasonably have discovered the alleged insurance malpractice until he was injured in the accident and submitted a UM claim. McVay and the agency's motion for summary judgment was granted, with the court finding that a reasonable and diligent inquiry by Dr. Faber would have placed Dr. Faber on notice of a claim in December of 2002 and therefore Dr. Faber would have had to bring an E&O claim against the agent/agency by December 2005. The complaint filed in 2009 was therefore untimely.

The Rhode Island Supreme Court found that under the discovery rule, the operative date was the date that a plaintiff discovered, or in the exercise of reasonable diligence, should have discovered, the wrongful conduct of the tortfeasor. The court noted that it adhered to the longstanding principle that statutes should not be interpreted to achieve a meaningless or absurd result. Applying this to the case, the court found that under Dr. Faber's interpretation of the discovery rule, an insured would be free to ignore deficiencies in his or her policies or coverage and be relieved from taking corrective action unless and until there was a denial of coverage. Under the discovery rule, the statute of limitations period is not tolled until the point when damages are reasonably discoverable, but when the negligent conduct was reasonably discoverable. In that regard, Dr. Faber received coverage updates of the changes made to his policy which indicated that the policy was effective on December 11, 2002. The coverage summary provided indicated that two vehicles were deleted from the policy and one vehicle was added. The coverage was described as "EXCESS LIABILITY ONLY." Dr. Faber acknowledged that he understood the difference between UM insurance and excess liability coverage. It was clear that the coverages in the policies were not identical. Notwithstanding, Dr. Faber neglected to read the coverage update.

Dr. Faber had also sued Albright and the insurance agency when Albright failed to obtain adequate UM coverage. Following that representation, Dr. Faber received notice of his renewal which, again, included a summary of his coverage, but failed to read the notice. Dr. Faber was sent coverage updates as he added and deleted vehicles from the policy that detailed the coverage that he bought.

The Rhode Island Supreme Court found that in the face of a multitude of opportunities, beginning in December 2002, Dr. Faber failed to discover the alleged insurance malpractice. As a result, the court held that the statute of limitations on all insurance agent/agency E&O claims being asserted were barred.

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