What’s In a Name?

Among the issues that plague coverage lawyers is that of a misnamed, unnamed or mischaracterized insured. All too often in insurance policies, corporations are designated as assumed names, partnerships as individuals in corporations, or the names simply do not match the insured. The problem is compounded when there may be several related entities, all of which are insured or intended to be insured. A related problem exists when the addresses are wrong or the insured’s business is not accurately described.

These issues are also problematic for agents. As the intermediary between insurer and insured, fingers may point at the agent from either direction if there is a mistake.

Even when the named insured is correctly named, the type of entity can determine coverage. Managers of a limited liability company are insured, executive officers and directors of the corporation are insured, and spouses of partners in a partnership or joint venture are insured. If an entity is not named, it may have no coverage whatsoever. Misstating the form of an entity, be it corporation, partnership or sole proprietorship, can also lead to disastrous consequences.

For example, the policy itself provides that no coverage is included for a partnership that is not named in the declarations. Accordingly, a partnership that is misnamed as a corporation or sole proprietorship may have no coverage. And, while coverage is afforded for directors or officers of the corporation, in their individual capacity, if the corporate status is not revealed, this same coverage may not exist.

Under the standard ISO general liability form, the policy provides limited coverage for newly acquired or formed organizations, but only for 90 days unless they become named insured. Even this coverage, however, does not extend to unnamed partnerships.

A twist on these issues is created by the complaint allegation rule. If there are entities that might otherwise be entitled to coverage, they may not be if the pleadings do not match the policy names or reveal the corporate relationship. On a related note, failure to include the proper address or addresses for the insured may also impact coverage, especially where an endorsement limits coverage to designated premises or projects. Similarly, failure to properly describe the operation may limit coverage, if there is an endorsement for designated operations, or may lead to a claim from the insurer, if an unknown operation, for which no premium was charged, leads to coverage.

A Claim of Negligence?

Many of these problems may be corrected by reformation especially if the mistake is un-intended. But reformation requires mutual mistake and is an equitable remedy. And, all litigation is costly. Failure to properly name the insured is more likely to give rise to a claim of negligence on the part of the agent, and a possible indemnity claim if the insurer is left holding the bag for unexpected insureds.

Liability policies are not the only ones impacted. In Grain Dealer’s Mut. Ins. Co. v. McKee, 943 S.W.2d 455 (Tex. 1997), the insured was a corporation of which John McKee was the president and sole shareholder. The court concluded that a business auto policy did not provide coverage for McKee’s daughter. While the UM/ULM endorsement included as an insured any “family member” as a named in-sured, the court concluded that this language is not ambiguous and that a corporation is an entity separate and apart from the sole shareholder and could not have family members.

Ownership of autos is another area ripe for unintended consequences under commercial auto policies, where coverage may be determined by ownership of the auto.

In Houston General Ins. Co. v. Owens, 653 S.W.2d 93 (Tex. App. – Amarillo 1983, writ ref’d, n.r.e.), Ralph Owens formed a trucking company, Ralph Owens Trucking Co. Inc. The corporation engaged in the trucking business, but the trucks were owned individually by Owens. As the individually owned trucks were traded for replacements, the replacements were acquired in the corporation’s name.

Although Owens testified he requested that the agent procure coverage in the names of both the corporation and Owens, individually, the primary policy was issued in the names of both entities but the umbrella policy was issued in the name of Ralph Owens only. The insured prevailed at trial, proving he had requested the coverage and establishing that the agent was acting on behalf of the insurer, but the case then proceeded to appeal.

On appeal, the court reversed, finding that while coverage existed under the umbrella based on a provision stating that any insured in the underlying was also an insured, the insured had failed to prove that the settlement was actually an amount it became legally obligated to pay because of an accident. The entire mess likely would have been avoided had the insured been properly named in the policy.