Judge Sides with Insurance Company in Dispute Over Grace Period

A Pennsylvania federal judge ruled on March 9, 2018 that Cincinnati Insurance Company didn’t have to pay out more than $100,000 to its policyholder Wescott Electric Co. regarding a multi-million-dollar theft. U.S. District Judge Gene Pratter pointed out that Wescott should have been aware of the discontinuation of grace periods for claims reporting in their policies.

This insurance dispute came down to the simple matter of understanding policy language.

Wescott argues “reasonable expectation”

Wescott purchased four insurance policies from Cincinnati in 2004, 2007, 2010, and 2013. The 2004 and 2007 policies contained a grace period of one year for discovering and reporting any issues that occurred during the policy. However, in the last two policies, that language was removed.

In 2013, Wescott discovered an employee had stolen nearly $3 million from the company over the span of a decade via fraudulent checks and theft of copper wire. Their report of the discovery was five months too late to be claimed under the 2010 policy, due to the removal of the one-year grace period. Cincinnati refused to pay out, and Wescott took them to court in an attempt to get their losses covered. Their argument was that they were never notified about the change, and had a reasonable expectation that the 2010 policy would contain the same terms as the 2004 and 2007 policies. They claimed the 2010 policy was not explained to them and was simply included in the document, which contained hundreds of pages.

Cincinnati’s counter-argument

Cincinnati counter-argued that they provided notice in 2008 the policy would be changing, and that the change was listed in the first paragraph of the Commercial Crime Coverage section. They also claimed that Wescott never specifically requested the one-year discovery window when they bought the 2010 policy, and that they were indeed notified that Cincinnati changed their policy. Wescott did make a claim under their 2013 policy, however, and received $100,000 under the policy.

As of now, Wescott has no plans to appeal. The case is Wescott Electric Co. v. Cincinnati Insurance Co., case number 2:17-cv-04718, in the U.S. District Court for the Eastern District of Pennsylvania.

To sum up, Cincinnati will only have to pay out the $100,000 and no more, because of policy language. It’s crucial that you are always aware of the terms of your insurance policy, whether you own a home, a commercial property, or multiple properties. Make sure to review your policies carefully, and seek clarification from your agent every time your policy changes.

The Tennessee insurance disputes attorneys at McWherter Scott & Bobbitt can review your policies with a fine-tooth comb and ensure they are working in your favor, and not the insurer’s. If you’re being treated unfairly, Clint Scott, Jonathan Bobbitt and Brandon McWherter can help protect you. Call us today at 731-664-1340, or to fill out our contact form. We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.