1.5 Reformation and Renewal

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

1.5 REFORMATION AND RENEWAL

1.501 Reformation. Reformation is an equitable remedy that allows the rewriting of a written insurance contract to reflect the actual agreement where the original version of the insurance contract does not accurately express the agreement between the parties. Reformation is allowed under two circumstances: (i) mutual mistake or (ii) unilateral mistake accompanied

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by fraud or inequitable conduct of the other party. ¹²³ The moving party must present evidence that leaves no reasonable doubt upon the mind of the court not only as to the mistake but also the correction. ¹²⁴

In Hitt v. Cox, ¹²⁵ the agent believed that there was duplicative coverage on a county jail and, therefore, he obtained the retroactive cancellation of liability coverage for the jail. A fire destroyed the jail, and it was determined that there was no duplicative coverage for the jail; therefore, the court voided the retroactive cancellation on the theory of mutual mistake. ¹²⁶

Often, a mistake is not found in an insurance contract until well after it is entered into and after a loss has occurred. The insured seeks compensation from the insurer for the loss and finds out that a mistake has occurred which results in a denial of coverage. The insurer may argue that the insured's failure to find the mistake within a reasonable time after the policy's acceptance bars the insured from seeking reformation. In Dickenson County Bank v. Royal Exchange Assurance, ¹²⁷ the court held that an insured's failure to timely read and examine the policy usually will not preclude reformation; however, the court indicated that sometimes such conduct may be considered negligent and may defeat reformation. It is important to remember that one party's mistake and failure to read the policy, unaccompanied by fraud or mistake by the other...