14.14 Reformation Based on Error

JurisdictionArizona

14.14 Reformation Based on Error. Reformation is an equitable remedy in which a court “reforms” a written agreement to reflect the actual intent and agreement of the parties.174 Reformation’s purpose is to express in writing the agreement that the parties reached and intended, but failed, to express in the document.175 Reformation is not available when the parties have never entered into an express agreement.176 Nor is it available to create an agreement that never existed.177 The party seeking reformation must provide clear and convincing proof of a pre-existing agreement.178

Reformation is available only if mistake, fraud or inequitable conduct infected the underlying negotiations, causing the written document to deviate from the parties’ true intent.179 A court may grant reformation of a contract when the complaining party can show that: (1) the instrument failed, through a mutual mistake of fact, to conform to what the parties intended and agreed; or (2) the complaining party was mistaken as to the factual content of the agreement and the other party, knowing of this mistake, kept silent; or (3) the complaining party was mistaken as to the factual content of the agreement because of the affirmative, fraudulent behavior of the other party.180 Reformation requires clear and convincing evidence of either a mutual mistake of fact, or a unilateral mistake.181

Because insurance policies are contracts, they also can be reformed. 182 As with other contracts, the parties must have had some agreement about the intended terms that pre-dates the written agreement (insurance policy).183 A court will not reform an insurance policy to create coverage that did not previously exist or that the insured did not intend to purchase.184 But where the pleadings and evidence would support reformation of the policy, “the court may give effect to the true contract and enforce the policy as if it were reformed, without making a formal decree.”185

Reformation of insurance policies usually occurs as the result of a mutual mistake of fact between the insured and the insurer. 186 For example, the insured and the insurer may have agreed that certain coverage for a specific individual or entity was in place, but the written policy does not afford this coverage.187 This mutuality of mistake can also arise due to an error by the insurance producer, which will be imputed to the insurer when the producer is the express agent of the insurer and has binding authority on its behalf.188 Ministerial...

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