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COA Issues Equitable Reformation Decision

By Sean E. Andrussier

Today the Court of Appeals (COA) issued a decision on the doctrine of equitable reformation. The case is Carter v. West American Ins. Co.

The basis for the suit was this: plaintiffs' home was destroyed by fire; the written insurance contract set the dwelling coverage amount at $119,500; plaintiff alleged, however, that the insurer, through an insurance agent, had orally agreed or impliedly assumed a duty to cover whatever it cost to replace the house (much higher than the coverage amount). Contending that the insurance policy therefore didn't reflect the true agreement between the parties, plaintiff contended it should be "reformed" on account of the insurance agent's allegedly inequitable conduct.

The COA rejected the reformation argument while clarifying the law on equitable reformation. The test: "to survive summary judgment in an action for equitable reformation of a contract on the basis of inequitable conduct by the promisor, a plaintiff must show a factual basis for four essential elements: (1) the written agreement did not properly express the intent of the parties, (2) the conduct of the promisor caused the improper expression, (3) relevant, competent evidence exists outside the written documents which shows the intention of the parties, and (4) injustice will result if the contract is not rewritten." (Citations omitted)

Applying that test, the COA ruled against the plaintiff. "The dwelling coverage amount was clearly stated on the face of the policy," the COA said, "and there is no evidence that plaintiff was unable to read and understand the policy." The COA also noted that plaintiff was improperly trying to defeat summary judgment by filing an affidavit that contradicted her prior sworn testimony (the affidavit testified about a conversation with the insurance agent that plaintiff never mentioned in her earlier deposition).

The COA also rejected plaintiff's UDTP claim. That claim was based in part on the insurer's delay in paying her claim; the COA observed, however, that the insurer offered the full amount of the dwelling policy limits but plaintiff chose to refuse it and hire an attorney. Plaintiff also tried to manufacture a UDTP claim from the fact that the adjuster told her to pretend she wasn't represented by counsel so that they could continue to confer directly: "Advising plaintiff to pretend that she was not represented by counsel may be inappropriate," the COA said, "but there is no evidence that plaintiff suffered damages as a result, as required in a claim for unfair or deceptive trade practices."

Full post as published by North Carolina Appellate Blog on May 20, 2008 (boomark / email).