In a recent development, four companies that sell vaping devices have taken legal action against Kinsale Insurance Co., alleging that the insurer secretly removed coverage for batteries and failed to adequately inform policyholders before rejecting their claims. This lawsuit could have far-reaching implications, potentially clarifying the responsibilities of both insurers and insureds when policy wording is modified or exclusions are introduced.
Background
Kinsale Insurance, a Richmond, Virginia-based company, specializes in casualty and specialty casualty insurance for industries such as cannabis and transportation. While Kinsale Insurance has not yet responded to the lawsuit, industry experts assert that the practice of altering coverage without fully notifying customers is not uncommon and is seldom challenged. Furthermore, Tennessee law may not provide explicit guidance on the extent to which an insurer must inform policyholders of changes and the level of specificity required in such notifications.
The Lawsuit and Allegations
The lawsuit complaint, recently filed in U.S. District Court in Nashville, highlights that Kinsale Insurance had a fiduciary duty to act in the best interest of its customers, which the plaintiffs argue was breached. They contend that it was reasonable for them to assume the policies provided the requested coverage. The companies involved in the lawsuit—Isabella Industries, Maelynn Industries, Sancia Industries, and Illumivaption Inc.—had maintained umbrella and general liability policies with Kinsale for seven years.
When the companies renewed their policies in October 2022, Kinsale allegedly excluded batteries and claims related to battery fires from the coverage, all while raising premiums. The complaint asserts that Kinsale misled the plaintiffs by giving them the impression that battery coverage was still in effect after the renewal, without notifying them of the changes or seeking their consent.
The plaintiffs further argue that the policy wording was ambiguous and illusory, rendering it unenforceable under Tennessee law. They emphasize their history of timely premium payments and loyalty to Kinsale Insurance throughout the years.
Denial of Claims and Allegations of Bad Faith
Following a fire incident reportedly caused by a vape pen battery, the Schmidts, Michael and Elisha, initiated a lawsuit against the four vape companies. Subsequently, the vape sellers filed claims with Kinsale Insurance, seeking coverage. However, the insurer denied the claims, asserting that the policies did not cover battery-related incidents. Kinsale also refused to provide a legal defense for the insureds.
The vape product sellers argue that Kinsale’s denial of coverage amounted to bad faith and unfair trade practices, resulting in significant damages and attorney fees for the companies involved. As a remedy, they are seeking compensatory damages, punitive damages, legal fees, and a declaration that Kinsale Insurance must provide coverage and a defense.
Variation in Insurers‘ Notification Requirements
The rules and regulations governing insurers‘ notification requirements vary across jurisdictions. While most states mandate insurers to provide a notice period of 30 to 60 days when reducing coverage in business insurance policies, the same requirement may not apply to liability policies. Virginia Bates, an insurance educator and advisor from VMB Associates in Melrose, Massachusetts, points out that carriers often do not adhere to these rules, frequently going unchallenged.
If the apparent lack of notification is challenged, insurance agents may also face liability. In cases where the insurer is a surplus lines or non-admitted carrier in the state, like Kinsale Insurance, state regulations may not be applicable, potentially placing the agent at greater risk of legal action.
The Tennessee Department of Commerce and Insurance was unavailable for comment regarding the state’s specific regulations on notifications. Several statutes partially address this matter. One section mentions that an insurer can modify the conditions of a policy for portable electronics insurance, provided a 30-day notice is given. However, the insurer may not be required to provide more than the revised policy and a summary of the material changes.
In essence, carriers must notify the insured about changes but are not obligated to highlight specific wording revisions.
Another Tennessee statute mandates a 30-day notice for any increase in premiums, while an additional section seems to necessitate a 60-day notice for commercial policies if premiums rise by more than 25%.
Insurance agents have indicated that, in most cases, insurers comply with state regulations on notifications. However, it remains the responsibility of the insured to carefully read the policy and understand its terms and conditions.
Conclusion
The lawsuit filed by four vape companies against Kinsale Insurance sheds light on the issue of insurers modifying coverage without adequately informing policyholders. The case has the potential to provide valuable insights into the responsibilities of insurers and insureds when policy wording changes or exclusions are introduced. The outcome could impact the insurance industry as a whole, clarifying the level of transparency required from insurers and the rights of policyholders.
FAQs (Frequently Asked Questions)
1. What is the significance of the lawsuit filed against Kinsale Insurance? The lawsuit highlights the concerns surrounding insurers‘ modifications to coverage without fully informing policyholders. It seeks to clarify the responsibilities of insurers and insureds in such situations.
2. Which companies have initiated the lawsuit against Kinsale Insurance? The lawsuit was filed by Isabella Industries, Maelynn Industries, Sancia Industries, and Illumivaption Inc., all of which sell vaping devices.
3. What are the allegations made by the vape companies against Kinsale Insurance? The companies argue that Kinsale Insurance secretly removed coverage for batteries and failed to inform them of the changes, resulting in the denial of their claims. They also claim that the policy wording was ambiguous and unenforceable under Tennessee law.
4. What damages are the vape companies seeking in the lawsuit? The vape companies are seeking compensatory damages, punitive damages, legal fees, and a declaration that Kinsale Insurance must provide coverage and a defense.
5. How do insurance regulations vary across different jurisdictions? Insurance regulations differ by jurisdiction. While most states require a notice period of 30 to 60 days when reducing coverage in business insurance policies, the rules may not be as clear for liability policies. It is essential for insured individuals to carefully review their policies and understand their terms and conditions.
Discussion
Leave a reply