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The U.S. Court of Appeals for the Third Circuit has reinstated a lawsuit against an insurance company asserting that it improperly limited the payments to compensate insureds for the cost of replacement transportation when a covered accident deprived them of the use of a covered vehicle.

The Case

Marie Stechert was involved in an automobile accident Jan. 23, 2015, that resulted in the total loss of her 2014 Chevrolet Equinox. The insurance policy covering the car issued by The Travelers Home and Marine Insurance Co. to Marie and Kyle Stechert provided for Travelers to pay extended transportation expense (ETE) benefits for a maximum of 30 days or such lesser time as Travelers determined was reasonable for the Stecherts to obtain replacement transportation.

Travelers had a practice of limiting ETE coverage to periods of five days, a practice it set forth in rental letters, including the letter that Travelers sent to the Stecherts after the accident. The rental letter informed insureds that ETE coverage lasted for only five days unless renewed by Travelers. The five-day rental practice also was reflected in a “Knowledge Guide” that Travelers used to train its agents in the proper handling of claims; it stated that, “in general, you should instruct the … claimant that it is reasonable to limit rental to five or less days from the day that total loss figures have been communicated.”

Twenty-one days after the loss of the Equinox, the Stecherts said, they felt compelled to lease another car because Travelers’ representatives led them to believe that their ETE coverage was ending and no more “extensions” would be granted. Thus, believing that their coverage would end Feb. 13, the Stecherts signed a lease for a replacement vehicle Feb. 12.

The Stecherts subsequently sued Travelers for breach of the insurance policy and bad faith, alleging that they were forced to acquire a vehicle they were not satisfied with and would not have otherwise leased had they not believed that their rental car coverage was ending. The Stecherts contended that they were injured as a result of Travelers’ actions because the vehicle that they felt compelled to lease was two years older than their Equinox, had almost 50,000 more miles, and cost nearly twice as much per month.

The U.S. District Court for the Eastern District of Pennsylvania granted summary judgment in favor of Travelers, and the Stecherts appealed to the Third Circuit.

The Third Circuit’s Decision

The Third Circuit reversed, finding that the five-day limitation was “in direct conflict with the limitation specified in the Stecherts’ policy,” which provided for 30 days of coverage in the absence of a determination that it was reasonable for them to obtain alternative transportation sooner.

In the circuit court’s opinion, a “reasonable factfinder” could conclude that Travelers breached its contract given the inconsistencies between (1) the Stecherts’ insurance policy with Travelers, (2) Travelers’ internal documents, which appeared to direct agents to limit replacement coverage to five days, and (3) conduct of Travelers’ agents that was consistent with the five-day limitation and contrary to the 30-day ETE coverage set forth in the policy.

The Third Circuit noted that the district court had concluded that the events that transpired throughout the life of the Stecherts’ claim were “miscommunications” between both parties, and ultimately mistakes, rather than a breach of contract. The circuit court conceded that a fact-finder “may agree” with the district court—but the circuit court added that such a conclusion was “inconsistent with this record when viewed in the light most favorable to the Stecherts.”

The circuit court concluded that there was a “clear” discrepancy between Travelers’ internal communications to its agents and the terms of the ETE coverage in the Stecherts’ policy.

The case is Stechert v. Travelers Home and Marine Insurance.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Meyerowitz is the director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He can be contacted at [email protected].