The United States Court of Appeals for the Third Circuit, applying Pennsylvania law, has held that, in order “for a contract to be considered a renewal, it must contain the same, or nearly the same, terms as the original contract.” Indian Harbor Ins. Co. v. F&M Equip., Ltd., 2015 WL 5973384 (3d. Cir. Oct. 15, 2015).
The insurer issued a Pollution and Remediation Legal Liability Policy to the insured, which provided $10 million in specified pollution liability coverage over a 10-year coverage period for 12 specific sites. The policy included an endorsement providing that the insurer “shall not cancel nor non-renew” the policy except in five circumstances not at issue here. The policy was amended during the coverage period to increase the limit of liability to $14 million for an additional premium.
At the end of the 10-year policy term, the insurer requested a renewal application from the insured, and the insured then requested that the insurer provide it with proposed premiums and terms. The insurer proposed a policy with a one-year policy period, limit of $5 million, and which omitted coverage for one of the 12 sites covered under the prior policy. The insured objected to the proposed terms and litigation ensued. The district court ruled in favor of the insurer, holding that the insurer satisfied its obligation to renew the policy by offering a new policy and giving notice of its intent to change certain policy terms and conditions.
On appeal, the Third Circuit vacated the district court’s ruling and ordered that summary judgment be entered in favor of the insured. In so holding, the court first acknowledged that a “renewal contract need not contain identical terms to the original.” The court then addressed the pivotal issue of how similar the new contract must be and whether the insurer here satisfied that standard.
The court noted that, “[r]egardless of the particular degree of similarity required, [the insurer’s] position cannot be what the parties intended. There is no difference between what [the insurer] proposes and what it had every right to do without a prior promise to renew. If any new offer counts as a renewal, the promise of a renewal is illusory.” The court continued, stating that “a renewal need not be identical to the original. But to hold that it can be any modification at all would not give effect to the parties’ intentions.” Relying on McCuen v. American Casualty Co. of Reading, Pa., 946 F.2d 1401 (8th Cir. 1991), the court held that “renewal requires continuation of coverage on the same, or nearly the same, terms as the policy being renewed.”
Applying this standard, the court found that the insurer here “did not offer a contract that is either the same or nearly the same as the Policy, [and therefore] it breached its promise to offer a renewal extension of coverage.” Specifically, the court held that, while a “reasonable change in price should not alone render a new contract a nonrenewal,” where “[t]he length of coverage is different, the amount of coverage is different, and the scope of coverage is different,” the new contract is not a renewal.