In Miller v Safeco Insurance Co., No. 11-1232 (7th Cir. 6/25/12), the Seventh Circuit upheld the trial court’s decision covering the homeowner’s total loss of their property, the exclusions did not apply and Safeco acted in bad faith. Aside from a victory for the policyholders, the opinion red-flags danger for any insurer that fails to issue the physical copy of the policy on the date the policy incepts.

The chronology is typical. On June 30, 2005, Safeco issued the policy to go into effect the next day when the Millers closed on the property. On July 5, 2005, the Millers started renovation and discovered severe inner wall water leaks and significant water infiltration. But the Millers did not see the policy’s terms until Safeco mailed them a copy of the policy at the end of July.

The wake-up call for insurers is that the issuance of the physical policy 30 days after it was issued was the basis to deny the insurer from relying on any policy exclusions for pre-existing loss, mold, or non-accidental loss. “Wisconsin law provides that an insurer cannot rely on a policy’s exclusions when it fails to inform the insured of those terms.” Even more alarming for insurers was, because the insurer was not entitled to rely on exclusions, it had no reasonable basis for denying the claim and was held liable for bad faith. “Safeco cannot now avoid a bad faith finding based on exclusions that were not part of the policy when the Millers discovered the damage.”