OneBeacon America Insurance Company v. Travelers Indemnity Company of Illinois

United States Court of Appeals for the First Circuit · 2006 · Contracts

465 F.3d 38 (2006)

Updated July 26, 2026

Contractsmutual mistakereformationinsurance contractextrinsic evidencesummary judgmentMassachusetts lawequitable relief

Facts

OneBeacon issued a motor vehicle liability policy to LAI, a vehicle leasing company, and the policy language could be read to cover permissive users of covered autos, including lessees. LAI's standard lease required long-term lessees to obtain liability insurance at their own expense, either independently or, at LAI's discretion, by applying for and paying for coverage under the OneBeacon program. Capform leased a truck from LAI, chose to insure it through Travelers rather than apply for OneBeacon coverage, and a Capform employee later caused a serious accident. After Travelers settled the resulting suit for $5,000,000, it demanded OneBeacon's $1,000,000 policy limit, and OneBeacon sought reformation on the ground that neither it nor LAI intended the policy to cover lessees who had not applied for and been approved for coverage.

Issue

Whether OneBeacon was entitled to reformation of the policy on the ground of mutual mistake where the policy language could be read to cover LAI's lessee, but the undisputed extrinsic evidence showed that both contracting parties intended coverage only for lessees who specifically applied for and obtained it. A related question was whether any equitable or public policy concern barred reformation.

Rule

Under Massachusetts law, a written contract may be reformed when, because of a mutual mistake of both parties as to the contents or effect of the writing, the writing fails to express the agreement the parties actually intended. In a reformation action, extrinsic evidence is admissible even if the contract language is unambiguous, but the party seeking reformation must establish by full, clear, and decisive proof that the writing misstates the parties' original agreement rather than merely reflecting a mistaken factual assumption. Because reformation is equitable, relief may be withheld if third-party rights or other traditional equitable concerns would be unfairly affected.

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In Dallas, Pine Mesa Equipment Leasing signed a liability policy with Harbor Vale Assurance. The policy's boilerplate defines an insured to include anyone using a covered vehicle with Pine Mesa's permission, but Pine Mesa's standard leases require long-term lessees either to buy their own insurance or separately apply, qualify, and pay for coverage through Harbor Vale's leasing program. A lessee never applied for Harbor Vale coverage, bought insurance from another carrier, and later caused an accident.

If Harbor Vale seeks reformation under Massachusetts law, which fact most strongly supports relief?

Explanation. Reformation is available when a writing fails to express the parties' actual agreement because of a mutual mistake as to the writing's contents or effect. The key is full, clear, and decisive proof that both contracting parties intended a narrower scope of coverage than the writing states. Unambiguous policy language does not bar reformation, and a scrivener's error is not required. Separate insurance alone does not automatically rewrite the policy; it matters because it supports the parties' intended arrangement. (Derived from OneBeacon America Insurance Company v. Travelers Indemnity Company of Illinois (2006).)