A promised insurance contract renewal should have terms that are the same, or nearly the same, as the original contract, says a federal appeals court in reinstating a breach of contract claim filed against an XL Group P.L.C. unit.

Hatfield, Pennsylvania-based F&M Equipment Ltd. paid $520,498 for a 10-year policy issued by Stamford, Connecticut-based XL unit Indian Harbor Insurance Co. in December 2001, that included a promise by Indian Harbor to offer a renewal, according to Thursday's ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in Indian Harbor Insurance Co. v. F&M Equipment Ltd., f/k/a Furnival Machinery Co.

Terms and conditions of the policy included $10 million in liability protection, insurance coverage for 12 specific company locations and a 10-year period of coverage from the purchase date, according to the ruling.

In June 2006, the parties modified the contract to include an endorsement that increased the policy's limit to $14 million from $10 million for an additional $55,798 in premium.

In January 2012, near the end of the initial coverage period, Indian Harbor sent a renewal offer that provided for $5 million of coverage over a one-year term, and omitted coverage for the only previously insured site for which the company had made a claim. The company rejected the offer and asked that Indian Harbor renew under the same terms and conditions as the original policy, but the insurer refused.

In March 2012, Indian Harbor filed a complaint against the company seeking a declaratory judgment that, among other things, it had no obligation to renew the policy under the same terms and conditions as the expiring policy. Furnival filed a counterclaim for breach of contract and moved for summary judgment.

The U.S. District Court in Philadelphia denied the company's motion, stating that because Indian Harbor undisputedly gave notice of its intent to change the policy, it had satisfied its obligation to renew.

A three-judge panel of the 3rd Circuit unanimously overturned the ruling. A “reasonable change in price should not alone render a new contract a nonrenewal,” said the ruling.

“But the remaining terms must be recognizable extensions of the initial policy, and they are not. The length of coverage is different, the amount of coverage is different, and the scope of coverage is different.

“The general subject matter is the same, and the parties are the same, but this is not enough. Because Indian Harbor did not offer a contract that is either the same or nearly the same as the policy, it breached its promise to offer a renewal extension of coverage,” said the ruling, in remanding the case for further proceedings.