## Facts

- Illinois National issued an aircraft fleet liability policy to Jet Aviation, an aviation services company.
- Wyndham, a Jet Aviation client, was listed in the policy as a “Named Insured” and “insured owner,” but did not negotiate the policy terms.
- During the 2007–2008 period, an endorsement provided coverage for “any aircraft owned, operated, or used by or at the direction of any Named Insured.”
- Illinois National alleged that it and Jet Aviation shared an intent not to extend coverage to aircraft unconnected to Jet Aviation’s operations and that the endorsement language was inconsistent with that intent; it also alleged the premium decreased when the language was added, reflecting an intent to limit coverage.
- In 2008, a Wyndham employee rented an aircraft from a third party for work travel without Jet Aviation’s involvement; the aircraft crashed, killing five people.
- Wyndham sought coverage under the policy based on the endorsement’s literal language.
- Illinois National filed a declaratory judgment action and sought equitable reformation of the policy for mutual mistake; Wyndham counterclaimed for coverage.
- The district court dismissed Illinois National’s complaint and granted Wyndham summary judgment, reasoning mutual mistake could not support reformation against a non-bargaining party and that the complaint inadequately pleaded mutual mistake.

## Issues

1. Under New Jersey law, may a contract be reformed for mutual mistake against a party that did not participate in negotiating the contract?
2. Did Illinois National plausibly plead mutual mistake sufficient to survive a Rule 12(b)(6) motion?
3. If reformation was plausibly pleaded, was summary judgment for Wyndham on coverage improper?

## Decision

- The Third Circuit reversed the dismissal and the grant of summary judgment and remanded.
- New Jersey law permits reformation for mutual mistake against a non-negotiating party whose rights derive from the written instrument.
- Illinois National’s allegations plausibly stated a mutual-mistake reformation claim.
- Because a viable reformation claim could alter the coverage analysis, treating the policy text as conclusive and awarding coverage on summary judgment was premature.

## Legal Principles

- Equitable reformation is available when a written instrument fails to reflect the actual agreement of the contracting parties due to mutual mistake.
- Mutual mistake focuses on the shared erroneous belief and intent of the contracting parties at the time of contracting, not on whether the party against whom reformation is sought participated in bargaining.
- A non-negotiating beneficiary or additional insured may be subject to reformation because its rights flow from the underlying contract that may be equitably corrected.
- At the pleading stage, allegations supporting a plausible inference of shared intent and drafting error—supported by objective circumstances such as premium changes—can suffice to state a claim for reformation.

## Conclusion

The Third Circuit held that, under New Jersey law, an insurer may pursue equitable reformation for mutual mistake even against an additional insured that did not negotiate the policy, and it reinstated the insurer’s claim because the complaint plausibly alleged that the policy’s wording failed to reflect the contracting parties’ intended scope of coverage.


Ill. Nat’l Ins. Co. v. Wyndham Worldwide Operations, Inc., 653 F.3d 225 (3d Cir. 2011)