Table of Contents 

INSURANCE-RELATED COURT CASES

COURT DECISIONS

Digested from case reports published in Westlaw,
West Publishing Co., St. Paul, MN

Home owner challenges policy cancellation

In March 2000, Rachel Alexander purchased a home in Lafayette, Louisiana, financing her purchase through Cendant Mortgage Corporation. The arrangement with Cendant provided that an escrow account would be maintained and that Cendant would pay Alexander’s homeowners insurance premiums when they became due. Alexander purchased homeowners insurance through Metro Insurance Agency, Inc., and its agent, Clayton Williams. The coverage was issued by Terra Nova Insurance Company, and it was obtained through Terra Nova’s authorized agent, Winchester General Agency, Inc. When Alexander’s homeowners insurance premiums were due, Metro and Williams were to invoice Cendant, the mortgage company. Cendant would then remove the funds from escrow in order to pay the premium to Terra Nova.

This routine continued without incident until the premium for the policy year ending on March 26, 2003, became due. On January 25, 2002, Winchester reminded Metro/Williams that the policy was up for renewal. Metro/Williams then contacted Alexander for her approval of the renewal. On March 11, 2002, Alexander responded in writing that she wished to renew the policy at the stated annual premium of $505.05. On that same day, having received Alexander’s approval, Metro/Williams faxed Winchester requesting that a binder for the renewal of the policy be issued. Immediately on receipt of the request, Winchester faxed the requested binder to Metro/Williams. Winchester then forwarded Metro/Williams the policy, which provided insurance through March 26, 2003.

Unfortunately, Metro/Williams never contacted the mortgage company. Winchester sent Metro/Williams two reminders that the premium was due. When the second notice received no response, Terra Nova sent a notice of cancellation of the policy.

Once it received the cancellation notice, Metro/Williams notified Cendant Mortgage. Five days later, on April 24, 2002, Cendant issued a check to Metro/Williams covering the cost of the premium. Metro/Williams deposited the check in one of its accounts but never forwarded the premium to Terra Nova or Winchester.

On October 3, 2002, a storm struck the Lafayette, Louisiana, area causing damage to Alexander’s home. Thinking she was insured, Alexander filed a claim with Terra Nova for property damage. Because the policy had been canceled for nonpayment of premium, Terra Nova denied the claim. Alexander then sued Terra Nova, Winchester, Metro/Williams and Cendant Mortgage. She claimed that she had always paid her insurance premiums on time and that she depended on Williams and Cendant Mortgage to forward the payments to Terra Nova. She asked the court to declare that she was covered under the policy. The trial court found in her favor, concluding that Metro/Williams was Terra Nova’s agent. This meant that payment to Metro/Williams constituted payment to Terra Nova, and Terra Nova did not have the right to cancel the policy. Terra Nova and Winchester appealed.

On appeal, Terra Nova argued that cancellation was effective because the premium had not yet been paid when the cancellation notice was sent. According to Terra Nova, by cancelling the binder and policy before the premium was actually paid, it canceled the legal relationship between itself and Metro/Williams at the same time. The Court of Appeals of Louisiana disagreed. It found that the non-receipt of the premium was caused by the failure of Terra Nova and its agent, Metro/Williams, to perform the “standard, mechanical and simple procedure” of letting Cendant know that the premium was due. According to the court, Terra Nova could not use its own mistake as grounds for cancellation of the policy. Thus, the policy was wrongly canceled. The decision of the trial court was affirmed, and costs of the appeal were assessed to Terra Nova and Winchester.

Alexander vs. Terra Nova Insurance Company, Ltd.-No. 2006-1348-Court of Appeal of Louisiana, Third Circuit-March 7, 2007-953 Southern Reporter 2d 152.

Cancelled policy triggers coverage dispute

Michelle and Kevin Leville purchased a homeowners policy from Prudential Property and Casualty Company covering their residence in New Canaan, Connecticut. In 1999, the Levilles hired Scott Anderson and Anderson Company, Inc., to add a second story to their home. Anderson presented the Levilles with a certificate of insurance, issued by the William F. Malloy Agency, Inc., and dated November 9, 1999.

The certificate contained the following language relevant to this case: “This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.” Also, “[t]he policies of insurance listed below have been issued to the insured named above for the policy period indicated. Notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies.”

The certificate addressed cancellation with the following language: “[s]hould any of the above described policies be cancelled before the expiration date thereof, the issuing insurer will endeavor to mail [ten] days’ written notice to the certificate holder named to the left, but failure to do so shall impose no obligation or liability of any kind upon the insurer, its agents or representatives.” Kevin Leville was the certificate holder named.

On November 10, 1999, a storm caused extensive water damage to the home because Anderson did not adequately cover the roof. Prudential paid the Levilles $199,385.37 pursuant to the homeowners policy, then brought a subrogation action against Anderson. According to Prudential’s claim, “Anderson induced the [Levilles] to engage in a contract by giving a certificate of insurance regarding [insurance] coverage when [Anderson] knew or should have known that, in fact … coverage may well not have been in effect.”

Anderson claimed that Zurich American Insurance Company had issued it a contract of insurance covering the period from January 1999 through January 2000. However, Zurich claimed it had cancelled the policy on October 19, 1999, because Anderson failed to pay his premiums. Although Kevin Leville was the named certificate holder, neither of the Levilles was notified that Anderson’s policy had been cancelled.

Anderson and Prudential eventually stipulated to $199,385.37 as the judgment amount. Prudential then amended its complaint to assert a claim against Zurich. Prudential claimed that Zurich had in effect induced the Levilles to enter into an agreement with Anderson by allowing its agents to issue a certificate when the policy was not in effect. Zurich argued it properly cancelled the policy. The lower court found in favor of Zurich; Prudential appealed.

On appeal, Prudential argued that Anderson was justified in believing that it was covered by a policy of insurance simply because Zurich issued the certificate on its behalf. According to Prudential, the parties had a lengthy history. That history included several instances of nonpayment of premiums due to dishonored checks as well as correspondence and representations made by the Malloy Agency that created a pattern of maintaining coverage despite partial or late payments. Prudential argued that because Zurich had not cancelled coverage in the past under these circumstances, Anderson could reasonably believe the coverage would not be cancelled in the future under similar circumstances. The Appellate Court of Connecticut disagreed with Prudential. It found that the undisputed facts supported a finding that the policy was properly cancelled when Anderson failed to pay the premium due.

Prudential also argued that the court should not have found in favor of Zurich because Zurich never notified the Levilles that the policy had been cancelled, and because Zurich had no mechanism for informing certificate holders when insurance had been cancelled. Again, the court disagreed. According to the court, Zurich owed no duty to the Levilles or to Prudential to notify them that the policy had been cancelled. Anderson knew that the policy was to be cancelled if the premium due was not paid. Anderson made partial payments, and some of its checks bounced because of insufficient funds. It knew it was not on solid ground. Prudential, standing in the shoes of Anderson, was imputed the same knowledge, and therefore could not claim lack of knowledge.

Furthermore, the language of the certificate clearly disclaimed liability in the event notice was not mailed. According to the court, “Troublesome as it may be that Zurich permits its agents to issue certificates when it knows prior to the certificate’s being issued that coverage was cancelled and lacks an identifiable procedure for notifying certificate holders that coverage has been cancelled, the allegations in the plaintiff’s complaint do not state a cause of action against Zurich.”

The judgment of the lower court in favor of Zurich was affirmed.

Prudential Property and Casualty Insurance Company vs. Anderson-No. 27470-Appellate Court of Connecticut-May 29, 2007-922 Atlantic Reporter 2d 236.

Insured challenges trampoline exclusion

In June of 1998, Jason, Brad and Rhonda Curtis purchased a homeowners insurance policy from National Mutual Insurance Company. The original term of the policy was from June 30, 1998, to June 30, 1999. After that, the Curtises renewed the policy on an annual basis.

The National Mutual policy was 32 pages long, consisting of 18 pages of “main policy” and 14 pages of “Supplemental Extensions.” The “main policy” included exclusions to personal liability coverage. However, there was a supplemental extension exclusion that excluded coverage for medical payments to others “[a]rising out of the ownership, maintenance or use of a trampoline.”

In October 1998, National Mutual issued a new edition of the Supplemental Extensions form. At the anniversary date of the policy in June 1999, the Curtises received a renewal declaration sheet that designated this new edition as applicable to their renewed policy and extended the policy’s term to June 30, 2000. Again, the trampoline exclusion was included at the bottom of this form. However, this new edition of the Supplemental Extensions form was never sent to the Curtises.

On June 6, 2000, Justin Beaulieu suffered a compound fracture of his left leg when he was jumping on the Curtises’ trampoline during a graduation party for Jason Curtis. He filed suit against the Curtises. Later, he added National Mutual as a party to the lawsuit, seeking a declaration that the homeowners policy provided liability coverage for his injuries. National Mutual filed a counterclaim, asserting that coverage was excluded under the policy, and the Curtises answered National Mutual’s complaint, asking the court to declare there was coverage under the policy. The trial court found that National Mutual owed the Curtises a duty to defend; National Mutual appealed.

On appeal, National Mutual asserted that the Curtises’ homeowners policy was clear and unambiguous and that it was the Curtises’ duty to acquaint themselves with the policy. According to National Mutual, if the Curtises did not familiarize themselves with the contents of their insurance policy, they could not complain. The Curtises, on the other hand, argued that the structure of the policy created ambiguity. According to the Curtises, the trampoline exclusion was added into the Supplemental Extensions section of the policy and placed in a section of the policy away from the other liability exclusions. In other words, the location of the trampoline exclusion was not conspicuous and caused an ambiguity in the policy.

The Court of Appeals of Indiana agreed with the Curtises and found that the trampoline exclusion was ambiguous. In reaching its decision, the court noted that, while the insured is always supposed to read the policy, “only a very hardy soul would have plowed through all of the fine print and separate sections in an effort to understand the many terms and conditions listed in the main policy and the convoluted additions thereto.”

The court also noted that the main policy was written in 1991, and that it had not been updated since. Instead, the insurer inserted exclusions into the Supplemental Extensions. The trampoline exclusion was continually noted as a final item in the Supplemental Extensions form. “Although it had years to do so,” noted the court, “National Mutual never bothered to update its main policy, letting the trampoline exclusion languish in the Supplemental Extensions section.” The court concluded that the confusion did not lie in the policy’s language; rather, it was a result of the policy’s structure. The trampoline exclusion was therefore inconspicuous, thus constituting an ambiguity.

The decision of the lower court in favor of coverage for Beaulieu’s injuries was affirmed. As a final note, the court stated: “[I]f an insurance carrier desires to exclude coverage, this should be spelled out for the policyholder in clear and unmistakable language with conspicuous and plain positioning.”

National Mutual Insurance Company vs. Curtis-No. 01A04-0610-CV-617-Court of Appeals of Indiana-June 5, 2007-867 North Eastern Reporter 2d 631.

Insurer ignores change of address notice

Robert and Ann Morrow purchased a fire insurance policy from Red Shield Insurance Company covering their floating home anchored at a marina on Hayden Island in Portland, Oregon. The policy had a term of one year and would lapse in 12 months if not renewed. When the Morrows received their 2000-2001 renewal papers from Red Shield, they wanted to keep the same coverage. However, they wanted to change the name of the insureds from their name to MOCON Corporation. Accordingly, Ann Morrow added a note to the form reading “Please change Insured to MOCON Corporation.” She provided a new address, and checked boxes labeled “Renew with changes” and “Renew as quoted.”

When the Morrows received their 2001-2002 renewal papers, the document was addressed to Robert Morrow and Ann Morrow, DBA MOCON Corporation, at the updated address. Ann Morrow checked the box on the form “Renew as quoted” and returned the form with the premium to Red Shield. Upon receipt, a Red Shield agent removed MOCON as a named insured and issued a policy in the Morrows’ names. The 2001-2002 policy issued to the Morrows provided in relevant part: “We may elect not to renew this policy. We may do so by delivering to you, or mailing to you at your mailing address shown in the Declarations, written notice at least 30 days before the expiration date of this policy. Proof of mailing will be sufficient proof of notice.”

In July 2003, the Morrows received their 2002-2003 renewal notice. That notice listed the Morrows but not MOCON as named insureds. Ann Morrow testified that she returned the renewal with a change of address notification for MOCON Corporation on a separate 8 1/2” x 11” sheet of paper. She also answered a question-naire that had been sent with the renewal notice. One of the questions was whether the Morrows maintained another residence. Ann answered in the affirmative, stating: “We reside in rental property in Vancouver, WA.” Before mailing the renewal form with the address change notification, completed questionnaire and premium payment, Ann Morrow checked the “Renew as quoted” box on the form.

Red Shield did not process the mailing address change in its system, so it sent the 2002-2003 policy to MOCON’s former address. The policy was returned to Red Shield, so the Morrows never received it. The 2003-2004 quote was also sent to the old MOCON address and returned. As a result, the Morrows never received a notice of cancellation or nonrenewal at the correct address, and the policy expired on August 31, 2003. On November 3, 2003, fire destroyed the Morrows’ floating home.

The Morrows sued Red Shield, claiming that Red Shield breached the insurance policy by failing to record the change of address and failing to make an effort to contact the Morrows. The trial court found in favor of Red Shield; the Morrows appealed.

On appeal the Morrows argued that, although the insurance contract did not specify such a requirement, processing a change of address “is necessarily implied or encompassed within the duty of good faith and fair dealing that exists in every contract.” The Court of Appeals of Oregon found that Red Shield complied literally with the terms of the policy because it sent notice to the Morrows’ address as shown on the declarations page of the policy. The court noted that “the law will imply a provision in a contract that is necessary to carry out the purpose for which the contract was made,” but the court did not consider a duty to change an address to be a term that must be implied in order for the purpose of the policy to be fulfilled.

Nevertheless, the court did find that the contract encompassed a good faith duty to process an address change request, assuming that the request “was properly made” and “[did] not contradict the express terms of the policy.” The court agreed with the Morrows that “it is within the parties’ reasonable expectations that, if the insured provides a change of address, the insurer will take action on that request either by making the necessary change to the Declarations page or following up on the request.”

The court concluded that whether Red Shield did nothing with the Morrows’ notice of address change was a question of fact to be decided at the trial court level. Thus the court reversed the decision of the lower court and remanded the case for further proceedings.

Morrow vs. Red Shield Insurance Company-Nos. 041112024; A130859-Court of Appeals of Oregon-May 16, 2007-159 Pacific Reporter 3d 384.

Does untimely notice bar recovery?

Hermitage Insurance Company insured premises owned by 120 Whitehall Realty Associates LLC. Whitehall hired a construction company to perform work at the premises. Juan Godoy, an employee of the construction company, was injured while working at the premises. Although Whitehall management knew of the accident the day it occurred, it took them over two-and-a-half months to notify Hermitage.

Hermitage denied coverage, claiming, among other things, that notice was not timely as required by the policy. Whitehall filed a lawsuit against its insurance agency, the Grober-Imbey Agency, Inc., as well as Hermitage. It claimed that Hermitage was required to defend and indemnify it and that the Grober Agency procured an inadequate insurance policy. The lower court found in favor of Hermitage and Grober. Whitehall appealed.

On appeal the Supreme Court, Appellate Division, Second Depart-ment, New York, found that Whitehall did not provide a valid excuse for its delay in notifying Hermitage of the accident. The court also found that Whitehall’s complaint against Grober was not valid, even if Grober was negligent, because Grober’s alleged negligence was not the cause of Whitehall’s alleged injuries.

According to the court, “Where an insurance policy requires that notice of an occurrence be given promptly, notice must be given within a reasonable time in view of all of the facts and circumstances.” Under the circumstances of this case, Whitehall’s delay of more than two-and-a-half-months was not reasonable. The court affirmed the decision of the lower court and remitted the matter to the lower court for entry of a judgment declaring that Hermitage was not obligated to defend and indemnify Whitehall in the underlying action.

120 Whitehall Realty Associates, LLC vs. Hermitage Insurance Company-Supreme Court, Appellate Division, Second Department, New York-May 8, 2007-835 New York Supplement 2d 715. *

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