Title: Equity Fire & Cas. Co. v. Traver

State: arkansas

Issuer: Arkansas Supreme Court

Document:

EQUITY FIRE & CASUALTY COMPANY 
v. Laurence TRAVER

96-1220                                            ___ S.W.2d ___

                    Supreme Court of Arkansas
                Opinion delivered October 9, 1997


1.   Contracts -- offer & acceptance -- mailbox rule. --  Under the mailbox
     rule, once an offer has been made, a contract is completed
     when the acceptance is mailed if the acceptance is made in a
     reasonable amount of time; if a letter of withdrawal is mailed
     before the mailing of the acceptance, it is effective only if
     the party to whom the offer was made receives the withdrawal
     before making the acceptance.

2.   Contracts -- offer & acceptance -- timely placing of renewal premium in
     mail constituted acceptance of renewal offer. -- Where appellant
     insurer's written language requiring receipt of payment for
     acceptance to be effective was in the policy and not on the
     actual renewal notice; where appellant insurer used the postal
     service as a carrier for its offer and expected to receive the
     acceptance via the mail; where there was no fraud or
     negligence on the part of appellee insured, who mailed the
     premium payment in a timely manner so that, absent negligence
     or mistake by the postal service, it had ample time to reach
     appellant before the termination date; and where, upon receipt
     of appelleeþs check, appellant did not refuse the payment, yet
     accepted it as an application for a new policy, the supreme
     court held that appelleeþs placing the renewal premium in the
     mail in a timely manner constituted acceptance of appellantþs
     renewal offer.


     Appeal from Garland Circuit Court; Walter Wright, Judge;
affirmed.
     Horne, Hollingsworth & Parker, by: Cyril Hollingsworth, for
appellant.
     Hobbs, Garnett, Naramore & Strause, P.A., by: Ronald G.
Naramore, for appellee.

     W.H. "Dub" Arnold, Chief Justice.
     This case was certified to this Court from the court of appeals pursuant to Rule 1-
2(17)(d)(2) as a case of significant public interest involving a legal issue of major importance.
This case involves the renewal of an insurance contract; specifically, we must address the issue
of what constitutes an acceptance of a renewal notice for an insurance contract.  Appellee, Traver,
urges this court to adopt the postal-acceptance rule by holding that an insured accepts a renewal
offer by placing a renewal premium payment in the mail.  Appellant, Equity, contends that the
plain language of the policy requires actual receipt of the payment, so the mailbox rule is not
applicable.
     Traver was involved in an automobile accident on March 19, 1994.  The other party
involved in the accident filed a claim with his insurance carrier; after payment of that claim, the
insurance carrier filed a subrogation action against Traver.  Traver then filed a third-party action
against his insurance carrier Equity pursuant to a non-standard automobile policy contract.  
     Equity denied coverage of the accident claiming that Traverþs policy was not in effect on
the date of the accident.  Specifically, Equity contended that the original policy had lapsed on
March 14, 1994.
     Traver received a renewal notice from Equity giving the due date of the renewal as March
9, 1994.  The expiration date of the policy was March 14, 1994.  Traver included a check and
a handwritten note stating he had lost the renewal form in an envelope addressed to his local Hot
Springs insurance agent, Roberson and Associates.  He gave the envelope to his mother who
mailed it from a mail drop-off in the Hot Springs mall to the Hot Springs agent on March 11,
1994.  The envelope was postmarked March 12, 1994; it was postmarked a second time with
March 21, 1994. 
     The local agent did not receive the envelope until March 22, 1994; the agent forwarded
the payment to Equity which received it on March 25, 1994.  Equity accepted the check and
reinstated the policy effective March 22, 1994.  This gave a seven day period between March 14,
the expiration date of the policy, and March 22, the new policy effective date, when Traver was
not insured.
     The Equity document entitled þYOUR PLAIN LANGUAGE CAR POLICYþ was entered
into evidence.  Its þRenewal Provisionsþ section is as follows:
     We wonþt refuse to renew this policy solely because of your age, sex, marital
     status, residence, race, color, creed, national origin, ancestry or occupation. 
     Subject to our consent you may renew this policy.  When we consent to renew this
     policy, you must pay the renewal premium in advance.  We will mail you a notice
     telling you when your premium must be paid.  Your policy will expire if we donþt
     receive the required payment by the renewal date.

     
     The original policy listed the term from September 14, 1993, until March 14, 1994.  An
Equity employee, Tammy Warrier, testified that it was Equityþs policy to extend renewal offers
every six months.  The renewal offer issued to Traver listed a due date of March 9, 1994. 
According to Ms. Warrier, the March 9, 1994, due date was an arbitrary date selected by the
company to give the customer enough time to mail the payment before the expiration date.  She
indicated that company policy provides that þto renew a policy, the proper down payment must
be postmarked by the U.S. Postal Service on or before the due date.þ  Ms. Warrier explained that
company policy was such that if the payment was postmarked before the arbitrary March 9, 1994,
due date, but received late, even later than the March 14, 1994, expiration date, the company
would have used the postmarked date and renewed the policy effective March 14, 1994. 
Conversely, if the postmark was before the expiration date, but after the due date, no such
leniency would be given to a customer.
     The trial court ruled that Traverþs timely deposit in the United States mail of his renewal
premium before the due date March 14, 1994, was an effective renewal and that the policy was
in effect continuously, with no lapse.  The trial court noted that there was no legal authority for
this ruling, yet determined that the public policy of the State of Arkansas weighs heavily against
forfeiture, so a timely deposit of a renewal premium in the U.S. mail, in the absence of fraud or
deceit, constitutes an effective acceptance of the policy.
     There is no Arkansas case directly addressing this issue.  In Kempner v. Cohn, 47 Ark.
519, 1 S.W. 869 (1886), we recognized the mailbox rule for the acceptance of a contract.  Once
an offer has been made, a contract is completed when the acceptance is mailed if the acceptance
is made in a reasonable amount of time.  If a letter of withdrawal is mailed, before the mailing
of the acceptance, it is effective only if the party to whom the offer was made receives the
withdrawal before making the acceptance.  Id. 
     Despite the fact that this case was decided in the 1800s, there are few cases following it
which expound upon this theory.  The Kempner decision has been followed as a routine matter
of contract theory, with the proviso that parties are free to dictate the terms of offers and
acceptances as they deem necessary. 
      In Michelsen v. Patterson, 9 Ark. App. 275 (1983), the court of appeals addressed a
situation where a tenant mailed his rent on December 31, 1981, and it was received by the owner
on January 2, 1982.  The rent was due on January 1, 1982, and this day was a legal holiday.  The
owner refused the payment, and the tenant sought a court order deeming the payment timely
under the mailbox acceptance rule.  The court of appeals determined that the express language
of a contract making time of the essence can eliminate the application of the mailbox acceptance
rule.  While there was no express language in the contract between the two parties,  the tenant
had received two letters during the year in which the owner indicated that no late payments for
rent would be accepted and notified the tenant that strict adherence to all terms of the agreement
was expected.  The court of appeals found that these two correspondences were enough to put
the tenant on notice that time was of the essence and a delay in receiving the payment was a
breach of the contract.  The court of appeals affirmed the finding that the payment was not
timely; however, this decision was limited to the particular facts of the case.  
     In the case before us, the policy language requires actual receipt of a premium payment
prior to the expiration date of the policy to constitute acceptance of a renewal offer.  The actual
renewal notice gave the due date as a date five days before the expiration date.  It does not
contain the language requiring actual receipt of the premium payment; it instructs the insured to
pay the amount listed as due in order to renew the policy.  
     In Farmers Insurance Company of Arkansas v. J. W. Hall, 263 Ark. 734,