Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02420/USCOURTS-azd-2_07-cv-02420-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Declaratory Judgment

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Landmark American Insurance Company;

RSUI Indemnity Company, 

Plaintiffs, 

vs.

Turner Construction Company, 

Defendant. 

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No. 07-02420-PHX-ROS

ORDER

Pending before the Court are Defendant’s and Plaintiffs’ Cross-Motions for Summary

Judgment (Docs. 21, 23). For the foregoing reasons, Plaintiffs’ Motion shall be granted and

Defendant’s Motion is denied.

BACKGROUND

Landmark American Insurance Company and RSUI Indemnity Company (“Plaintiffs”)

each issued insurance policies for commercial liability coverage (“Policies”) to Arizona

Valley Underground, LLC (“AVU”), (Def.’s SOF, Doc. 22 at ¶ 1), pertaining to its work as

a subcontractor for Turner Construction Company (“Defendant”) on the North Mountain

Visitor Center project,(Def.’s Answer, Doc. 11 at ¶ 14). Defendant was listed on a Certificate

of Liability Insurance (“Certificate”) that Minard-Ames Insurance Group, AVU’s insurance

agent, issued in connection with the Policies (Def.’s SOF, Doc. 22 at Ex. 1). Concurrently,

Case 2:07-cv-02420-ROS Document 50 Filed 03/17/09 Page 1 of 8
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AVU entered into a premium finance agreement with Standard Financing (“Standard”) to

finance the cost of the related premiums (Id. at ¶ 4). This agreement included a provision

authorizing Standard to cancel the Policies on AVU’s behalf should AVU fail to make its

required payments to Standard (Id.). 

Subsequently, Standard exercised its authority to cancel for nonpayment by issuing

an “Insured’s Notice of Cancellation” for both Policies and the cancellation of both Policies

became effective on October 16, 2005 (Pl.’s SOF, Doc. 24 at ¶¶ 9-10). Defendant was not

notified the Policies were cancelled until after submitting a claim (“Claim”) to Plaintiffs

nearly six months after the effective cancellation date of the Policies (Def.’s SOF, Doc. 22

at ¶¶ 5-6). Plaintiffs denied the Claim submitted by Defendant (Id. at ¶ 7).

AVU then filed for Chapter 7 Bankruptcy protection and Plaintiffs sought declaratory

relief in Bankruptcy Court against AVU, Standard, and Defendant (Compl. at ¶¶ 8-9).

Default judgments were entered against AVU and Standard (Id. at ¶ 10). However, the

Bankruptcy Court dismissed the claim against Defendant without prejudice for lack of

subject matter jurisdiction (Id. at ¶¶ 12-13). Plaintiffs now seek a judgment against

Defendant in District Court declaring (1) Plaintiffs took no affirmative action to cancel the

Policies; (2) the Policies were cancelled by Standard; (3) the Policies were cancelled

effective October 16, 2005; (4) Plaintiffs had no duty to notify Defendant that the Policies

had been cancelled; and (5) the Policies do not provide coverage for the Claim (Id. at 13).

DISCUSSION

I. Summary Judgment Standard

A court must grant summary judgment if the pleadings and supporting documents,

viewed in the light most favorable to the non-moving party, “show that there is no genuine

issue as to any material fact and that the moving party is entitled to a judgment as a matter

of law.” Fed. R. Civ. P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

Substantive law determines which facts are material, and “[o]nly disputes over facts that

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Whether other parties, such as AVU, had a duty to notify Defendant of the

cancellation of the Policies is not an issue before the Court.

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might affect the outcome of the suit under the governing law will properly preclude the entry

of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The party opposing summary judgment may not rest upon the mere allegations or

denials of [the party’s] pleadings, but . . . must set forth specific facts showing that there is

a genuine issue for trial.” Fed. R. Civ. P. 56(e). See Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 586-87 (1986). There is no issue for trial unless there is sufficient

evidence favoring the non-moving party; “[i]f the evidence is merely colorable, or is not

significantly probative, summary judgment may be granted.” Anderson, 477 U.S. at 249-50

(citations omitted). However, such evidence offered by “the non-movant is to be believed,

and all justifiable inferences are to be drawn in his favor” at the summary judgment stage.

Id. at 255.

II. Duty to Notify Parties of Policy Cancellation

Defendant claims insurance providers (“insurers”) have a duty to inform parties

named on a commercial insurance policy (“insureds”) when a premium finance company

cancels such a policy (Def.’s Mot. Summ. J., Doc. 21 at 6). Defendant claims that such duty

is imposed either by statute, on public policy grounds, or under equitable estoppel principles.

However, under Arizona law, no such duty exists on any of these bases.1

A. No Statutory Duty Requiring Plaintiffs to Notify Defendant

Whether an insurer has a duty to notify parties of a policy cancellation depends on

who cancels the policy and whether there is a statutory, regulatory or contractual obligation

to provide notice of the cancellation. See, generally, A.R.S. § 20-1674 (stating notification

requirements when an insurer cancels a policy); A.R.S. § 6-1415 (stating notification

requirements when a premium finance company cancels a policy). It is clear that when an

insurer initiates the cancellation of a policy for nonpayment of a premium, the insurer must

mail a written notice of cancellation to the insured at least ten days before the cancellation

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goes into effect. A.R.S. § 20-1674(A). E.g., Valley Nat’l Bank of Ariz. v. Ins. Co. of N. Am.,

836 P.2d 425, 427 (Ariz. Ct. App. 1992) (imposing a duty on insurer to notify affected party

of cancellation when the insurer cancelled the policy). However, the statutory requirements

change when a premium finance company cancels an insurance policy on behalf of the

insured. A.R.S. § 6-1415.

1. No Duty to Notify Imposed on Plaintiffs by A.R.S. § 6-1415(A)-(C)

When a premium finance company validly cancels an insurance policy, only the

premium finance company, not the insurer, has a duty to notify the insured. A.R.S. § 6-

1415(C) (under these circumstances, the policy “shall be cancelled as if the notice of

cancellation had been submitted by the insured himself”). See also, Bryce v. St. Paul Fire and

Marine Insur. Co., 783 P.2d 246, 308 (Ariz. Ct. App. 1989) (holding that because a premium

finance company cancelled a policy on behalf of the insured, the insurer had no duty to notify

the insured of such cancellation). A premium finance company is an entity “engaged in

whole or in part in the business of financing insurance premiums, [and] entering into

premium finance agreements with insureds.” A.R.S. § 6-1401(6). 

A premium finance company may obtain “a power of attorney [from the insured]

enabling [it] to cancel the insurance [policy]” for nonpayment of a premium, provided it

follows the statutory cancellation procedures. Id. at § 6-1415(A). Under these circumstances,

the premium finance company - not the insurer - is required to send notice to the insured of

its intent to cancel the policy. Id. at § 6-1415(B). 

Following the notice of intent to cancel, if the reason for cancellation is not cured

within ten days, the premium finance company may cancel the policy by sending a notice

of cancellation to the insurer. Id. at § 6-1415(C). The insurer then has no obligation to notify

the insured of such cancellation because under these circumstances the cancellation is treated

“as if [it had] been submitted by the insured himself.” Id.

Arizona precedent is sparse but not devoid of authority regarding notice requirements

imposed on premium finance companies. Bryce, 783 P.2d at 247. In Bryce, the court

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The parties cite to several cases outside Arizona but, with the exception of Gorham

Co. v. First Fin. Ins. Co., 44 Cal. Rptr. 3d 197 (Cal. Ct. App. 2006), they are distinguishable

from the case here. E.g., Gallatin Fuels, Inc. v. Westchester Fire Ins. Co., Nos. 06-3133, 06-

3141, 2007 WL 2274437, at *5 (3d Cir. 2007) (no duty imposed on insurer to notify because

the insured’s agent cancelled the policy on behalf of insured); Kotlar v. Hartford Fire Ins.

Co., 100 Cal. Rptr. 2d 246, 250 (Cal. Ct. App. 2001) (duty imposed on insurer to notify

insured because insurer initiated cancellation); Olivine Corp. v. United Capital Ins. Co.,52

P.3d 494, 498-99 (Wash. 2002) (duty imposed on insurer to notify insured only because

premium finance company was not authorized to cancel policy on insured’s behalf).

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An “insured” is defined as “any person covered under an insurance contract or other

evidence of insurance coverage subject to regulation under title 20.” A.R.S. § 6-1401(2). A

“person” is defined as “an individual, company, insurer, association, organization, society,

reciprocal or inter-insurance exchange, partnership, syndicate, business trust, corporation and

entity.” Id. at § 20-105. The statutes imposing notice requirements on premium finance

companies only refer to “insureds” and do not mention “named insureds” or “additional

insureds.” Id. at § 6-1415(C).

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evaluated this question under A.R.S. § 20-2007, an earlier version of the statute substantively

identical to, and replaced by, A.R.S. § 6-1415, holding that an insurer had no duty to notify

the insured after the premium finance company validly cancelled the policy. 783 P.2d at 247.

In that case, after the premium finance company notified the insured of the cancellation, the

insured submitted a claim to the insurer regarding damages caused by a fire in his home. Id.

at 246. When the claim was denied by the insurer, the insured sued claiming the insurer had

a duty to notify the insured of the cancellation to render it effective. Id. at 247. The court

disagreed, stating unequivocally that the insurer’s failure to notify the insured of the

cancellation did not invalidate the cancellation properly initiated by the premium finance

company. Id. See also, Gorham Co. v. First Fin. Ins. Co., 44 Cal. Rptr. 3d 197, 204-05 (Cal.

Ct. App. 2006) (holding, under statutes substantively identical to Arizona statutes, insurers

do not have a duty to notify insureds of cancellations initiated by premium finance

companies).2

Defendant contends that its status as a “named insured” imposes a duty on Plaintiffs

to have notified him of the cancellation. Defendant misstates the applicable law; whether

Defendant was an “insured,”3

 a “named insured,” or an “additional insured” under the Polices

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See Olivine, 52 P.3d at 499 (stating that the insured cannot be both an “insured” and

a “third party” under the same policy).

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is irrelevant because no duty exists to notify any insured when a premium finance company,

authorized to cancel the policy on the insured’s behalf, initiates cancellation. A.R.S. § 6-

1415(C). Because Standard cancelled the Policies, not Plaintiffs, Plaintiffs owed no duty to

notify Defendant.

2. No Duty to Notify Imposed on Plaintiffs by A.R.S. § 6-1415(D)

An insurer also has a duty “[i]f statutory, regulatory and contractual restrictions

provide that the insurance [policy] may not be cancelled unless notice is given to a

governmental agency, mortgagee or other third party.” Id. at § 6-1415(D). Defendant argues

that it is a “third party” under A.R.S. § 6-1415(D) and that Plaintiffs had a contractual

obligation to notify Defendant because language from the Certificate states:

Should any of the above described policies be cancelled before

the expiration date thereof, the issuing insurer will endeavor to

mail 30* days written notice to [Defendant], but failure to do so

shall impose no obligation or liability of any kind upon the

insurer, its agents or representatives.

(Def.’s SOF, Doc. 22 at Ex. 1). This argument is unpersuasive. Even if Defendant could be

considered a “third party” under the statute,4

 this contractual language is insufficient to

override the statutory provisions that do not impose a duty on Plaintiffs. A.R.S. § 6-1415(D).

Notably, Plaintiffs did not issue the Certificate; AVU’s insurance agent, Minard-Ames

Insurance Group, did. (Def.’s SOF, Doc. 22 at Ex. 1). Even if Plaintiffs did issue the

Certificate, however, the non-binding language creates no enforceable obligation on

Plaintiffs to notify Defendant; instead it merely states Plaintiffs would “endeavor” to notify

Defendant of a cancellation. Id. This statement is immediately followed by an express caveat

that “failure to [notify] shall impose no obligation or liability of any kind upon the insurer,

its agents, or representatives.” Id. The Certificate’s clear language against an enforceable

obligation to notify does not create a duty to notify Defendant under A.R.S. § 6-1415(D).

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B. Public Policy Does Not Support Imposing a Duty on Plaintiffs

Defendant next argues it would be against public policy to not enforce the language

in the Certificate, wherein the Plaintiffs stated they would “endeavor” to notify Defendant

of a cancellation of the policy. The Court is unpersuaded by this argument. 

Public policy arguments concerning language in insurance policies may be persuasive

if the language is ambiguous. State Farm Mut. Auto. Ins. Co. v. Wilson, 782 P.2d 727, 728

(Ariz. 1989) (after finding insurance policy language ambiguous, court evaluated the

language in light of legislative history of the relevant statute and public policy reflected in

the statute). When language is determined to be ambiguous, the court will look “at public

policy as evidenced by legislative enactments and relevant case law.” Id. at 729. 

The language in the Certificate is not ambiguous, but even it if is, relevant statutory

and case law do not reflect a policy where an insurer is required to notify the insured after

a premium finance company validly cancels the policy. E.g., A.R.S. § 6-1415(C); Bryce, 783

P.2d at 247. Indeed, the express language of the statute specifically exempts an insurer from

notifying the insured unless a “statutory, regulatory and contractual restrictions provide that

the insurance contract may not be cancelled unless notice is given to a government agency,

mortgagee or third party.” A.R.S. § 6-1415(D). As previously stated, Plaintiffs owed no duty

to notify Defendant under A.R.S. § 6-1415(D) and Defendant fails to identify any relevant

statutory or case law precedent that supports a public policy argument to the contrary. 

C. Equitable Estoppel Principles Do Not Impose a Duty on Plaintiffs

Lastly, and without a thorough discussion, Defendant asserts Plaintiffs should be

estopped from having cancelled the policy, presumably on the basis of the language in the

Certificate indicating an “endeavor” to notify Defendant of the cancellation. This argument

also fails to persuade the Court. 

To successfully invoke a remedy under equitable estoppel principles, a party must

show the other engaged in conduct that induced the party to believe in certain material facts,

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upon which the party justifiably relied, resulting in harm to the party. Darner Motor Sales,

Inc. v. Univ. Underwriters Ins. Co., 682 P.2d 388, 399 (Ariz. 1984). 

Even if Plaintiffs issued the Certificate, Defendant’s equitable estoppel argument

would fail. First, the unambiguous language in the Certificate “impose[s] no obligation or

liability of any kind upon the insurer” for failing to notify Defendant of a cancellation.

Nothing in this language suggests the drafter intended to induce Defendant to believe there

was an enforceable promise to provide notice of cancellation. As such, Defendant could not

have justifiably relied on this language to warrant a remedy under equitable estoppel and

therefore no such remedy will be provided by this Court. 

Accordingly,

IT IS ORDERED Plaintiffs’ Motion for Summary Judgment IS GRANTED and IT

IS DECLARED (1) Plaintiffs took no affirmative action to cancel the Policies; (2) the

Policies were cancelled by Standard; (3) the Policies were cancelled effective October 16,

2005; (4) Plaintiffs had no duty to notify Defendant that the Policies had been cancelled; and

(5) the Policies do not provide coverage for the Claim.

IT IS ORDERED Defendant’s Motion for Summary Judgment IS DENIED.

IT IS ORDERED that the parties submit motions for fees no later than 30 days from

the date of this Order.

DATED this 17th day of March, 2009.

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