Source: https://www.ticerlawfirm.com/articles/are-you-really-sure-your-insurance-policy-was-cancelled/
Timestamp: 2020-07-06 20:08:23
Document Index: 733983027

Matched Legal Cases: ['§551', 'art. 21', '§551', 'Art. 21', '§551', '§551', '§551', '§5', '§551', '§387']

4. loss of the insurer’s reinsurance covering all
(c ) Earned premium for any period of coverage that extends beyond the expiration date of the policy shall be computed pro rata based on the previous year’s rate.
Significant to these statutes is the notice of cancellation and/or intent not to renew requirements. These notice regulations are strictly construed and the failure to provide proper notice including the basis for cancellation and/or nonrenewal is fatal. Trinity Universal Ins. Co. v. Fidelity & Casualty Co., 837 S.W.2d 202 (Tex. App. – Dallas 1992); see also Tex. Ins. Code Ann. §551.002 (Vernon Supp. 2006) (requirements for statement on basis for nonrenewal and/or cancellation).
One basis for cancellation, the increase in hazard exception, has been interpreted by the courts. In Kino Express Ins. v. Consumers County Mut. Ins. Co., Consumers issued a commercial automobile liability policy for Kino’s, a package delivery service. 990 S.W.2d 784, 785 (Tex. App – Austin 1999). The policy was based on a “fixed rating plan” which meant the premium would not be changed for reasons arising after the effective date of May 4, 1994. Id. Consumers cancelled Kino’s policy effective October 3, 1994 on the basis of an increase in hazard because the insured refused to cooperate with inspectors regarding Kino’s operation. Id. The policy permitted Consumers to: 1. inspect and audit Kino’s books; 2. make inspections and surveys anytime; 3. cancel the policy for any reason within sixty (60) days of the policy effective date; and 4. cancel the policy after sixty (60) days for an increase in hazard within the insured’s control which would produce an increase in rate. Id. The last provision (4) was apparently taken almost verbatum from art. 21.49-2A(a)(3) now §551.052 (c)(3). Claiming the cancellation was illegal, Kino sued Consumers for declaratory relief that it had not failed to cooperate and there was no increase in hazard. Id. Consumers counterclaimed asserting that the cancellation was proper. Id. Consumers sought and was granted summary judgment from which Kino appealed, Id. at 786.
The Austin Court of Appeals reversed Consumers’ summary judgment and remanded, finding that Consumers accepted the risk before it knew the extent of the hazard and cancelled the policy without assessing the degree of the hazard. Id. at 788. The best that could be said was that Kino had failed to cooperate but that did not show that any hazard was “enlarged”. Id. See also Republic Western Ins. Co. v. Rockmore, 2005 WL 57284 (N.D. Tex. 2005).
Additionally, the Court held that cancellation under Art. 21.49-2A§ (a)(3) would apply regardless of whether the policy premium was fixed or variable. Id. at 789. “We believe the correct construction is that the legislature intended to allow cancellation whenever the rate changed under either kind of policy when it becomes substantially disproportionate to the risk originally assumed by the insurer due to an increase in hazard within the control of the insured.” Id.
Section §551.053 dealing with written notice of cancellation to the first named insured is equally significant. Written notice must be delivered or mailed at least ten (10) days before cancellation to the first-named insured. Cases addressing §551.104 infra provide guidance on how this specific statute will be applied. However, this statute requires that notice need only be given to one insured – the first named insured. Notice is not required to all insureds. For other insureds, they are at the mercy of the first named insured.
Consistent with other cancellation statutes, notices of cancellation and/or renewal are strictly enforced but do not automatically result in a default of coverage. In Texas Specialty Underwriters, Inc. v. Tanner, 997 S.W.2d 645, 646 (Tex. App. – Dallas 1999, pet. denied), the insured sued the insurer to recover on a fire loss. Texas Special Underwriters (hereafter “TSU”) issued an insurance policy to Tanner for a one story home that he leased out; the policy period was October 25, 1994 until October 25, 1995 at 12:01 am. Id. On August 10, 1995 TSU mailed a letter to the producing agent offering a renewal for a $498.51 premium. Id. The agent in turn wrote to Tanner offering the renewal and soliciting a down payment for the policy. Id. at 647. Tanner did not respond to the agent’s letter although he admitted to receiving the agent’s letter about sixty (60) days before the policy’s expiration. Tanner did not contact the agent until after the home burned down on November 3, 1995, Id. After the fire, Tanner went to the agent’s office with the down payment. Id. The agent refused to renew the policy. Id. TSU denied Tanner’s loss and Tanner sued TSU. Id.
Tanner moved for summary judgment claiming that TSU did not mail him a notice of nonrenewal and that Tanner did not reject the renewal. Id. The trial court granted summary judgment in Tanner’s favor and TSU appealed. Id.
However, when an insurer fails to comply with the notice requirements, cancellation attempts are void. In Jones v. Ray Ins. Agency, the insured purchased a new vehicle insuring it with a State and County Mutual Fire Insurance Company. 59 S.W.2d 739,744 (Tex. App. – Corpus Christi 2001, pet. denied, 92 S.W.3d 530 (Tex. 2002)). When obtaining insurance, the insured, Jones, advised that her sister lived with her and was told there would be no problem as long as she paid the premiums on time. Id. at 745. Significantly, the policy excluded coverage for anyone residing with insured that was 14 or over unless listed on the policy. Id. The policy was a six (6) month policy running from November 7, 1997 through May 7. 1998. Id.
On December 28, 1997, the insured’s vehicle was severely damaged when it was struck by uninsured drunk driver. Id. Initially the insured was told she was covered but thirty (30) minutes later she was told there was no coverage. Id. The policy was allegedly cancelled because she failed to list her sister on the application and/or because she did not provide a copy of her driver’s license. Id. The insurer claimed notice of cancellation was sent on November 25, 1997 to the insured’s address but the insured denied receipt of any such notice. Id. The policy was to be cancelled on December 4, 1997. Id. Subsequently, the repair shop foreclosed on the insured’s vehicle and the insured’s lienholder repossessed the vehicle even though her payments were current. Id. The insurer did not return the insured’s December premium payment. Id.
The insurer and agent’s motions for Summary Judgment were granted and the insured appealed. The Corpus of Christi Court of Appeals reversed holding that proof of mailing of cancellation is not sufficient when the insured contends that she never received such notice. Id. at 746 citing Beacon National Ins. Co. v. Young, 448 S.W.2d 812,814 (Tex. Civ. App. – Dallas 1969, writ ref’d n.r.e.). The Court reasoned that when the insurer is required to give a certain number of days notice prior to cancellation, it cannot be determined whether the insurer mailed the required notice unless the insured received the cancellation notice. Id. Thus when a conflict in evidence exists on whether notice was actually sent, summary judgment is not appropriate and the issue must be decided by the trier of fact.
The court also held that cancellation could occur for only the reasons listed in §551.104 if the policy had been in effect less than sixty (60) days. The Court held cancellation could not occur after sixty (60) days. In this case, the insurer attempted to cancel the policy because the insured’s driver’s license was not provided. Id. at 747. This reason, the Court held, was not listed in the statute, making the cancellation “illegal and void.” Id.
The Texas Supreme Court, in denying review, disapproved of the Court of Appeals’ holding that the policy could not be cancelled after sixty (60) days. 92 S.W.3d at 520. The Supreme Court did agree a fact issue existed on whether notice was actually sent. Id.
(a) An insurance premium finance company may not cancel an insurance contract listed in a premium finance agreement except as provided by this section for an insured’s failure to make a payment at the time and in the amount provided in the agreement.
(b) The insurance premium finance company must mail to the insured a written notice that the company will cancel the insurance contract because of the insured’s default in payment unless the default is cured at or before the time stated in the notice. The stated time may not be earlier than the 10th day after the date the notice is mailed.
(1) the insured at the insured’s last known address; and
(2) determine the effective date of cancellation, taking into consideration the number of days’ notice required to complete the cancellation.
This statute requires a premium finance company to issue a written notice of intent to cancel for a payment default to the insured prior to mailing a notice of cancellation to the insurer. Ins. Co. of N. America v. Aberdeen Ins. Services, Inc., 253 F. 3d 878, 884 (5th Cir. 2001). The notice of cancellation by the premium finance company must be sent to the insurer, the insured, and agent and/or broker listed on the premium finance agreement. See INAC Corp. v. Underwriters at Lloyd’s, 56 S.W.3d 242, 248 (Tex. App. – Houston [14th Dist.] 2001) (holding that notice to the agent of the insurer is sufficient for statute requirements).
THE SECRET WEAPON – THE TEXAS ADMINISTRATIVE CODE
If an agreement is reached permitting different terms of renewal, the new policy is not automatically null and void. Liverpool & London & Globe Ins. Co. v. Swann, 382 S.W. 2d 521, 522-523 (Tex. Civ. App. – Beaumont 1964, no writ). Predictably, there must be a meeting of the minds for changes to be permitted. Allen, 710 F. Supp. at 1094.
So what happens if there is no discussion of a change? The answer is not simple. One court has held that changes in policy terms must be called the insured’s attention. Harbor Ins. Co. v. Urban Construction Co., 990 F.2d 195,201 (5th Cir. 1993). The Harbor held that if the insured had actual knowledge of the change, he is bound by the change. Id. Another court ruled that if the insured receives notice of the change from a prior policy, the insured is bound. Indiana & O. Live Stock Ins. Co. v. Keinigham, 161 S.W. 2d 689, 690 (Tex. App.- Dallas 1984, writ ref’d n.r.e.). These authorities seem to contradict the statutes and regulations.
One key aspect to Section 5.7008 is what acts constitute cancellation. See 28 Tex. Adm. Code §5.7004. See also Tex. Ins. Code Ann. §551.103. Acts that constitute cancellation are defined more broadly than traditional cancellation. For instance, failure to provide additional terms to which the insured is entitled is defined as cancellation; conduct which reduces and restricts coverage under the policy by endorsement or other means is termed cancellation. From a common sense perspective, any action which reduces coverage without the insured’s consent is a cancellation. This would include adding or deleting insureds, vehicles, deductibles, etc. Thus, when an insurer claims a vehicle was deleted from coverage and certain insureds were eliminated, the insurer must be able to demonstrate consent from all the insureds.
The basis for this endorsement is that insurer remains liable to third parties on the liability policy resulting from the negligent use of any motor vehicle even if it is not covered under the insurance policy. T.L.E. Ins. Co. v. Larsen Intermodal Services, Ins. 24L F.3d 667,672 (5th Cir. 2001). In fact, this endorsement has been equated with surety. Canal Ins. Co. v. Carolina Casualty Ins. Co., 59 F.3d 281, 283 (1st Cir. 1995). Simply stated, when an insurance policy attached an MCS – 90 endorsement, coverage remains in effect until it is cancelled in a manner prescribed by federal law. Rockmore, 2005 W.L. 57284 at 9. An MCS-90 endorsement may also be cancelled if the insured purchases replacement insurance. 49 C.F.R. §387.7(c).
The insurer in Rockmore argued that thirty-two (32) days notice was close enough to the 35 days required by the endorsement. Id. at 10. The court though decided it was not close enough and it would require the Court to “rewrite” the federal regulations. Id. Therefore, coverage was not cancelled and remained in effect. Id.
Cancellation statutes differ based on the type of policy involved, the nature of the insured’s occupation or business, and any endorsement attached to the policy. Careful consideration considering the specific facts involved dictate whether cancellation is proper. Cancellation statutes primarily are consumer oriented and are construed in favor of the insured. Each unique fact situation must be carefully examined and similarities in situations do not always result in the same outcome.