Opinion ID: 1298836
Heading Depth: 1
Heading Rank: 7

Heading: Failure to return unearned premium

Text: As an alternative ground for finding the cancellation invalid, the commissioner ruled that Carrier's failure to refund unearned premiums to Finance Company with notice to Employer violated § 38-39-90. Section 38-39-90(e) requires that [w]henever an insurance contract is canceled, the insurer shall return whatever gross unearned premiums are due under the insurance contract to the premium service company which financed the premium for the account of the insured. [4] Under subsection (f), the premium service company must refund any surplus over three dollars [5] to the insured. By its terms, § 38-39-90 is the exclusive means for cancellation of an insurance contract by a premium service company. An insurance contract may not be canceled by the premium service company unless the cancellation is effectuated in accordance with this section. § 38-39-90(a). Any violation of this section therefore invalidates cancellation. South Carolina Ins. Co. v. Brown, 280 S.C. 574, 313 S.E.2d 348 (Ct.App.1984). Here, Carrier never refunded the unearned portion of the annual premium. Since Carrier did not comply with all the requirements of § 38-39-90, neither attempted cancellation was valid. Accord Government Employees Ins. Co. v. Taylor, 270 Md. 11, 310 A.2d 49 (1973). The return of unearned premiums is not a mere accounting matter as appellants claim. We have held that where an insurance policy provides for the return of unearned premiums upon cancellation, the tender of a refund is a condition precedent to an effective cancellation. McElmurray v. American Fid. Fire Ins. Co., 236 S.C. 195, 113 S.E.2d 528 (1960). Here, the refund of unearned premiums is required by statute; all statutory provisions relating to insurance contracts become part of the insuring agreement. Allstate Ins. Co. v. Thatcher, 283 S.C. 585, 325 S.E.2d 59 (1985). A return of unearned premiums as required under § 38-39-90(e) is in effect part of Carrier's obligation under its policy and is therefore a condition precedent to an effective cancellation. Appellants complain that requiring the return of unearned premiums to effectuate cancellation goes against the interest of Finance Company, the entity requesting cancellation, and therefore could not have been intended by the legislature. We disagree. Once Finance Company requested cancellation, it had the right to demand repayment of the unearned premium. [6] Further, subsection (f) requires the premium service company to credit any return of unearned premiums to the account of the insured and promptly refund any surplus over three dollars. This provision works to the benefit of the insured and is an added protection ensuring notice to the insured. Because Carrier failed to meet the requirement of subsection (e) of § 38-39-90 that it refund unearned premiums, cancellation was invalid under subsection (a) of the statute.