COURT DECISIONS

Rough Notes, Aug 2007

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 I 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 I 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 I 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 I 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. 20061348-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."