Reynolds v. Infinity General Insurance Company

This case is before the Court on a certified question from the United States Court of Appeals for the Eleventh Circuit in litigation involving the effectiveness of a notice of cancellation of a commercial automobile insurance policy. 1 Infinity General Ins. Co. v. Reynolds, 570 F.3d 1228 (11th Cir. 2009).

The question certified is:

Is a notice of cancellation, properly given after the premium is past due, ineffective because it provides an opportunity for the insured to keep the policy in force by paying the past-due premium within the statutory ten-day period?

We answer the question in the negative.

11983 Ga. Const., Art. VI, Sec. VI, Par. IV; OCGA § 15-2-9.

BACKGROUND

The facts as set forth by the Eleventh Circuit are the following. On June 5, 2006, Russell Graham purchased a commercial automobile insurance policy from Infinity General Insurance Company, formerly known as Coventry Insurance Company ("Infinity”). While operating the insured vehicle on August 2, 2006, Graham's son was involved in a collision, which took the lives of his two passengers, Joey Lee Reynolds and Dustin Edward Lloyd. Infinity filed a declaratory judgment and/or interpleader action, claiming that a July 10, 2006 "CANCELLATION NOTICE” sent to the insured was effective, and therefore, that the policy was not in force at the time of the collision; the defendants in this action included Graham and the estates and widows of the two decedents.2

The body of the notice contained the following language:

AS OF 07/10/2006, WE HAVE NOT RECEIVED YOUR PAYMENT. YOU ARE HEREBY NOTIFIED IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE ABOVE MENTIONED POLICY, AND IN ACCORDANCE WITH THE LAW, THAT YOUR INSURANCE POLICY WILL CEASE AT 11:59 P.M. ON THE CANCELLATION DATE MENTIONED ABOVE, UNLESS WE RECEIVE YOUR PAYMENT BEFORE THE CANCELLATION DATE.

IF THE PREMIUM AMOUNT LISTED ON THIS NOTICE IS NOT RECEIVED BY THE COMPANY BEFORE THE CANCELLATION DATE SPECIFIED, YOUR INSURANCE WILL CEASE AT 11:59 P.M. ON THAT DATE. IF PAYMENT IS MADE BY CHECK, DRAFT, OR OTHER ORDER OF PAYMENT AND PAYMENT IS NOT HONORED UPON FIRST PRESENTATION FOR PAYMENT, YOUR COVERAGE WILL BE NULL AND VOID AND YOUR INSURANCE WILL CEASE AS OF THE CANCELLATION DATE SHOWN ABOVE.

The header on the notice stated, "CANCELLATION NOTICE, NONPAYMENT OF PREMIUM” and the cancellation date of July 25, 2006 was set out in a small box at the top of the notice and again in another small box at the bottom of the notice. Also, immediately above the language in the body, the notice stated "NONPAYMENT NOTIFICATION,” and on the notice was stamped in large letters "NON PAY NOTICE.” It also contained payment options and a detachable payment stub to be returned in the event a premium payment was remitted.

PROCEEDINGS IN FEDERAL COURT

The District Court found as fact that Infinity never received Graham's alleged premium payment, that the premium was overdue after July 5, 2006, and that the July 10, 2006 notice effectively cancelled the policy on July 25, 2006. Thus, the District Court granted summary judgment in favor of Infinity. The several defendants other than the insured, Graham, appealed to the Eleventh Circuit. In the Eleventh Circuit, appellants relied upon State Farm Mutual Automobile Insurance Co. v. Drury, 222 Ga. App. 196 (474 SE2d 64) (1996), and Pennsylvania National Mutual Casualty Insurance v. Person, 164 Ga. App. 488 (297 SE2d 80) (1982), to argue that the instant notice was a demand for payment and not effective to cancel the policy at issue as of July 25, 2006. Infinity urged that the language from the cited cases was dicta; that under OCGA § 33-24-44, the cancellation could not be effective for at least ten days after the notice of cancellation is given; that the obvious purpose of the statute is to provide the insured with an opportunity to make the premium payment and keep the policy in force, or to make other insurance arrangements; that compliance with the statute requires giving the insured the opportunity to pay the premium within the ten-day time period and keep the policy in force; and that if Appellants' position was correct, any cancellation notice that complies with the ten-day statutory period would be ineffective, rendering cancellation impossible as a practical matter. The Eleventh Circuit certified the above question, inter alia, because it perceived "no clear, controlling precedent in the decisions of the Georgia courts.” Infinity General Ins. Co. v. Reynolds, supra.

DISCUSSION

There is little question that an insurance company may cancel an automobile insurance policy for non-payment of premiums. See OCGA § 33-24- 45 ( c) (1). And, it may 3 do so after timely delivering or mailing written notice of cancellation to the insured as provided in OCGA§ 33-24-44,4 the statute governing the cancellation of insurance policies generally. When the statute is used by the insurance company in order to effect a cancellation of insurance coverage, the language of the statute is to be strictly construed against the insurer, inasmuch as the methods adopted by the General Assembly are mandatory and intended to assure that the insured has actual notice of cancellation. Travelers Indem. Co. v. Guess, 243 Ga. 559, 560 (1) (255 SE2d 55) (1979); Allstate Ins. Co. v. Ackley, 227 Ga. App. 104, 106 (2) (488 SE2d 85) (1997). The statutory requirements were designed to give the insurer the responsibility of doing everything within its power to make certain that the insured is placed on notice that the insurance coverage is being cancelled. Favati v. National Property Owners Ins. Co., 153 Ga. App. 723, 724-725 (266 SE2d 359) (1980). And, until the statutory notice requirements are met, the policy remains in effect. Nationwide Mut. Fire Ins. Co. v. Bridges, 140 Ga. App. 242 (230 SE2d 491) (1976).

As noted, under OCGA§ 33-24-44 an insurance company is entitled to terminate an automobile insurance policy because of the non-payment of premiums after delivering or mailing written notice of the cancellation to the insured in accordance with the statutory requirements. Auto-Owners Ins. Co. v. Alexander, 293 Ga. App. 459, 460 (667 SE2d 628) (2008). However, OCGA§ 33-24-44 itself does not provide that the notice be in any particular form. Chambers v. Washington Nat. Ins. Co., 66 Ga. App. 509 (17 SE2d 899) (1941).

Accord Motors Ins. Corp. v. Woodcock, 394 So.2d 485, 487 (Fla. App.,1981).

In the absence of a regulatory or policy provision outlining the method of policy cancellation notice,5 in order to be legally sufficient, what is required is that the notice positively and unequivocally state that the cancellation is taking place. North Carolina Mut. Ins. Co. v. Bailey, 185 Ga. App. 191, 192 (2) (363 SE2d 586) (1988). It must be a clear and unambiguous statement to the insured that coverage is being terminated. Id. Consequently, an assessment of the sufficiency of a notice of cancellation should depend upon the language of that particular cancellation notice. Chapman v. Leger, 405 So.2d 604 (La. App., 1981). The initial inquiry then is how the present document measures up to the requirements for an effective cancellation, that is, whether it clearly, unambiguously, and unequivocally puts the insured on notice that the insurance coverage at issue is ending.

The present notice plainly states no less than three times that coverage under the policy will cease on a certain time and date. And, it explains why coverage is being cancelled- because the insured has failed to pay for the policy.

There is nothing in the notice to indicate that the cessation of coverage will not occur; there are no misleading or confusing statements. The mere fact that the notice contains an option for the insured to avoid the imminent cancellation does not alter the clear statement to the policyholder that coverage is being terminated because the premium was not timely paid. Nonetheless, appellants in the Eleventh Circuit cite principally State Farm Mutual Automobile Insurance Co. v. Drury, supra and Pennsylvania National Mutual Casualty Insurance v. Person, supra, which they maintain compel the conclusion that the notice of cancellation, because of what they describe as ambiguity resulting from the inclusion of an option to pay the overdue premium, is instead merely a demand for payment of such premium, and therefore, is ineffective to serve as the notice necessary to terminate coverage. But, neither State Farm Mutual Automobile Insurance Co. v. Drury, nor Pennsylvania National Mutual Casualty Insurance v. Person, nor other Georgia precedent requires that the notice of cancellation be construed as a demand for payment; in fact, quite the contrary. In Pennsylvania National Mutual Casualty Insurance v. Person, the Court of Appeals indeed found that the purported notice of cancellation was in reality a demand for payment.6 But, it did so not because of the mere fact that the notice contained a statement regarding the option of payment of the premium installment in order to avoid cancellation of the policy; the Court of Appeals found the document ineffective as a notice of cancellation because it was not given to the insured upon the failure to pay the premium when due, but rather the purported notice of cancellation was given before the premium was due. Id. at 489 (1). As the Court of Appeals explained, "[t]here was no reason to cancel the policy until after the premium became due and payable.” Id. (Emphasis supplied.) Thus, the premium payment option in the context of the premature statement regarding termination of coverage rendered the document, at best, ambiguous, and well short of the required positive and unequivocal statement of the present intent to cancel insurance coverage.7 North Carolina Mut. Ins. Co. v. Bailey, at 192 (2). As in Pennsylvania National Mutual Casualty Insurance v. Person, in State Farm Mut. Auto. Ins. Co. v. Drury, the attempted notice of cancellation was not given to the insured upon the insured's failure to pay the premium "when due.” State Farm Mut. Auto. Ins. Co. v. Drury, at 199 (3).

Appellants also rely upon the finding of ineffective cancellation because of ambiguity in North Carolina Mut. Ins. Co. v. Bailey. However, the situation in that case was very different from the present one; it involved the attempted cancellation of a life insurance policy found to be ineffective because the notice of cancellation was sent to the agent of the insurance company without notifying the policyholder. It was not a situation in which a purported notice of cancellation was rejected because it was intrinsically ambiguous. Id. at 192 (2).

In direct contrast to the Georgia precedents urged by appellants, in Daniels v. Allstate Ins. Co., 162 Ga. App. 758, (293 SE2d 39) (1982), the Court of Appeals upheld a notice of cancellation for non-payment of premium which contained an option for payment; it did so because the coverage at issue was purchased as a six-month policy which had lapsed or expired before the six months passed because the insured failed to pay an increased premium for adding a named insured, and consequently, the additional amount of the premium had been due and payable prior to the notice of cancellation. See Pennsylvania National Mutual Casualty Insurance v. Person, supra at 489 (1). Moreover, in Southern Ins. Co. v. Walker, 184 Ga. App. 369 (361 SE2d 502) (1987), the Court of Appeals considered the situation in which the insurer mailed a notice of cancellation of an automobile insurance policy to the insured indicating, inter alia, that the cancellation was effective on a set date, but that the insurer would consider reinstating the policy upon payment of an additional premium prior to the cancellation date. The Court expressly distinguished Pennsylvania National Mutual Casualty Insurance v. Person stating,

In Person, the purported notice of cancellation was invalid because the reason for cancellation, i.e., nonpayment of premium, had not occurred. In the instant case, however, the declared reason for cancellation was a fait accompli prior to the notice of cancellation.

The fact that the notice of cancellation left open the possibility of reinstatement of the policy did not invalidate that cancellation notice.

Other jurisdictions have likewise refused to find notices of cancellation, sent after the premium is past due ineffective simply because the notice provides the insured the opportunity to keep the policy in force by paying the overdue premium before the stated cancellation date. See, e.g., Metropolitan Group Property and Casualty Ins. Co. v. Lopes, 826 A.2d 87 (Rh., 2003) (notice of cancellation for nonpayment of automobile insurance premium was clear and unequivocal in stating that by a certain date, the insurer would no longer be bound by policy despite reference to amount due in order to reinstate policy); Johnson v. Williams, 828 So.2d 90 (La. App., 2002) (notice language was clear, unequivocal and unambiguous even though it provided insured opportunity to then pay premium); Norman v. State Farm Mut. Auto. Ins. Co., 33 P.3d 530 (Ariz. App., 2001) (notice of cancellation was clear and unequivocal even though there was an option to pay the premium before the cancellation date); Motors Ins. Co. v. Woodcock, supra. (notice was not ambiguous as a matter of law; "[i]ts certainty is unaffected by the fact that some action on part of the insured could be taken to prevent cancellation”).

Finally, concerns of public policy militate against finding, as a matter of law, that a notice of cancellation, given after the premium is past due, is rendered equivocal or ambiguous, and thus, fatally flawed, solely by the inclusion of a payment option to reinstate coverage. As noted in Metropolitan Group Property and Casualty Ins. Co. v. Lopes, supra, such a ruling in this case would undercut the encouragement of the retention of automobile insurance policies, which afford protection to the traveling public. Id. at 91. Simply, "[t]here is no sound reason why the insured should be denied an opportunity to avoid a clear, unambiguous cancellation and be advised of the existence of this opportunity in the notice of cancellation.” Hemperly v. Aetna Cas. & Sur. Co., 516 So.2d 1202, 1207 (La. App., 1987).

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See: http://www.gasupreme.us/sc-op/pdf/s09q1613.pdf

Question answered.