Lead Opinion
Heather Blair sued for equitable garnishment of Perry County Mutual Insurance Company and FMH Mutual Insurance Company. The circuit court granted summary judgment to the insurance companies. After opinion by the Court of Appeals, this Court granted transfer. Mo. Const. art. V, sec. 10. Reversed and remanded.
On October 21, 1998, five-year-old Heather Blair fell from a treehouse at her trailer court. The owner of the court, Aileen Fiedler, had contracted for liability insurance. The policy was for a one-year term — April 3, 1998 to April 3, 1999— subject to an amendatory endorsement:
We may cancel this policy or any of its parts by mailing or delivering to the named insured a written notice before the cancellation is to take effect. The notice must be given:
• Not less than 10 days before the cancellation is to take effect when the cancellation is based upon one or more of the following reasons:
a. Nonpayment of premium ...
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• Not less than 60 days before the cancellation is to take effect when the cancellation is based on reasons other than those stated above.
The notice of cancellation shall state the reasons for cancellation.
A quarterly payment of Fiedler’s insurance premium was due October 3, 1998. On September 14, the insurance company sent a “NOTICE OF PAYMENT DUE” to Fiedler advising “POLICY VOID IF NOT PAID BY DUE DATE.” Fiedler did not pay the October 3 premium. On October 14, the insurance company sent Fiedler another “NOTICE OF PAYMENT DUE,” which stated:
THE COVERAGE ON THIS POLICY HAS LAPSED FOR NON-PAYMENT. NO COVERAGE IS BEING PROVIDED AT THIS TIME.
IF PAYMENT HAS BEEN MADE PLEASE DISREGARD THIS NOTICE.
Blair sued Fiedler for her October 21 injuries. She received judgment for $200,000, after limiting recovery to insurance proceeds. She then sued for equitable garnishment.
The insurance companies argue that the policy was cancelled on the date of nonpayment, October 3 — before Blair’s injuries. She counters that the cancellation did not take effect until at least 10 days after the October 14 notice — after her injuries.
Insurance policies are contracts. Central Surety and Ins. Corp. v. New Amsterdam Casualty Co.,
Absent an equitable ground, an insurance policy may be cancelled only: 1) by mutual assent of the parties or, 2)
The insurance companies interpret the terms of the policy that, once they gave the notice of September 14, they could cancel the policy as of the date of nonpayment. A unilateral cancellation must strictly comply with the policy. Id. “There would have to be an unequivocal, unmistakable act of cancellation, not dependent upon some future event, and a mere intention to cancel would not suffice to effect a cancellation under the policy provisions.” Id. (citations omitted). “A notice of cancellation to be effective must be a present cancellation as distinguished from an intention to cancel at a future day.” Malin v. Netherlands Ins. Co.,
Here, the September 14 notice did not strictly comply with the policy provisions. The policy may be cancelled if notice is given: “Not less than 10 days before the cancellation is to take effect when the cancellation is based upon ... Nonpayment of premium....” For cancellation to be “based” upon nonpayment, nonpayment must have occurred. This Court has held:
[T]he proper construction of the cancellation provisions here involved is that the insurer ... cannot cancel unless and until the conditions precedent set forth in the endorsement arise. There having been no default whereon to effect cancellation based on the non-payment provisions of the endorsement, it follows that the attempt so to do was abortive and wholly ineffectual because premature and unwarranted.
Cain v. Robinson Lumber Co.,
The insurance companies propose to give a conditional notice of cancellation at any time, if at least 10 days before cancellation. The companies concede that such anticipatory notice could be weeks, months, or even years before nonpayment. Their interpretation would render the policy provision illusory, absurd, and unreasonable.
The insurance companies invoke the general rule that nonpayment of premium voids a policy. Hyten v. Cape Mutual Ins. Co.,
The provision here requires nonpayment, notice, and the passage of 10 days— in that order — before cancellation takes effect. Nonpayment occurred on October 3,1998. Notice of cancellation was sent on October 14. By the terms of the policy, October 24 is the earliest date that cancellation can take effect. The policy was in effect when Heather Blair was injured on October 21,1998.
An order granting summary judgment is reviewed de novo. ITT Commercial Fin. Corp. v. Mid-America Marine Supply Corp.,
Dissenting Opinion
dissenting.
I respectfully dissent.
In my view, the majority misconstrues what I perceive to be unambiguous terms for cancellation of the insurance policy. For convenience, those terms are restated:
We may cancel this policy or any of its parts by mailing or delivering to the named insured a written notice before the cancellation is to take effect. The notice must be given:
• Not less than 10 days before the cancellation is to take effect when the cancellation is based upon one or more of the following reasons:
a. Nonpayment of premium ...
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• Not less than 60 days before the cancellation is to take effect when the cancellation is based on reasons other than those stated above.
The notice of cancellation shall state the reasons for cancellation.
According to these provisions, cancellation may be effected on nonpayment of the quarterly premium, provided that the insurance company notifies the policyholder at least ten days before the cancellation is to take effect that the policy will indeed be canceled for nonpayment of the premium. Further, and of critical importance, there is nothing in the policy language that precludes the insurance company from giving notice that the day the cancellation is to take effect is the day immediately after the premium is due, if unpaid. In other words, with adequate notice, cancellation can occur immediately after nonpayment. Any other reading of the policy provisions is unfathomable. Therefore, I beg to differ that “the September 14 notice did not strictly comply with the policy provisions.” The policy was canceled because, consistent with this Court’s holding in Cain v. Robinson Lumber Co.,
The majority’s stated concern is that under the insurance company’s interpretation, notice could be given “weeks, months, or even years before nonpayment ... [and] render the policy provision illusory, absurd, and unreasonable.” Although the majority does not explain the position, I take it to be that notice weeks, months, or years before payment is due is probably so ineffectual that it is no notice at all; therefore, the purpose and scope of the notice requirement must be something else: namely, that notice may be given only after the event of nonpayment. This analysis, however, does not take into account that the policy is set up for quarterly premiums so that the notice must be is
I am also unpersuaded by the majority’s citation to the several cases holding that cancellation “[cannot] [be] dependent upon some future event,” and that “[a] notice of cancellation to be effective must be a present cancellation as distinguished from an intention to cancel at a future day.” These are essentially default rules that apply in the absence of contractual provisions to the contrary. They do not preclude the parties from contracting differently for cancellation, so long as the contractual provisions do not violate applicable statutes. See Douthet v. State Farm Mut Auto. Ins. Co.,
Policy provisions for cancellation, unless in conflict with the terms of an applicable statute, are valid.... An unequivocal agreement contained in a policy, by which either party may cancel the contract, is binding between the parties, for the parties to a contract of insurance validly may contract as they please with respect to cancellation.
Reliance Insurance Company v. Echols,
Additionally, the majority’s cited cases are factually distinguishable because the issue of cancellation arose in a completely different context than nonpayment of a premium. In MFA Mutual Ins. Co. v. Southwest Baptist College, Inc.,
A more apt case from the modern era is Hyten v. Cape Mutual Ins. Co. In Hyten, as noted, the insurer mailed a notification of the premium due thirty days prior to the due date. The notification warned the insured that the policy would be suspended if the premium was not paid on or before the due date. Hyten did not pay the premium due, and he later received notification that the policy had lapsed due to his nonpayment. See
For these reasons, I would hold that the notice was more than adequate to meet the contractual requirement of the policy, that Ms. Fiedler should have reasonably understood that nonpayment of her premium resulted in cancellation of the policy, and that coverage ended on October 3 as provided in the September 14 notice. Accordingly, I would affirm the judgment of the trial court.
Notes
. The majority's assertion that the policy in Hyten "[did] not require a specific notice of cancellation” is simply incorrect. The policy provided that:
The insured shall be sent a written or printed notice requiring the payment of such premium or assessment not less than fifteen days before the date on which the premium or assessment is due.... Neglect or failure to pay a premium or assessment on due date after notice has been given shall, without further notice, render the policy suspended and void as to the interest of the insured.... The notice of premium or assessment shall contain a statement to this effect....