Issues in Insurance Policy Coverage

CASE STUDY: LIFE INSURANCE TERMINATED FOR FAILURE TO PAY PREMIUMS, NOTICE REQUIRED BEFORE CANCELLATION. INSURANCE COVERAGE ISSUE

In Rhode Island the law requires notice before cancellation of an insurance policy.

A duty is owed to provide notice of termination, and that duty is breached when an insurance company fails to provide proper termination.  This may occur when mail was not received and that notices, if sent, were sent to the wrong address.  The rule is set forth in Larouque v. Rhode Island Joint Reinsurance Association, 536 A2d 529 (R.I. 1988) at 530.  A bad faith claim may lie from if the insurer’s accepted a late payment, seemingly accepting the cure, after and not providing proper notice of nonpayment.

In one of our cases a client purchased the life insurance policy on or about five years prior to death. Plaintiffs’ husband was going through a downward tragic spiral in the fall of 2009, eventually committing suicide. Insurance policies on both the life of policy holder and that of her late husband were to be paid by automatic withdrawal from a designated account.

On one occasion, in the final year of the insured life, that account did not have sufficient funds for the electronic payments of the policy premium. A notice was sent by US mail indicating that policy was to be canceled. That notice did not arrive at the client’s home. That notice as well as other notices was incorrectly mailed to a wrong address. Our client provided both written and oral testimony that, a late payment notice for the payment, was handed to her by a neighbor, who has since died.  That correspondence had the wrong address, despite the company having the correct address. The client paid the premium by check through the US mail reinstating the insurance contract. Payment was received and credited by the company. on September 22, 2009.  The policy was reinstated. According to the insurance company, a quarterly bill was sent to the Plaintiff again to the wrong address, for payment due the following quarter. A late payment offer was extended, according to deposition testimony of the company. That notice was again sent to the wrong address and never arrived. According to the insurance company the policy lapsed after the term for the late payment offer expired. No notice was ever sent to the plaintiff policy owner, the wife of the decedent.

Documents were produced after insured’s  death, by his agent that the agent called the insurance company, indicating the policy should not have been terminated because notice was sent to the wrong address and never received by the policy owner, the widow of the insured.  Plaintiff claimed to have had sufficient funds in the account, while the insurance company claimed the policy had been terminated and under the terms of the electronic funds policy was discontinued after the earlier failure to have sufficient funds to transfer. No notice was not received by Plaintiff, as the company continued to use the wrong street address. At her agents  instruction,  plaintiff paid the company past due premium, which the company cashed, deposited, and retained until three months after plaintiff filed suit, three years later. According to documents produced in discovery, payment was received, scanned, deposited and accepted by the insurance company.  A log entry by a company employee, introduced during discovery confirms the errors by the company reading in part,  …  “ but the fact still remains that our notifications went to the wrong address.”     After plaintiff filed suit, a letter was sent by the company indicating they would send the funds that plaintiff had paid to the state of Rhode Island unclaimed property division, if funds were not claimed by a date certain.

Discovery showed that it was only after plaintiff filed suit for non payment of the policy death benefits that Insurance Company sought to repudiate their contractual acceptance.

The company claimed that Plaintiff cannot identify any term of the Policy Contract that Plaintiff failed to comply with and for which Plaintiff alleges breach. Plaintiff alleged a breach of contract in the companies failure to provide notice and failing to pay the policy death benefit after accepting payment. Plaintiff  alleged breach of duty in failure to remit payment after death. Plaintiff further alleged breach of statutory duty to provide notice, contractual obligations to pay death benefit, breach of duty and good faith in the claims process, and other related claims.

THE LAW OF NOTICE ON CANCELLATION OF AN INSURANCE POLICY

While it is the insurer who has the right to cancel a policy upon notice for nonpayment of a premium, the right is contingent on the mailing of a proper bill which strictly complies with the insurance regulations. Absent strict compliance, subsequent cancellation is ineffective, and the insurer remains liable. See Couch On Insurance , 3d at § 30: 13 . Whether cancellation was effective is a question of fact. See Couch, Id. at § 30.21 citing Rice v. Travelers Ins. Co., 526 S.W. 29 69. It is always up to a jury to determine whether an insurer gave notice of cancellation and if cancellation notice was received. Both mailing and delivery are jury questions.  See Couch at § 30.21citing Security Ins. Co. of Hartford v. Smith, 360 So. 2″d 280 (Ala  1978).  Receipt by insured is a rebuttable presumption.   The fact that the notices of termination as well as late payment offers were not mailed to the correct address is not in dispute.

The Rhode Island Supreme Court has long recognized the role of the fact finder to determine if a mailing was effected. See Trotta v. Pono,  116 RI 702, 360 A 2nd  552 (1976) and Couch at § 30:22 note 7. Here all facts showed that mailing to a wrong address and that  Plaintiff never received the termination notice.  Notices were repeatedly sent to the wrong address. The clear directive of the court that  the clear directive of our Supreme Court in Larocque v. Joint Reinsurance Ass’n 536 A 2nd 529 (RI 1988), Id at 532 holds that all contracts of insurance require notice of cancellation as well as a proof of mailing consistent with Trotta, Id. and  the long history of common law decisions.

Plaintiff claimed the insurance company breached its duty to pay under the policy.  This is clear from the 30 (b) deposition of the corporate representative of the insurance company who was shown an Exhibit produced by the insurance company demonstrating a factual dispute as to whether the policy should have been terminated. The insurance company’s  own records indicate, “Policy was terminated … however caller is disputing this. He said this should not be terminated. According to him, “the family did not receive any correspondence from us because we have a wrong address on record.”  This entry corroborates the fact that the call was made by insurance agent.  The agent  indicated the company violated notice provisions by mailing termination to the wrong address.  The breach as well as late payment offers to cure were all sent to the wrong address.

The insurance company contended that the regulation used by the Department of Business (Reg. 38) requiring notice of termination, is inapplicable because the policy issued by the company is not of a commercial nature.  Any limitations or ambiguities in language promulgated by that department in adopting its regulations do not defeat the statutory requirements of § 19-14 et seq. and must be resolved in favor of the insured. See generally Coletta v. State,106 R.I. 764 (1970) where analogous statutory construction of workers compensation statute favors injured employee. Plaintiff  notes that insurance construction favors the insured in cases of ambiguity. Textron, Inc. v. Aetna Cas. & Sur. Co., 638 A. 2d 537 (R.I. 1994). Certainly this policy was issued in commerce meaning the exchange of goods, productions, or property between citizens or inhabitants of states. Brennan v. Titusville, 153 U.S. 289. A life insurance policy is not a policy excluded from the regulations pursuant to Section 2 (c) and it is relied on by the department in governing cancellation of life insurance policies. Plaintiffs complaint set forth this duty combined with the statutory duty.

Statements of the Insurance Agent

The insurance company takes great pains to argue that they are not bound by the statements of the agent.  What they failed to point out is that the agents statements support the conclusion that they accepted payment.

Notwithstanding plaintiff argued, “the rule of imputation of a corporate officer or agent’s knowledge to the corporation itself has been enshrined in Rhode Island’s corporate law for over one hundred years.” In Cook v. American Tubing and Webbing Co., 28 R.I. 41, 65 A. 641, 655 (1905), the Rhode Island Supreme Court stated that “upon grounds of public policy . . . a corporation shall be held responsible for the knowledge which is possessed by those whom it appoints to represent it.” The Court went on to say:

“From the nature of its constitution it can have no other knowledge than that of its officers, and in dealing with such officers, as with the corporation itself, third parties have a right to consider that what they know it knows. Indeed, when the presiding officer of a corporation is entrusted [sic] with the transaction of its business, with full power to bind the corporation in respect to such business, it seems more proper to call the knowledge which he has actual knowledge of the corporation rather than to say it is imputed.” See Rhode Island Economic Development Corporation v. Wells Fargo Securities, LLC. et al CA PB 12-5616.

In Summit Insurance Co. v. Patrick Porcaro, et al CA 99-2521 RISCrt, May 5, 2004 it was held Notice to an insurer’s agent, or knowledge obtained by him or her while acting within the scope of his or her authority, is notice to or knowledge of the insurer with respect to material facts affecting the risk, and the insurer is estopped from asserting the invalidity of the policy at the time it was issued, for violations of any of the conditions of such policy, if, at the time it was so issued, the fact of such violation was known to the company or its duly authorized agent, especially where the insurer has acted to its advantage because of such knowledge.” Couch, 3rd ed., pp 49-3 and 49-4. Here,  the failure of the agent or the company to record a proper address for the insured, Mandy Clark, at the time the policy was issued and then entered into its electronic data base, should not excuse the later negligence and breach when those notice functions failed.

Cure

In fact, plaintiff argued that supplemental discovery has shown that the funds were not returned to Clark until  payment after cure, and after receiving input from the agent.

SUMMARY JUDGMENT BROUGHT BY INSURANCE COMPANY         

At Summary Judgment, the court ruled that the issues of Bad faith and Punitive damages were not ripe. A jury could determine that the failure of the company in claiming return of the premium and holding it for three years until plaintiff brought suit; which plaintiff contended constitutes recklessness, a fact giving rise to punitive damages. Additionally the insurance company was arguably reckless in not transferring electronic funds, from which she had consistently made payment and the failure to ensure that she received her mail and related notices. Other facts supporting the claim are the acknowledgment by the insurance company that they failed to use the correct address and did not pay the death benefit.

Negligence

Rhode Island is one of a minority of states that hold an unexcused violation of statute constitutes prima facie negligence, which should be considered by the trier of fact  with other evidence on negligence. See Brodeau v. Desrosiers, 505 A. 2d 418, 422 (R.I. 1986), “violation of statute constitutes prima facie evidence of negligence”. Defendant  insurance company argued that the alleged negligence  in failing to provide notice lacks the required element of duty necessary to bring a cause for negligence at common law. Plaintiff replied that this limited interpretation is simply disingenuous for the statutory consideration as well as the course of dealings giving rise to negligence. In Rhode Island violation of other statute or ordinance is not distinguished in determining duty under negligence standards. See generally Federal Express Corporation v. State of Rhode Island Department of Transportation, 664 F.2d 830 (1st Cir. 1981).  This gives rise to both the statute and regulations mandating the duty to provide notice of termination, and to offer reinstatement of the policy.  Other negligent conduct on behalf of the insurance company includes its failing to provide notice, accepting the check and retaining the monies without paying the policy benefits.

Further, Rhode Island law, under the statute entitled “Cancellation of Insurance contract upon default.” See R.I.G.L. 19-14 et seq., requires notice of cancellation pursuant to subsection (c), requiring the Company, providing coverage, to provide notice. That statute also compels, that “the company shall also mail a notice of cancellation to the insured at his or her last known address as shown on the records of the company.” See R.I.G.L. 19-14.6-4 (c). That statute is both relevant and mandatory for cancellation of an insurance contract in Rhode Island and consistent with the law as the Supreme Court has interpreted  in  Larouque v. Rhode Island Joint Reinsurance Association, Id. and Auto Club v. Donovan, Id. Here, Insurance Company was wrong in mailing the termination notice to an errant address on the company’s automated records.

Course of Dealing

The statutory constraints placed upon insurance companies to protect the class of individuals such as the plaintiff widow, from the business savvy insurance industry, is further demonstrated by the course of dealings. Deposition testimony  indicated that all policy holders were sent notices of termination by electronically generated mail prior to cancellation.  The failure of the company to properly notify its policy holders breaches a duty the Rhode Island legislature has assigned to the insurance industry.  In determining the class of persons which a particular statute was designed to protect, the Rhode Island Supreme Court has stated that it is “guided primarily by the intent of the Legislature.” See Paquin v. Tillinghast, 517 A. 2d 246, 248 (R.I. 1986).

SUMMARY AND ARGUMENT OF PLAINTIFF

Rhode Island insurance law requires the insurer to give notice of cancellation to the insured before termination of any insurance policy.” See Larouque v. Rhode Island Joint Reinsurance Association, 536 A2d 529 (R.I. 1988) at 530,.  Plaintiff did emphasize all. The word any is synonymous with “either”, “every” or “all”. See Blacks, 5th Ed. All is defined as “Means the whole of-used with a singular noun or pronoun, and referring to amount, quantity, extent, duration, quality or degree.” See Blacks 5th Ed.  The case speaks to all insurance policies issued in Rhode Island.  Rhode Island’s history on cancellation is long. Cancellation must be initiated by the company and is to be distinguished from surrender. Wells v. Great Eastern Cas. Co., 40 R.I. 222, 100 A 395 (1917). Because Larocque deals in the specifics of an auto insurance dispute does not diminish the clear directive of the court. There is no limitation in the language cited verbatim from Larocque.

It does appear, quite convincingly, that Plaintiff can demonstrate a reasonable expectation of coverage, given her full payment of the premiums and Insurance Company’s acceptance; coupled with the flagrant errors of both Insurance Company and its representatives. Should this matter be tried and a verdict returned for plaintiff, plaintiff would then pursue the extra contractual claims including exemplary damages and bad faith. In a spirit of good faith plaintiff would waive those claims in order to reach a fair and just resolution at the mediation stage.

RESULT

Payment of insurance proceeds to Plaintiff after success at summary judgement and mediation.

John J. Flanagan, Esq.

jflanagan@torti.com

Copyright 2017 by John J. Flanagan, Esq. All rights reserved