Reynolds v. Infinity General Insurance

694 S.E.2d 337, 287 Ga. 86

• Court: Supreme Court of Georgia
• Decided: March 15, 2010
• Docket: S09Q1613
• Status: Published

Opinions

HINES, Justice.

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 Gen. Ins. Co. v. Reynolds, 570 F3d 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.

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 EM. 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 EM. 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 Mut. Auto. Ins. Co. v. Drury, 222 Ga. App. 196 (474 SE2d 64) (1996), and Pennsylvania Nat. Mut. Cas. Ins. 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 Gen. Ins. Co. v. Reynolds, supra.

DISCUSSION

There is little question that an insurance company may cancel an automobile insurance policy for nonpayment of premiums. See OCGA § 33-24-45 (c) (l).³ And, it may 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 insuranee 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 nonpayment 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 So2d 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. Life 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 So2d 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 Mut. Auto. Ins. Co. v. Drury, supra, and Pennsylvania Nat. Mut. Cas. Ins. 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 Mut. Auto. Ins. Co. v. Drury, nor Pennsylvania Nat. Mut. Cas. Ins. 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 Nat. Mut. Cas. Ins. 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. Life Ins. Co. v. Bailey at 192 (2). As in Pennsylvania Nat. Mut. Cas. Ins. 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. Life 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 nonpayment 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 Nat. Mut. Cas. Ins. 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 Nat. Mut. Cas. Ins. 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 Cas. Ins. Co. v. Lopes, 826 A2d 87 (R.I. 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 So2d 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 P3d 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. Corp. v. Woodcock, supra (notice was not ambiguous as a matter of law; “[i]ts certainty is unaffected by the fact that some action on the 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 Cas. 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. & Surety Co., 516 So2d 1202, 1207 (La. App. 1987).

Question answered.

All the Justices concur, except Hunstein, C. J, Carley, P. J., and Benham, J., who dissent.

1 1983 Ga. Const., Art. VI, Sec. VI, Par. IV; OCGA § 15-2-9.

2 The Reynolds and Lloyd defendants are plaintiffs in two underlying suits seeking damages in wrongful death and survivorship actions.

3 OCGA § 33-24-45 (c) (1) provides:

(c) No notice of cancellation of a policy issued for delivery in this state shall be mailed or delivered by an insurer or its agent duly authorized to effect such cancellation, except for one or more of the following reasons:

(1) The named insured failed to discharge when due any of his obligations in connection with the payment of premiums on such policy or any installment of premiums or the renewal of premiums, whether payable directly to the insurer or indirectly to the agent; .. .

4 OCGA § 33-24-44 provides:

(a) Except as otherwise provided in this chapter, cancellation of a policy which by its terms and conditions may be canceled by the insurer or its agent duly authorized by the insurer to effect such cancellation shall be accomplished as prescribed in this Code section.

(b) Written notice stating the time when the cancellation will be effective, which shall not be less than 30 days from the date of mailing or delivery in person of such notice of cancellation or such other specific longer period as may be provided in the contract or by statute, shall be delivered in person or by depositing the notice in the United States mails to be dispatched by at least first-class mail to the last address of record of the insured and of any lienholder, where applicable, and receiving the receipt provided by the United States Postal Service or such other evidence of mailing as prescribed or accepted by the United States Postal Service. For the purposes of this subsection, notice to the lienholder shall be considered delivered or mailed if, with the lienholder’s consent, it is delivered by electronic transmittal or facsimile. Any irregularity in the notice to the lienholder shall not invalidate an otherwise valid cancellation as to the insured.

(c) (1) Any unearned premium which has been paid by the insured shall be refunded to the insured on a pro rata basis as provided in this Code section. If the return does not accompany notice of cancellation, then such return shall be made on or before the cancellation date either directly to the named insured or to the insured’s agent of record. In the event the insurer elects to return such unearned premium to the insured via the insured’s agent of record, such agent shall return the unearned premium to the insured either in person or by depositing such return in the mail within ten working days of receipt of the unearned premium, or within ten working days of notification from the insurer of the amount of return of unearned premium due, or on the effective date of cancellation, whichever is later. If the insured has an open account with the agent, such return of unearned premium may be applied to any outstanding balance and any remaining unearned premium shall be returned to the insured either in person or by depositing such return in the mail within ten working days of receipt of the unearned premium, or within ten working days of notification from the insurer of the amount of return of unearned premium due, or on the effective date of cancellation, whichever is later.

(2) Paragraph (1) of this subsection shall not apply if an audit or rate investigation is required or if the premiums are financed by a premium finance company. If an audit or rate investigation is required, then the refund of unearned premium shall be made within 30 days after the conclusion of the audit or rate investigation. If the premiums are financed by a premium finance company, any unearned premiums shall be tendered to the premium finance company within ten working days after cancellation.

(3) Any insurer or agent failing to return any unearned premium as prescribed in paragraphs (1) and (2) of this subsection shall pay to the insured a penalty equal to 25 percent of the amount of the return of the unearned premium and interest equal to 18 percent per annum until such time that proper return has been made, which penalty and interest must be paid at the time the return is made; provided, however, the maximum amount of such penalty and interest shall not exceed 50 percent of the amount of the refund due. Failure to return any unearned premium shall not invalidate a notice of cancellation given in accordance with subsection (b) of this Code section.

(d) When a policy is canceled for failure of the named insured to discharge when due any of his obligations in connection with the payment of premiums for a policy or any installment of premiums due, whether payable directly to the insurer or indirectly to the agent, or when a policy that has been in effect for less than 60 days is canceled for any reason, the notice requirements of this Code section may be satisfied by delivering or mailing written notice to the named insured and any lienholder, where applicable, at least ten days prior to the effective date of cancellation in lieu of the number of days’ notice otherwise required by this Code section. For the purposes of this subsection, notice to the lienholder shall be considered delivered or mailed if, with the lienholder’s consent, it is delivered by electronic transmittal or facsimile. Any irregularity in the notice to the lienholder shall not invalidate an otherwise valid cancellation as to the insured.

(d.l) The notice requirements of this Code section shall not apply in any case where a binder or contract of insurance is void ab initio for failure of consideration.

(e) Notice to the insured shall not be required by this Code section when a policy is canceled by an insurance premium finance company under a power of attorney contained in an insurance premium finance agreement which has been filed with the insurer in accordance with the provisions of Chapter 22 of this title. However, the insurer shall comply with the provisions of subsection (d) of Code Section 33-22-13 pertaining to notice to a governmental agency, mortgagee, or other third party. Such notice shall be delivered in person or by depositing the notice in the United States mails to be dispatched by at least first-class mail to the last address of record of such governmental agency, mortgagee, or other third party and receiving the receipt provided by the United States Postal Service or such other evidence of mailing as prescribed or accepted by the United States Postal Service.

(f) Cancellation by the insured shall be accomplished in accordance with Code Section 33-24-44.1.

(g) Any unearned premium which has been paid by the insured may be refunded to the insured on other than a pro rata basis if:

(1) The cancellation results from failure of the insured to pay, when due, any premium to the insurer or any amount, when due, under a premium finance agreement;

(2) The policy contains language which specifies that a penalty may be charged on unearned premium; and

(3) The method of computing such penalty is filed with the Commissioner in accordance with Chapter 9 of this title.

5 No policy provision regarding the notice of cancellation is at issue in this certified question.

6 The insurer argued that the insurance policy had been cancelled effective November 7, 1980; the notice was mailed on October 8, 1980 and was entitled “Installment Statement of Premium Due”; it stated on its face:

PAY THE AMOUNT DUE BEFORE THE INSTALLMENT DUE DATE SHOWN OR THIS STATEMENT BECOMES A NOTICE OF CANCELLATION EFFECTIVE 11 07 80 12:01 A.M. STANDARD TIME. PROVIDING ALL PRIOR OUTSTANDING BILLINGS HAVE BEEN PAID BY THEIR DUE DATES. NO FURTHER NOTICE WILL BE GIVENf;]

and the installment due date was November 7, 1980. Id. at 488 (1).

7 In Norman v. State Farm Mut. Auto. Ins. Co., 33 P3d 530 (Ariz. App. 200Í), the Court of Appeals of Arizona rejected appellant Norman’s argument that the inclusion of reference to a premium amount due in a notice of cancellation rendered the notice a nullity as a mechanism for cancellation, and expressly observed that, “[i]n Person, the [Court of Appeals of Georgia] found the cancellation notice for non-payment of premium confusing and ineffective because it was sent before the premium was even due, and was an attempt by the insurer to circumvent statutory notice and grace period requirements for cancellation of insurance.” Id.