Cancellation to litigation: failure to update new address prompts lawsuit against State Farm.
Insurance companies and insurance agents must be familiar with the statutory law in each jurisdiction where business is done controlling cancellation. Each state has its own rules and regulations concerning proper notice and how that notice must be given. State Farm Mutual Automobile Insurance learned that lesson when its agent failed to enter into its records an insured's change of address. In Andre Banton v. State Farm Mutual Automobile Insurance Co., No. 3D09-3359 (Fla.App. 02/23/2011), the insurer mailed a non-payment notice of cancellation to the insured's prior address. Although the insured had advised the agent of his new address, that information did not make it to the insured. When the agent received a copy of the notice of cancellation, the agent did not advise the company that the address had changed and failed to contact the insured to work around the failure to pay premium. In essence, the agent did nothing.
Andre Banton, the insured and plaintiff, admitted that he received actual notice of the cancellation from the State of Florida (not the insurer) one day before the accident for which he sought coverage. He did nothing to reinstate his insurance after he received actual notice. However, Banton proved that he never received the notice of cancellation mailed by State Farm.
As a result of the accident and the denial of his claim, Banton sued State Farm for coverage and appealed from a final summary judgment in favor of State Farm Automobile Insurance Co. on a claim for comprehensive loss benefits.
Banton filed a complaint against State Farm for benefits under an insurance policy for losses sustained when his automobile was stolen. State Farm denied coverage asserting non-payment of premium prior to the loss and sought summary judgment predicated upon cancellation that it alleged was properly mailed to Banton to his last known address for the policy as required by statute. Banton claimed that several weeks prior to the date of loss, he went to a State Farm office, verbally informed an agent that he moved to a different residence, and was told that the new address would be entered into State Farm's records. Banton admitted that he received, approximately one day before the date of loss, a letter from the Florida Dept. of Motor Vehicles stating the policy had been cancelled. State Farm argued in the alternative that regardless of the statute, Banton's deposition testimony demonstrated Banton's actual notice of the policy's cancellation, which should prohibit Banton's claim from being enforced.
The trial court granted summary judgment in favor of State Farm because Banton had actual notice of the cancellation via the DMV letter establishing that State Farm effectively cancelled the policy. The Florida Court of Appeals reversed because the insurer failed to properly cancel the policy of insurance in accordance with state statutes.
Florida's statutory language was the basis for the Court of Appeals determination that the trial court erred in granting summary judgment. Florida statutes provide that no notice of cancellation of a policy shall be effective unless mailed or delivered by the insurer to the named insured and to the named insured's insurance agent at least 45 days prior to the effective date of cancellation, except that, when cancellation is for nonpayment of premium, at least 10 days' notice of cancellation accompanied by the reason therefore shall be given.
Here, Banton's receipt of the notice of cancellation from State Farm is entirely in dispute, as the trial court correctly found. There is no legal authority to support State Farm's argument that actual notice of an automobile insurance policy cancellation can be imputed to an insured by any means other than that which is provided by the plain text of the statute. Accordingly, the Court of Appeals reversed the trial court's entry of summary judgment and remanded the case for proceedings consistent with this opinion, that is, give the insured the coverage.
This case teaches multiple important lessons for an insurance agent or broker that applies to every insured and every policy of insurance:
(1) Insurance is a service business where the key to being an effective agent or broker is to provide service to the insured.
a. When an insured advises a change of address that information must be delivered to the insurer immediately by fax, email or entry into the insurer's computer system
b. Inform the insured about the impact of a failure to pay premium promptly
c. When the insured has not paid shortly before the due date, the agent should remind the insured of the obligation
d. When the insured needs assistance within the power of the agent it should be provided promptly.
(2) The agent must have a system in place to personally contact an insured who fails to pay premium.
(3) When the insurer issues a notice of cancellation with a copy to the agent it is imperative that the agent contact the insured to make sure he or she received the notice and that the cancellation can be voided if premium is paid.
a. If nothing else it will earn the agent commission it would not otherwise earn
b. It will protect the insured
c. It will protect the insurer and keep them properly on a risk.
Failure to provide the service will cause the insured, the insurer, and usually the agent or broker to become a party to a lawsuit. By providing the service an agent or broker is trained to provide litigation and expensive errors and omissions claims can be avoided.
More on the Web:
* Bad faith: Wronged insureds can collect punitive, consequential damages
* Read your application
* "Illegal rescission" is on oxymoron
Read these related articles at PropertyCasualty360.com
Barry Zalma, Esq., CFE, is a California attorney specializing in insurance coverage, insurance claims handling and fraud who serves as a consultant and expert for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He published the e-books, "Rescission of Insurance in California," "Insurance Fraud," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations." A twice monthly newsletter, "Zalma's Insurance Fraud Letter," is available at his website www.zalma.com. Zalma now blogs as "Zalma on Insurance" at http://barryzalma.blogspot.com. Contact him at email@example.com.
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|Title Annotation:||Down to Cases|
|Publication:||American Agent & Broker|
|Date:||May 1, 2011|
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