Summary
holding that insured was still covered under his policy, as insurer failed to give insured adequate notice of cancellation, on the grounds that the court ruled that insurance company could not use exceptions of § 3905, specifically that insured did not pay premiums
Summary of this case from Hunter v. Dairyland Insurance CompanyOpinion
Civil Action Number 97C-04-090-JOH.
Submitted: September 8, 1999.
Decided: November 30, 1999.
Upon Motion of Plaintiffs John A. Clark, III, Zurich Insurance Group and Liberty Mutual Insurance Company for Summary Judgment — GRANTED .
Upon Motion of Defendant Aetna Insurance Company for Summary Judgment — DENIED .
R. Karl Hill, Esq., of Seitz, VanOgtrop Green, attorney for plaintiff John A. Clark, III.
William D. Sullivan, Esq., of Elzufon Austin, P.A., attorney for plaintiff Zurich Insurance Group.
Sherry Ruggiero Fallon, Esq., of Tybout, Redfearn Pell, attorney for plaintiff Liberty Mutual Insurance Company.
Louis J. Rizzo, Jr., Esq. of Reger Rizzo, attorney for defendant Aetna Insurance Company a/k/a Standard Fire Insurance Company.
MEMORANDUM OPINION
Plaintiff John A. Clark, III, was involved in an automobile accident on July 11, 1995. For a period of time prior to the accident, he had been insured by defendant Aetna Insurance Company. Clark was on a six-month coverage cycle which ended on July 8, 1995. Along with other Aetna insureds, when those six-month periods neared an end, Clark received notice that Aetna was withdrawing from writing automobile insurance in Delaware. The notice also said Aetna was turning over its business to defendant Quaker City Insurance Company. Aetna's notice was contained in a large mailing from Quaker City, which also included a Quaker City policy and a bill for Quaker City coverage.
Zurich Insurance Group and Liberty Mutual Insurance Company have joined Clark in his motion for summary judgment, but they will not be otherwise mentioned in this opinion.
Clark did not act on the mailing until after the accident. Now, he claims that the notice was deficient and has sought a declaration from this Court that Aetna is to provide him coverage. Both sides have moved for summary judgment and the notice sent by Quaker City is the central issue. The Court holds that the notice was not a valid offer of a renewal nor a proper notice of an intent to not renew Clark's policy. Accordingly, Aetna is to provide coverage.
FACTUAL BACKGROUND
The facts are not in dispute. Aetna started insuring Clark on January 8, 1993 and coverage ran for periods of six months. Clark last renewed his policy for a six-month period on January 8, 1995. Meanwhile, Aetna and Quaker City were negotiating a takeover of Aetna's automobile insurance business in Delaware. These negotiations culminated with an agreement between the two on March 31, 1995. In insurance industry lexicon, Quaker City was to provide "roll-in" coverage by offering replacement policies to Aetna's insureds as those coverages expired. Originally, the plan was that Aetna was to make a separate mailing to its insureds of what was going on. According to the original plan, shortly thereafter, Quaker City was to make a separate mailing offering its policy and a premium notice. Ultimately, however, that plan changed and Quaker City sent out in one mailing the Aetna notice, the Quaker City policy and the premium bill.
Quaker City mailed its packet to Clark from Colorado on June 8, 1995. The entire packet consisted of forty-three pages, the front page of which was entitled "Personal Auto Policy, Quaker City Insurance Company." Two pages later was a Quaker City declaration sheet, which provided for coverage from July 8, 1995 to July 8, 1996. This was followed by a policy consisting of many pages. Some forty pages later, near the end of the packet, on Quaker City letterhead was the following letter:
Dear Policyholder:
Enclosed is a letter from an Aetna Group insurance company, your current personal auto carrier. That letter advises you that Quaker City Insurance Company is offering you your renewal coverage at this time.
We are pleased to enclose your policy for your insurance with Quaker City Insurance Company. YOU MUST PAY THE PREMIUM DEPOSIT BEFORE YOUR EFFECTIVE DATE IN ORDER FOR COVERAGE TO BE CONTINUOUS.
PLEASE NOTE THAT YOUR NEW QUAKER CITY POLICY IS WRITTEN FOR A FULL YEAR, WHEREAS YOUR EXPIRING AETNA POLICY WAS FOR SIX MONTHS.
THIS IMPORTANT DIFFERENCE IS REFLECTED IN THE PREMIUM AMOUNT. WE OFFER A SIX-MONTH PAYMENT PLAN FOR YOUR CONVENIENCE.
UNDER DELAWARE LAW YOU MUST ALSO COMPLETE AND RETURN THE ENCLOSED REQUIRED STATEMENT TO POLICYHOLDERS REGARDING COVERAGE OPTIONS, WHETHER OR NOT YOU WISH TO CHANGE YOUR COVERAGES.
We have offered you the same coverage at similar liability limits you had with Aetna. If you have any questions regarding coverage choices available, we recommend that you speak to your agent to learn how these choices will affect the premium you have to pay.
Under Delaware Law, auto liability insurance is mandatory. If you do not pay the Quaker City deposit or obtain replacement coverage elsewhere, you will have no auto insurance after the expiration date of your current Aetna policy.
Welcome to Quaker City Insurance Company. We look forward to serving you.
Behind this letter, the second to last document in the packet, on Aetna stationery was the following letter:
IMPORTANT NOTICE ABOUT YOUR PERSONAL AUTOMOBILE INSURANCE POLICY
Your personal auto insurance policy is presently written by one of the Aetna companies indicated above. It is due to expire within the next 45 days.
Aetna is withdrawing from the personal auto insurance business in the state of Delaware. To ensure that our decision does not adversely affect you or result in any lapse of coverage, we have arranged for the Quaker City Insurance Company to provide you with a replacement policy. We are confident that Quaker City will continue to provide excellent service and quality protection that will meet your insurance needs.
As indicated in the enclosed material, Quaker City is prepared to provide replacement automobile insurance protection on the date your current policy expires. Your new Quaker City personal auto policy is enclosed. All you need to do is pay the premium indicated on the enclosed Quaker City invoice.
The coverage and limits under your new Quaker City policy will be substantially identical to your current policy. Additionally, while the premium will be similar, it will probably not be identical to your current policy. It is always a good idea to be informed about your insurance protection. Read your new policy carefully before placing it with your other important records.
The Delaware Insurance Department and your agent are aware of this change. Aetna is required to offer to renew your personal auto policy until a lawful reason for termination develops. If you wish to continue your current policy instead of accepting the replacement Quaker City policy, please contact your agent.
Quaker City sent this letter to the last known address for Clark which Aetna had. It arrived on June 12, 1995, at a local post office, but because he had moved several weeks before, Clark did not receive it until several days later. The parties have agreed that for purposes of this case, the June 12th date is the applicable date.
Clark, as noted, did finally get this mailing from Quaker City. He did not do anything about it until the day after the accident when he sent a check for the premium to Quaker City. The last policy period under his Aetna policy ended on July 8th, three days before the accident.
PARTIES' CONTENTIONS
Clark advances two primary arguments in his claim that Aetna is obligated to provide coverage. First, he says that Aetna failed to give proper notice of non-renewal of his policy. As a subset of this argument, he contends Aetna did not comply with certain statutory requirements imposed on an insurer when it intends not to renew. He also argues that Quaker City's mailing to him was not a renewal of the Aetna policy but was, instead, an offer of a new policy. He contends in his moving papers that Aetna breached its contract with him by not giving proper notice of non-renewal under the terms of its policy and by not renewing on the anniversary date of his policy, January 8th, rather than on July 8th.
In arguing its own motion and countering Clark's motion, Aetna contends Quaker City's replacement policy was a renewal offer. It says Clark's payment — belated as it was — shows he treated it as a renewal. His failure, however, to timely pay the renewal premium caused his Aetna coverage to lapse. Finally, it claims that there was no statutory requirement to notify Clark of cancellation or non-renewal, since it offered to renew his policy.
APPLICABLE STANDARD
When cross-motions for summary judgment are filed, as here, the Court must consider whether there is a genuine issue of material fact presented. Here, these parties have not stated or argued that there are any genuine issues of material fact. When there are no material factual disputes, however, the matter is appropriate for summary judgment. The Court must determine, therefore, whether either party is entitled to judgment as a matter of law. The issues raised in the current motions involve statutory and contract interpretation.
State, ex rel. Mitchell v. Wolcott, Del.Supr., 83 A.2d 759 (1951).
Pierce v. International Ins. Co. of Ill., Del.Supr., 671 A.2d 1361, 1363 (1996).
Dale v. Town of Elsmere, Del.Supr., 702 A.2d 1219, 1221 (1997).
DISCUSSION
The determination of the relationship between Aetna and Clark, the duties each owed to the other and the resolution of the coverage issues rests, in large part, on several statutory provisions. When an insurer intends to cancel coverage or not to renew it, the insurer must follow certain statutory steps:
(a) No cancellation of a policy to which § 3904(a) of this title applies shall be effective unless notice thereof is mailed or delivered by the insurer to the named insured at least 30 days prior to the effective date of cancellation and accompanied by the reason for cancellation, except that, where cancellation is for nonpayment of premium, at least 10 days notice of cancellation accompanied by the reason therefor shall be given.
(b) No insurer shall fail to renew a policy except to which § 3903(b) of this title applies, unless it shall mail or deliver to the named insured, at his address last of record with the insurer, at least 30 days advance notice of its intention to nonrenew accompanied by the reason or reasons therefor. This subsection shall not apply in case of nonpayment of premium or if the insurer has manifested its willingness to renew.
Notwithstanding the failure of an insurer to comply with this subsection, the policy shall terminate on the effective date of any other policy procured by the insured with respect to any automobile designated in both policies. Renewal of a policy shall not constitute a waiver or estoppel with respect to grounds for cancellation or nonrenewal which existed before the effective date of the renewal.
(c) The mailing of notice of cancellation, or of intention not to renew, to the named insured at his last address of record with the insurer, shall be by certified mail. This subsection shall not apply in case of nonpayment of premium.
(d) When a policy is cancelled or nonrenewed, other than for nonpayment of premium, the insurer shall notify the named insured of any possible eligibility for insurance through an automobile assigned risk plan. Such notice shall accompany or be included in the notice of cancellation or the notice of intent not to renew, and shall state that such notice of availability of the automobile assigned risk plan is given pursuant to this section.
(e) Each notice of cancellation, except as provided in § 3903(b), or nonrenewal of a policy shall contain or be accompanied by a notice of the named insured's right to apply to the Commissioner for a hearing thereon.
18 Del. C. § 3905.
There are many "layers" in the relationship between Clark and Aetna and a good place to begin addressing them is to describe Aetna's duties, normally, under § 3905 above. If Aetna had wanted to make its January-to-July coverage of Clark's automobile its final contract with him, i.e., cancel Clark's insurance, it would have been required to send notice of that cancellation, by certified mail, to Clark's last address of record thirty days prior to the effective date of that cancellation. Alternatively, if Aetna had simply wanted to not renew Clark's automobile policy beyond July 1995, it would have been required to send notice of an intention not to renew, by certified mail, to Clark's last address of record thirty days prior to the effective date of the non-renewal. In either case, the notice to Clark was required to contain an explanation of the cancellation or nonrenewal, as well as a notice that Clark had a right to apply to the Insurance Commissioner for a hearing on the matter. However, § 3905 contains two important exceptions to these notice requirements. An insurer owes the insured no notice when (1) the insurer manifests its intention to renew coverage and (2) the cancellation or non-renewal is based on the insured's failure to pay his premium.
18 Del. C. § 3905 (a) and (c) (unless the cancellation as for non-payment by Clark of the premium, which would require only ten days' notice).
18 Del. C. § 3905 (b) and (c) (again, unless the intent not to renew was based on Clark's non-payment of the premium, which would require only ten days' notice).
18 Del. C. § 3905 (e).
Aetna's Intent to Renew
As noted earlier, Aetna argues that § 3905 does not apply to its interaction with Clark during 1995 because it "manifested its intention to renew the [Aetna] policy." This might be the end of the matter under the statute, except that Aetna thought that its intention could be achieved by having Quaker City offer Clark a new policy. The Court, therefore, must now find a working definition of the term "renewal" to decide whether Aetna is correct.
Supra at 5.
The Insurance Code states that renewal or renew:
means the issuance and delivery by an insurer of a policy superseding at the end of the policy period a policy previously issued and delivered by the same insurer, or the issuance and delivery of a certificate or notice extending the term of a policy beyond its policy period or term.
18 Del. C. § 3903 (a)(2).
There are several key aspects to this statutory language. First, the definition uses the exclusive word "means" not the inclusive word "includes." In short, this usage means a much tighter definition. Second, this definition of renewal specifies that the same insurer as the one who issued the policy for the prior period deliver to the insured either a policy, a certificate or a notice extending the coverage beyond the current policy period. Aetna argues that this definition does not require the same insurer to send the renewal policy. As long as the Quaker City policy was essentially similar, it contends, there was a proper renewal.
Coastal Barge Corp. v. Coastal Zone Industrial Control Board, Del.Supr., 492 A.2d 1242, 1246-47 (1985).
This argument contravenes the clear statutory definition of renewal. The policy which was mailed did not come from Aetna — it came from Quaker City. Without overstating the obvious, the policy came from a different carrier. Clark was asked to establish a new, not a renewed, contractual relationship.
Aetna's argument that the Quaker City mailing was a renewal is finally put to rest by the application of State Farm Mut. Auto. Ins. Co. v. Arms. In Arms, the court said, "[t]he statute [§ 3903(a)(2)] clearly contemplates that a renewal is merely the automatic continuation of the preceding policy, identical in form and substance, except as to date, and perhaps, the premium." The court went on to state, "[i]t is the change in the basic legal relationships between the parties which connotes a new policy." Clark was offered coverage by a new carrier and that is a basic change in legal relationship. That means the mailing form Quaker City was not a renewal. Further, this Court finds that Aetna neither made, nor intended to make, Clark an offer to renew his automobile coverage.
Del.Supr., 577 A.2d 1060 (1984).
Id. at 1065.
Id.
Finally, Aetna argues that when Clark sent a check for the premium to Quaker City on July 12th, he accepted the Quaker City policy as a renewal and is now estopped from arguing otherwise. As will be discussed below, on the date of his accident, Clark had in front of him an ambiguous insurance contract with Aetna and a packet which failed to provide him with sufficient notice of his coverage at the time. It is unlikely that when he sent his check to Quaker City he acknowledged a renewal. It is more likely that he was playing it safe to insure that he had coverage with at least some insurer for his July 11th accident.
Clark's Failure to Pay his Premium
Since Aetna did not exempt itself from the notice requirements of § 3905 by manifesting its intention to renew Clark's coverage, this Court must examine whether it was exempt under the second exception: that no duty of notification was owed to Clark because he failed to pay his Aetna premium on time. Aetna argues, without authority, that Clark is charged with notice of the expiration date of his policy, and when he did not pay his premium by July 8, 1995, the policy lapsed by its own terms. It is undisputed that Clark did not send a premium to Aetna prior to July 8, 1995 or that he did not send a premium payment to Quaker City until July 12th Ignoring for a moment the cancellation and non-renewal issues discussed above, it would seem that Clark was uninsured between July 8 and July 12, 1995. Clark, however, argues that not only did he not breach the policy, but that Aetna itself breached the terms of the contract resulting in the continuation of that policy, regardless of his later business with Quaker City.
As noted above, Clark argues that this breach invalidates Aetna's attempts to avoid compliance with § 3905 overall. However, again, Clark's claim for coverage was originally brought only as a declaratory judgment action.
The declaration sheet of the Aetna policy states that the "policy period" is from January 8, 1995 to July 8, 1995. While Clark first asserts that he never received notice that his Aetna premium for the next six months was due in July, he fails to point to any obligation, contractual or otherwise, on Aetna's part to provide it. What Clark does call to the Court's attention, however, is Section F, ¶ 7(B) of his Aetna policy, which under the heading "Termination" states:
Nonrenewal. If we decide not to renew or continue this policy we will mail notice to the named insured shown in the Declarations at the address shown in this policy at least 30 days before the end of the policy period. However, if the policy period is other than one year, we will have the right not to renew or continue it only at each anniversary of its original effective date. [Emphasis added]
According to Clark, Aetna violated this section in the following ways:
1. Quaker City and not Aetna sent the July 1995 packet containing Aetna's letter and under ¶ 7(B), it was Aetna and not Quaker City which was responsible for mailing notices of termination of that policy ("we will mail notice to the named insured").
2. The Colorado postmark on the packet was June 8, 1995, which is less than thirty days prior to the policy expiration date. If the policy was to expire at 12:01 a.m. on July 8, 1995, ¶ 7(B) requires that notice be postmarked by June 7, 1995, at the latest.
3. Aetna attempted to discontinue the January 8, 1995 policy at July 8, 1995, rather than at January 8, 1996. Paragraph 7(B) requires policies for other than one year be discontinued by Aetna only upon the anniversary of their effective date.
The policy states that it can only be discontinued on an anniversary of its effective date, which would be January 8, and, yet the declarations sheet states a "policy period" which runs only to July 8, the halfway point between anniversaries. Aetna fails to address ¶ 7(B). A contract whose provisions are reasonably or fairly susceptible to different interpretations or may have multiple meanings is ambiguous. Ambiguities in insurance contracts are construed strongly against the drafter. Here, the parties do not contest the meaning of a single contract term but argue rather that two separate provisions govern the same contract term, i.e., how long Clark's January 8, 1995 policy would remain in effect.
Rhone-Poulenc Basic Chemicals Co. v. American Motorists Ins. Co., Del.Supr., 616 A.2d 1192 (1992).
Phillips Homebuilders, Inc. v. Travelers Ins. Co., Del.Supr., 700 A.2d 127 (1997).
On July 8, 1995, Clark had in front of him both ¶ 7(B) and the declaration sheet from the Aetna contract. At that point, however, he had no warning from either Aetna or Quaker City about renewal, non-renewal or discontinuation of his policy. The Court finds the internal inconsistency in the Aetna contract is ambiguous and must be construed against it. Therefore, for purposes of this motion, Clark will not be held in breach of that contract. If Clark did not breach the contract by failing to pay the premium, Aetna is not relieved, by the exception to § 3905, from giving Clark notice.
Aetna's Notification to Clark
Because Aetna did not intend to renew Clark's policy and because Clark cannot be clearly charged with a breach of his duties under the Aetna contract, Aetna is unable to deny coverage through either of § 3905's exceptions. The only inquiry left for the Court, therefore, is whether Aetna provided Clark with adequate notice under that section. The exact question presented has already been addressed by Delaware courts. This Court, therefore, can say, as a matter of law, whether or not Aetna's notice to Clark was adequate.
The notice provision of § 3905 has four requirements for an insurer's notice of cancellation or non-renewal to its insureds: (1) that it be mailed at least thirty days prior to the effective cancellation or non-renewal date, (2) that it be sent by certified mail, (3) that it be accompanied by an explanation of the cancellation or non-renewal, and (4) that it inform the insured of his right to appeal the decision to the Insurance Commissioner.
The Quaker City/Aetna packet was mailed to Clark on June 8, 1995. Aetna considered Clark's policy to have expired at 12:01 a.m. on July 8, requiring the notice to have been sent thirty days earlier, by 12:01 a.m. on June 8 at the latest. There is no evidence that the June 8 postmark was made until after 12:01 on that day. Aetna's notice, therefore, was mailed less than thirty days before the cancellation date. As Clark points out, the latest statutorily adequate postmark would have to have been made on June 7. Therefore, the June 8 notice to Clark was insufficient.
But, that was not the only deficiency in the notice. The Quaker City/Aetna packet was also sent by first class mail rather than by certified mail. Further, it neither contained nor was accompanied by notice that Clark could appeal the decision to discontinue his Aetna coverage to the Insurance Commissioner.
Finally, the packet's explanation of its contents, including Aetna's cancellation or non-renewal, was so deficient that the Court has trouble even calling it a "notice," much less an "explanation." It has been held that communication between an insurer and its insured will be inadequate and ambiguous so as to fail its purpose simply by its location or lack of emphasis within a group of documents. In June or July of 1995, Clark could reasonably expect his premium notice to arrive from Aetna, as it apparently had routinely since 1993. He never got that notice but received instead an unsolicited automobile insurance policy from a company with which he had never dealt and, as far as the Court can determine, he may have never even known. This unsolicited policy was some forty pages long. Aetna's letter explaining Quaker City's mailing was 41 or 42 pages into the material Quaker City sent. The Mason court found that relevant information which was "buried . . . on page 41 of a 50 page packet" and "was not in a separate section nor highlighted in any manner" was not meaningful. The situation here could not be closer. Aetna "buried" its required notice of non-renewal in the back of the Quaker City policy and did nothing to highlight or alert Clark to it. The insufficiency of this procedure has been admitted by Aetna's own personnel.
Mason v. United Services Automobile Assoc., Del.Supr., 697 A.2d 388, 394 (1997).
Id.
Memorandum from Michael Lattanzio to William F. Dunn (June 28, 1995).
Because Aetna cannot utilize either of the two exceptions to § 3905, this Court finds that it owed Clark timely and sufficient notice of its cancellation or intent not to renew the policy with him. Aetna's attempt at such notice was not only inadequate by the statute's requirements but failed its purpose in every way. Therefore, Clark's coverage with Aetna must be held to have continued through the day of his July 11th accident.
10 Del. C. § 3905 (a) and (b); Collins v. Liberty Mut. Ins. Co., Del.Super., C.A. No. 90C-MR-3, Graves, J. (August 27, 1991).
CONCLUSION
For the reasons stated herein, the motion for summary judgment of plaintiffs John A. Clark, III, Zurich Insurance Group and Liberty Mutual Insurance Company is GRANTED and the motion for summary judgment of defendant Aetna Insurance Company is DENIED.IT IS SO ORDERED.