New York Law Review

Providence Washington Ins. Co. v. Security Mut. Ins. Co., 35 N.Y.2d 583 (1974): Effective Cancellation of Insurance Policies Requires Notice to the Insurer

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Providence Washington Ins. Co. v. Security Mut. Ins. Co., 35 N.Y.2d 583 (1974)

An insurance policy remains in effect until the insurer receives proper notice of cancellation from the insured, even if the insured intends to cancel the policy and obtains substitute coverage.

Summary

Providence Washington Insurance Company sued Security Mutual Insurance Company seeking contribution for a claim. The insureds, the Leibolds, intended to cancel their auto insurance policy with Security Mutual after a dispute but did not provide formal notice. They obtained a new policy from Providence Washington. After an accident, Providence Washington sought contribution from Security Mutual, arguing the Security Mutual policy was still in effect. The New York Court of Appeals held that the Security Mutual policy remained active because the Leibolds never provided the required notice of cancellation, thus reinstating the trial court’s judgment in favor of Providence Washington.

Facts

  • In February 1968, Rosemary and Charles Leibold obtained an auto insurance binder from Security Mutual covering their 1967 Ford Mustang.
  • In June 1968, Security Mutual informed the Leibolds’ broker that property damage coverage would not be provided.
  • Mr. Leibold, upset, told an associate of the broker, Goodwin, that he would find another broker and insurer. Goodwin was not an agent of Security Mutual.
  • The Leibolds obtained a substitute policy from Providence Washington, dated July 11, 1968, through a new broker, Krasnow.
  • On August 16, 1968, their son, James, was involved in an accident while driving the Mustang.
  • The Leibolds reported the accident to Providence Washington through Krasnow.
  • Security Mutual was not notified of the intended cancellation or the accident until October 1968, by an investigator hired by Providence Washington.
  • Providence Washington formally claimed concurrent coverage in November 1968.
  • Security Mutual disclaimed liability due to late notice.
  • Security Mutual initially sued the Leibolds for unpaid premiums but later settled for the earned premium up to July 11, 1968.

Procedural History

  • Providence Washington sued Security Mutual seeking contribution.
  • The Supreme Court ruled in favor of Providence Washington.
  • The Appellate Division reversed, declaring Security Mutual’s policy terminated as of July 11, 1968, and absolving them of liability.
  • Providence Washington appealed to the New York Court of Appeals.

Issue(s)

Whether an insured effectively cancels an insurance policy by expressing an intention to cancel to a broker who is not an agent of the insurer and by obtaining substitute coverage, without providing direct notice to the original insurer.

Holding

No, because to effect cancellation of an insurance policy, notice of cancellation must be given to the insurance company or an authorized agent; expressing intent to cancel to a broker who is not the insurance company’s agent is insufficient.

Court’s Reasoning

  • The court emphasized the long-standing rule that notice of cancellation must be provided to the insurance company to effect a cancellation.
  • The court reasoned that the mere intention to cancel, expressed to a broker who is not an agent of the insurer, and nonpayment of the premium, are insufficient to notify the insurer that the policy is no longer in effect.
  • The court highlighted the importance of the notice requirement for the insured’s protection, ensuring no gaps in coverage, especially in automobile liability insurance.
  • The court acknowledged the apparent unfairness of the outcome, where the insured’s oversight benefits them and the second insurer but reiterated that the notice rule is vital.
  • The court stated, “The invidious consequence of permitting insurance companies to treat a policy as canceled when an insured suggests to a broker, not the insurance company’s agent, that he is disenchanted and looking elsewhere, is readily apparent.”
  • The court emphasized that the notice rule is a fixed point in insurance law upon which both insureds and insurers rely and should continue to rely, citing 6A Appleman, Insurance Law and Practice, § 4226.

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