Crump v. Unigard Ins. Co., 97 N.Y.2d 111 (2001)
An insurance policy cancellation is effective when the insurer receives the notice of cancellation, aligning with the common-law rule and the legislative intent to protect insureds from coverage gaps.
Summary
This case addresses whether a 1978 amendment to New York Banking Law § 576 abrogated the common-law rule that insurance cancellation is effective upon receipt of notice by the insurer. The Court of Appeals held that the amendment did not alter the common-law rule. An accident occurred after a premium finance company mailed a cancellation notice but before the insurer received it. The court determined that the insurance policy was still in effect at the time of the accident, as the insurer had not yet received the cancellation notice. The ruling emphasizes the importance of insurer receipt for effective cancellation and the intent of the amendment to protect policyholders.
Facts
Unigard Insurance issued a policy to Prosper’s Trucking in March 1996. Prosper’s entered a premium finance agreement with AFCO, granting AFCO the power to cancel the policy for non-payment, subject to statutory notice requirements. AFCO allegedly mailed a notice of intent to cancel to Prosper’s on November 1, 1996, for failure to pay a premium. Prosper’s claimed it never received the notice. AFCO then sent a cancellation notice to Prosper’s and Unigard, dated November 19, 1996, stating cancellation would be effective November 25, 1996. Plaintiff’s decedent died in an accident on November 29 with a Prosper’s driver. Prosper’s received the cancellation notice after the accident, and Unigard received it on December 6, 1996.
Procedural History
Plaintiff filed a wrongful death action against Prosper’s and its driver. Prosper’s sought coverage from Unigard, which disclaimed based on the alleged cancellation. Plaintiff then sued Unigard for a declaratory judgment requiring Unigard to defend and indemnify Prosper’s. The Supreme Court granted summary judgment to Unigard, concluding that Banking Law § 576 abrogated the common-law rule. The Appellate Division reversed, granting summary judgment to plaintiff and Prosper’s, holding that the common-law rule survived the amendment.
Issue(s)
Whether the 1978 amendment to Banking Law § 576 abrogated the common-law rule that an insurance policy cancellation becomes effective only upon receipt of the cancellation notice by the insurance company.
Holding
No, because the plain language of the statute does not demonstrate an intent to abrogate the common-law rule; and the legislative history shows that the amendment was meant to protect insureds and prevent gaps in coverage.
Court’s Reasoning
The court reasoned that the statute’s language, stating the insurance contract shall be canceled “as if such notice of cancellation had been submitted by the insured himself,” does not indicate an intent to change the common-law rule. The court emphasized the legislative intent behind the 1978 amendment to protect insureds by providing a grace period to cure payment defaults, preventing unintended gaps in coverage. The court noted that prior to the amendment, the notice was unconditional, meaning the insured could not cure the default after the insurer received notice, leading to potential coverage gaps. The amended version required a “notice of intent” to cancel, allowing the insured time to rectify the default. The court further stated that there was no indication that the legislature intended to abrogate the common-law rule by enacting the 1978 amendment. The court quoted memoranda evaluating the 1978 amendment which emphasized that it was meant to protect the insured and third parties by preventing gaps in coverage. The court affirmed that the order of the Appellate Division should be affirmed, with costs.