New York Law Review

Tag: policy cancellation

  • Crump v. Unigard Ins. Co., 83 A.D.2d 880 (1981): Statutory Compliance for Premium Finance Agency Cancellation

    Crump v. Unigard Ins. Co., 83 A.D.2d 880 (1981)

    A premium finance agency that strictly complies with the Banking Law provisions for canceling insurance policies is not required to adhere to additional cancellation procedures applicable to insurers under the Vehicle and Traffic Law.

    Summary

    This case addresses whether a premium finance agency, having followed the Banking Law’s requirements for canceling an insurance policy, must also comply with the Vehicle and Traffic Law’s provisions applicable to insurers. The Court of Appeals held that the agency’s compliance with the Banking Law was sufficient, as the Legislature intended different cancellation procedures for insurers and premium finance agencies. The court emphasized the detailed procedures outlined in the Banking Law specifically for premium finance agencies and found no basis to impose additional insurer requirements on them. The court affirmed the Appellate Division’s order.

    Facts

    A premium finance agency financed an insured’s insurance premium. The insured defaulted on payments. The premium finance agency sent a notice of intent to cancel to the insured as per the Banking Law, followed by a notice of cancellation upon continued non-payment. After cancellation, a loss occurred which the insurer denied coverage for based on the cancellation.

    Procedural History

    The lower court ruled in favor of the insurance company and finance agency. The Appellate Division affirmed, holding that the premium finance agency complied with the Banking Law and did not need to comply with the Vehicle and Traffic Law. The case then went to the Court of Appeals of New York.

    Issue(s)

    Whether a premium finance agency, having complied with the cancellation requirements of the Banking Law, must also comply with the cancellation requirements imposed on insurers by the Vehicle and Traffic Law.

    Holding

    No, because the Legislature established distinct procedures for policy cancellation by insurers and premium finance agencies, and compliance with the specific, detailed procedures of the Banking Law is sufficient for premium finance agencies.

    Court’s Reasoning

    The Court reasoned that the Legislature intentionally created separate and distinct procedures for canceling policies by insurance companies and premium finance agencies. The Court emphasized the detail in Banking Law § 576, subd 1, indicating a specific legislative intent for premium finance agencies. The court stated, “The Legislature has indicated that the procedures to be followed in canceling a policy differ for insurers and premium finance agencies, and given the detailed procedures specifically applicable to premium finance agencies, we conclude that it would be inappropriate to require such agencies to comply with all additional procedures imposed upon insurers”. The Court deferred to the legislative intent to create a streamlined process for premium finance agencies, finding that imposing additional burdens would undermine the purpose of the Banking Law provisions. The court also noted that certain arguments made by appellants were not preserved for review and therefore not addressed.

  • Porter v. Nationwide Mutual Insurance Co., 42 A.D.2d 429 (1973): Bad Faith Refusal to Settle Requires More Than Arguable Coverage

    42 A.D.2d 429 (1973)

    An insurer’s refusal to settle a claim within policy limits, based on a good faith belief in the policy’s cancellation due to the insured’s breach of a premium finance agreement, does not constitute bad faith unless there is a gross disregard for the insurer’s policy obligations.

    Summary

    Louis Porter’s receiver sued Nationwide, alleging bad faith in refusing to settle negligence claims within Porter’s $20,000 policy limits. Nationwide argued the policy was canceled due to Porter’s failure to pay premiums. The court found that while Nationwide may have been legally incorrect about the cancellation, their belief was based on Porter’s breach and advice from counsel. The court held that a mere “arguable case” of coverage responsibility is insufficient to establish bad faith, especially when the insured was indifferent to their obligations under the insurance contract.

    Facts

    Louis Porter financed his insurance premium through Premier Credit Corporation and subsequently defaulted on his payments.
    Premier sent a “Notice of Cancellation” to both Nationwide and Porter. Nationwide, believing the policy was canceled, informed claimants that it would not defend Porter or be responsible for any judgments.
    Porter was personally served notice of the application to take inquests in the negligence actions but ignored them, resulting in a default judgment exceeding $250,000.
    Premier’s cancellation notice was arguably deficient by one day under Banking Law § 576.

    Procedural History

    Porter’s receiver sued Nationwide, alleging bad faith failure to settle within policy limits.
    The lower court entered judgment against Nationwide for $259,058.87.
    Nationwide appealed, arguing it acted in good faith based on a reasonable belief that the policy was canceled.

    Issue(s)

    Whether Nationwide acted in bad faith by refusing to settle negligence claims against Porter within the policy limits, based on its assertion that the policy had been canceled due to Porter’s breach of his premium financing agreement.

    Holding

    No, because Nationwide’s belief in the policy’s cancellation was based on Porter’s default and advice from counsel, and there was no showing of gross disregard for its policy obligations.

    Court’s Reasoning

    The court emphasized that more than a mere “arguable case” of coverage responsibility is required to impose liability for bad faith denial of coverage, citing Sukup v. State of New York, 19 N.Y.2d 519.
    Even if the cancellation notice was technically deficient, Nationwide’s good faith belief in the cancellation was critical. The court noted, “The record does not show any gross disregard for its policy obligation by the insurer in asserting noncoverage. The record shows merely an arguable case in which the carrier was held wrong. That is not enough to impose a liability beyond the terms of the contract.”
    The court highlighted Porter’s indifference to the lawsuits and his contractual obligations, distinguishing the case from those where the insured actively sought settlement within policy limits. As the court states, “From the moment Nationwide advised him that because of his conceded breach of his finance contract for the premium, it would withdraw from the defense of the case, Porter showed no interest whatever in the consequences to him or to anyone else.”
    The court found it significant that Nationwide relied on advice of counsel, even if that advice was mistaken, stating, “It would be an extraordinary result to hold a client guilty of breach of good faith, with large punitive damages, because it acts on advice of counsel—even mistaken advice.”
    The court observed that Premier’s (Porter’s finance company) error in calculating the cancellation notice period should not result in a punitive judgment against Nationwide. “This was the error of Premier in following the statute and not of Nationwide which, like Porter, was on the receiving end of Premier’s notice. It would be a harsh result indeed to impose the punitive consequence of a $250,000 judgment on Nationwide for this.”
    The court reviews several cases where insurers were found to have acted in bad faith, and distinguishes each of those cases from the facts at bar.