Policy Cancellation

Weatherford insurance lawyers need to know when an insurance policy is properly cancelled by an insurance company.
A 2001, Corpus Christi Court of Appeals case helps to explain this. The case is styled, Jones v. Ray Insurance Agency.
Here is some background:
Lois Jones appeals from a summary judgment granted in favor of Ray Insurance Agency.
Jones purchased a new 1998 Pontiac automobile and purchased an insurance policy from Ray covering the automobile. On December 28, 1977, Jones automobile was severely damaged when hit by another automobile driven by an uninsured drunk driver. Her vehicle was towed to Collision Clinic, Inc. The day after the accident, Jones was told by the insurer that she was in the computer and was fully covered by the insurance policy. Less than thirty minutes after she was told she was covered, Jones received a call from the insurer and was told she no longer was covered by the policy. At first Jones was told the policy was cancelled because she had not excluded her sister as a driver. Later she was told that the cancellation was because she had not provided a copy of her driver’s license. Ray alleged a notice of cancellation was sent by letter on November 25, 1997, but Jones denies receiving the letter and notice of cancellation. The letter allegedly advised Jones that her insurance policy would be cancelled on December 4, 1997.
The alleged notice of cancellation is the primary summary judgment ground alleged by Ray to counter each and every cause of action alleged by Jones. Ray contends that the language of the policy, “… Proof of mailing of any notice shall be sufficient proof of notice …,” prevents Jones from claiming she did not receive the notice of cancellation, and as a consequence Jones has no cause of action against Ray.
Ray’s response is that it conclusively proved that it mailed a cancellation notice ” in accordance with policy terms.” The policy provides the insurer may cancel by mailing at least ten days notice to the named insured, as follows:
“A. Cancellation….
2. We may cancel by mailing at least 10 days notice to the named insured shown in the Declarations at the address shown in this policy.
D. Other Termination Provisions.
1. … Proof of mailing of any notice shall be sufficient proof of notice….”
In this case, the premiums were paid and Ray had no right to cancel for nonpayment of premiums.
Assuming the insurer had lawful grounds to cancel, the fact that the insured never received the notice of cancellation raises a fact question as to whether the notice was actually mailed. The “proof of mailing” policy provision operates to excuse the insurer of further proof of notice only where the insured died, or moved without leaving a forwarding address. That provision does not make the notice of cancellation conclusive if the receipt of the notice is controverted by the insured. In policies as in this case where the insurer is required to give a certain number of days notice prior to the cancellation date, it cannot be determined whether the insured was afforded the number of days as agreed unless the insured received the attempted cancellation notice; and unless received, it is ineffective.
Cancellation of personal automobile insurance policies is governed by Section 551.104 Texas Insurance Code, which provides in pertinent part as follows:
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551.102. This subchapter applies only to:
(1) a personal automobile insurance policy, other than a policy written through the Texas Automobile Insurance Plan.
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551.104. (a) An insurer may cancel an insurance policy covered by this article only as provided by this section.
(b) An insurer may cancel a policy if the named insured does not pay the premium or any portion of the premium when due.
(c) An insurer may cancel a policy if the board determines that continuation of the policy would result in a violation of this code or any other law governing the business of insurance in this state.
(d) An insurer may cancel a policy if the insured submits a fraudulent claim.
(e) An insurer may cancel a personal automobile insurance policy if the driver’s license or motor vehicle registration of the named insured or any other motor vehicle operator who resides in the same household as the named insured or who customarily operates an automobile covered by the policy is suspended or revoked.
(f) An insurer may cancel a policy, other than a personal automobile insurance policy, if there is an increase in the hazard covered by the policy that is within the control of the insured and that would produce an increase in the premium rate of the policy.
(g) Cancellation of a policy under subsection (b), (c), (d), or (f) of this section does not take effect until the 10th day after the date the insurer mails notice of the cancellation to the insured.
(h) An insurer may cancel a personal automobile insurance policy with the cancellation taking effect on any 12-month anniversary of the original effective date of the policy but only if the insurer mails to the named insured written notice of the cancellation not later than the 30th day before the effective date of the cancellation.
(i) An insurer may cancel a personal automobile insurance policy if it has been in effect less than 60 days. An insurer may cancel any other policy if it has been in effect less than 90 days.
An insurer may cancel a personal automobile insurance policy only for the grounds listed in the Texas Insurance Code.
If the grounds Ray claimed to cancel the appellant’s policy were not listed in the insurance code they were in violation of the statute. The grounds were requests for information which had been obtained by Ray prior to the issuance of the policy. On December 1, 1997, Jones went in person and paid the December premium at the agent’s office which was accepted and nothing was said to Jones about any problem with her coverage or that further information was needed to keep her policy in effect. The accident occurred on December 28, 1997. When Jones first reported the accident to the insurer as required by the policy, she was told she was fully covered by her policy. Less than thirty minutes later, Jones was told she was not covered by the policy. Ray was then first told the policy was cancelled because Jones had not excluded her sister as a driver of the automobile. Jones denied receiving the notice of cancellation. Later Jones learned that another ground for cancellation was that she had not provided a copy of her driver’s license. Jones was never asked to provide the insurance company with a copy of her driver’s license, and the policy itself reflects her driver’s license number, the state of issuance and her date of birth, which indicates the insurer somehow obtained that information from Jones. Jones advised the agent when she applied for the policy that she lived with her sister, and he replied that was no problem and she would have insurance as long as she paid her premiums. The policy declares that all residents of Jones household age fourteen or over are either listed or excluded. Jones sister was excluded because she was not listed. The underwriting reasons stated as the reason for cancellation appearing on the alleged Notice of Cancellation in question: “NEED 515A OR DRIVER INFO FOR LOLA S. JONES. WE ALSO NEED LOIS’ COPY OF DRIVERS LICENSE” are of no import and had no effect on appellant’s coverage, whether she received the notice or not. Since none of the subsections of the insurance code apply to the reasons stated in the notice of cancellation, and are not authorized the notice of cancellation is illegal and void.
Further, and equally important, is whether the alleged notice of cancellation is void because it did not afford ten days notice as required by the policy and the Texas Insurance Code. It provides that a cancellation does not take effect until the tenth day after the date the insurer mails notice of the cancellation to the insured. Ray alleges the notice was mailed in a letter dated November 25, 1997, and Richard Smith, the litigation and claims manager in his affidavit supporting Rays motion for summary judgment that the attached certificate of mailing proves that it mailed the November 25, 1997 notice of cancellation. What Mr. Smith did not tell us was the date the November 25, 1997 letter of transmittal was mailed. The certificate of mailing shows that the November 25, 1997 letter was not mailed until December 1, 1997, the same day Jones went in person to pay the December premium. This means that the tenth day after the notice was mailed was December 11, 1997, and even if Jones received the notice it only provided at the most three days notice if you only view the notice without considering the amount of time it normally takes the postal service to deliver the letter. Considering postal delivery time, Jones could not have been expected to receive the letter until December 3 or 4. Such a short time of notice would not have afforded Jones a reasonable amount of time to obtain other insurance before termination. The cancellation notice clause of a standard form policy is for the benefit of the insured, intended to give the insured time to obtain other insurance before termination of the existing policy.
As a general rule, insurance policies are construed in favor of coverage. It is immaterial whether Jones actually received the notice of cancellation as it did not give Jones the required number of days notice at the time it was mailed. However, Jones denies receiving the notice.
This court construed the policy provision in this case regarding cancellation the same as required by the Insurance Code and concluded this requirement is mandatory. Since the alleged notice of cancellation failed to give ten days notice after the notice was mailed, it was fundamentally defective and void. Therefore, Jones policy was in full force and effect on December 28, 1997, the date of the accident.
This case shows really bad behavior on the part of the insurance company.