Insurance Policy Cancellation And Other Law

Mineral Wells lawyers who handle insurance cases need to be aware of the different ways that insurance policy cancellations work as it relates to other laws. A 1994, Waco Court of Appeals case shows a good example of this. The style of the case is, Truck Insurance Exchange v. Martin. Here is some information from that case.
On July 13, 1991, an employee of Martin was involved in a truck accident. Mr. and Mrs. Salazar were the driver and the passenger of the vehicle which was rear-ended by the eighteen-wheel Martin vehicle driven by Martin employee Terry Lawley.
The Salazars sued Martin and Lawley. Counsel provided jointly by Harco and by Truck defended Truck. The action was settled by Harco’s payment of $725,000 on behalf of Martin and Lawley. Truck did not participate in the settlement.
Truck filed a declaratory judgment action against Martin, seeking a declaration that it had no duty to defend or indemnify Martin in the Salazar matter because Martin’s policy had been cancelled by Truck before the accident, although Truck admitted that it had not complied with the cancellation terms of an endorsement to the policy. Truck claimed that it was exempt from compliance by Railroad Commission regulation, Rule 5.185. Martin disagreed.
Truck and Martin filed cross-motions for summary judgment on the coverage question. The court heard the summary judgment motions and signed the order granting Martin’s summary judgment.
The primary issue in this appeal is whether Martin’s policy with Truck had been effectively cancelled before the accident by the Railroad Commission’s acceptance of the Harco Certificate of Insurance or whether Truck is obligated to provide what would essentially be double coverage for the accident. Although Truck admitted that it had not complied with the cancellation terms of an endorsement to the policy concerning cancellation of the endorsement (Form F)–by giving the Railroad Commission thirty days’ notice of endorsement cancellation–it claims it was exempt from compliance by a Railroad Commission regulation.
Harco issued a business automobile policy to Martin, effective June 20, 1991. On July 12, 1991, the day before the accident in question, Harco executed a Form E, Uniform Motor Carrier Bodily Injury and Property Damage Liability Certificate of Insurance, and transmitted it to the Railroad Commission. The Railroad Commission accepted it effective June 20, 1991, as providing the mandatory coverage for Martin.
Truck contends that the court erred in granting Martin’s summary judgment. Truck points out that the main body of the policy can be effectively cancelled by sending written notice ten days prior to the effective date of cancellation, if the reason for cancellation is non-payment of premiums. When Martin failed to pay the premium due, Truck cancelled the policy under this provision, by letter dated May 16, 1991, effective May 31, 1991.
The Texas motor carrier laws require mandatory insurance coverage for truckers traveling on public highways, and a certificate referring to that coverage was attached to the policy as Form F. Form F provides that it cannot be cancelled without cancellation of the policy itself and that such cancellation may be accomplished by the company or the insured giving thirty days’ notice in writing to the Railroad Commission, the thirty days to run from the date the notice is actually received in the Commission’s office. However, this cancellation procedure is not required if another insurance company has insured the common carrier with replacement coverage. Truck did not send notice of cancellation of endorsement Form F to the Railroad Commission until after the Salazar-Scolton accident had occurred. It is Truck’s position that Rule 5.185 of the Railroad Commission applied to alleviate the notice requirement to the Commission, and that Truck owed no further duty to Martin under Texas law after Harco’s replacement policy became effective.
Martin asserts that the trial court properly determined that Truck owed coverage and the costs of defense for the Salazar accident according to policy # 7577 36 24. Martin alleged that the Truck auto policy was in effect on July 13, 1991, by its express terms, and that Truck failed to follow the mandatory procedure prescribed for the cancellation of the policy prior to the accident. Although the trial court’s order did not specify which of Martin’s theories it adopted in granting summary judgment, Truck argues that neither theory entitled Martin to summary judgment as a matter of law, because the endorsement was cancelled by operation of law before the accident when Harco’s replacement coverage became effective.
Martin contended that coverage existed under the express terms of the Truck auto policy, and alternatively, that coverage by Truck existed because of Truck’s alleged failure to follow the mandatory procedure prescribed for the cancellation of its endorsement prior to the accident. This court disagreed. There was no question that the Harco policy was in effect at the time of the accident. The Railroad Commission recognized Harco’s policy covering Martin as of June 20, 1991, and Truck was excused from giving the requisite thirty days’ notice to the Railroad Commission. Harco not only defended but alone settled with Martin.
Furthermore, Truck complied with its own policy provisions regarding cancellation. Form F served only to amend the policy to provide the mandatory insurance for auto bodily injury and property damage liability in accordance with state motor carrier law or regulations promulgated by any state commission having jurisdiction, to the extent of the coverage and limits of liability.
The cancellation provision at issue in this case, section three of Form F, states that the endorsement may not be cancelled without cancellation of the policy to which it is attached. Although Truck admits that it did not send notice of cancellation of the endorsement and policy to the Railroad Commission until after the accident, nevertheless, by the terms of endorsement Form F itself, the only portion remaining to be cancelled by giving thirty days’ notice to the Railroad Commission was Form F–the endorsement. The policy itself had been cancelled by its own terms for non-payment of premiums.
To understand what Form F required, one must look to the state motor carrier laws and regulations issued by the Railroad Commission to determine what are “the coverage and limits of liability required thereby” and to the rules regarding cancellation of endorsement Form F, specifically Rule 5.185. Because the trial court apparently accepted Martin’s argument that Form F required thirty days’ notice of cancellation to the Railroad Commission before the policy could ever be effectively cancelled, the trial court did not address the applicability of Rule 5.185 as it pertained to the Form F cancellation.
The Motor Transportation Regulations of the Railroad Commission contain the following exception to the thirty days’ cancellation notice requirement to the Commission. It is this exception on which Truck relies:
Section 5.185 TERMINATION. Except when replaced by another acceptable policy or certificate of insurance, surety bond, proof of qualifications of self-insurer … no surety bond, policy, or certificate of insurance or other security or agreement shall be cancelled or withdrawn until after thirty days notice in the form prescribed by the State Board of Insurance has been given to the Commission by the insurance company or surety or sureties.
Under this Railroad Commission rule, the thirty days’ notice of cancellation requirement does not apply when a certificate of insurance is replaced by another acceptable policy or certificate of insurance, thus triggering termination of endorsement Form F as soon as the Commission accepted Harco’s replacement policy. Rule 5.185 excuses the thirty-day notice requirement once replacement coverage becomes effective, assuming ultimate approval by the Railroad Commission; therefore, the “laws and regulations” promulgated by the Railroad Commission were complied with once Harco’s policy was accepted. It is undisputed that the Railroad Commission accepted Harco’s replacement certificate of insurance effective June 20, 1991. The uncontroverted summary judgment testimony of Charles E. Miller, Supervisor of the Insurance Section of the Railroad Commission, established that the Commission had accepted Harco’s certificate of insurance effective June 20, 1991. He testified that the Railroad Commission records reflect that Harco’s certificate of insurance was in effect on July 13, 1991, the date of the accident. He also testified that the purpose of Rule 5.185 is to allow an insurance company which overlooked sending a Form K cancellation notice to the Commission to “get out” of the thirty-day notice requirement as long as the new insurance carrier had filed evidence of its coverage with the Commission. Miller further testified that the Railroad Commission recognized the June 20, 1991, effective date of Harco’s policy and that a previous carrier is allowed to cancel coverage effective the same date that the new insurance carrier’s coverage went into effect. Harco obviously believed it was the replacement insurer prior to the accident, as evidenced by its payment of $725,000 on Martin’s behalf.
The plain language of Endorsement F only required Truck to provide the compulsory insurance to Martin for thirty days “in accordance with the rules” of the Railroad Commission. The Commission itself promulgated the rule which excuses an insurance company from compliance with the cancellation notice requirement on its compulsory coverage if a new insurance company has assumed the risk. Truck was excused from compliance with the specific terms of Endorsement F attached to its policy.