Here is a complicated case regarding policy cancellation. The case is from the Eastern District of Texas, Sherman Division, and is styled, Scottsdale Insurance Company v. All Citizens Transportation, LLC, et al v. Burns & Wilcox of Texas, Inc. et al.
The procedural history is complicated and the opinion needs to be read to have a full understanding of the facts. The lawsuit is over the issue of whether an auto insurance policy had been properly cancelled when the finance company had not been properly notified of the policy cancellation.
This is a summary judgment case that was decided in favor of the insurer. A policy cancellation notice had been sent to the insured but not to the finance company as required by Texas law. The question before the Court, therefore, is whether an insurance company may cancel a policy despite a premium finance company’s failure to meet notice-of-cancellation requirements imposed by Texas law. The answer is yes.
Previous Texas case law has held that the Premium Finance Act, Texas Insurance Code, Sections 651.001-.209, which regulates premium finance companies, “must be read as a whole according to its plain language and ordinary meaning.” The Court in previous law has held that the plain language of the specific statute at issue, Section 651.161(a), only regulated premium finance companies and not insurers. A premium finance company may not cancel a policy except as provided by that section, which comports with the Act’s function of regulating premium finance companies, not insurers.
The Texas Supreme Court has explained, when construing Texas statutes, “context matters.” Chapter 651 of the Texas Insurance Code concerns the regulation of insurance premium financing and is particularly focused on the operation of insurance premium finance companies, not insurers. Chapter 651 of the Texas Insurance Code concerns the regulation of insurance premium financing and is particularly focused on the operation of insurance premium finance companies, not insurers. Subchapter D of Chapter 651, entitled “Premium Finance Agreements,” sets forth, among other things, the required form and contents of premium finance agreements at Section 651.151, the allowance of default charge provisions in premium finance agreements, at Section 651.159, and the statutory authorization for premium finance companies to secure a power of attorney from insureds, enabling premium finance companies to cancel insurance contracts on behalf of insureds, at Section 651.160. In the limited instances in which subchapter D imposes new duties on entities other than insurance premium finance companies, the Texas legislature specifically and unambiguously imposed such new duties.
None of these provisions impose any notification requirement on the insurer. Nor does Section 25.59(a) of the Texas Administrative Code. Section 25.59(a) merely implements the notice requirements imposed by section 651.161 on premium finance companies, providing, for example, that the premium finance company’s intent-to-cancel notice “shall be titled ‘Notice of Cancellation’” and confirming that copies of the notice must be must be sent to “the insured, the insurance agent, and the insured’s permanent account file.”
This Court goes into a further extensive discussion of the Premium Finance Act and the Texas Administrative Code to justify it’s ruling that the insurers failure to send notice to the finance company prevented the policy from cancelling.