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Insurance Law
University of South Carolina School of Law
Davis, Bill

Insurance Law
 
Class 1: Introduction
Class 2: Formation/Cancellation/Rescission of the Insurance Contract
 
·         Rawl v. American Central Ins. Co (1913):
o        ∆ issued insurance policy to Jeffcoat (owner) on house/other, and Π held the mortgage. To protect himself, Jeffcoat signed an agreement stating: “Policy to be cancelled at any time at the request of the insured, or by the company, giving 5 days’ notice of such cancellation . . . and if mortgagee, etc., having interest other than insured, provisions/conditions apply the same way.”
o        ∆ elected to cancel it, and let Jeffcoat know, and paid him back unearned premiums and received receipt for cancellation.
§         Didn’t let Π know until the day of a fire.
o        Issue: Whether, under the terms of the policy, Π was entitled to the 5 days notice?
o        Holds: Yes.
§         No doubt that under a policy like this a mortgagee or payee holds protection under the policy subject to having it defeated by any act or omission of the assured.
§         Under such a policy it’s the owner’s, not Π’s interest, that is insured, and Π must stand or fall on the performance or breach by the owner of this K.
§         Even though the ∆ didn’t insure the Π’s interest, it places his name in K as one of the parties in interest, with full knowledge that it is important to Π to have notice of cancellation so he can obtain other insurance or ask for repayment of debt to him.
§         Here, ∆ hasn’t just limited its duties to Jeffcoat.
·         Even more fair since ∆ wrote the terms of the policy.
o        For that reason “the language is to be construed most strongly against it.”
o        When ambiguous or doubtful, courts will adopt the meaning most favorable to the maintaining of liability.
§         Cites Lattan v. Royal Ins. Co: Says mortgagees were entitled under a policy to notice of cancellation. He takes the K of insurance subject to the conditions of the policy, and under the liability to have his rights defeated by cancellation of such. 
§         Since the policy doesn’t say who notice should be given to, the ∆ can’t cancel a policy (insurance K) before natural expiration without notice to the Π (mortgagee).
§         Π was entitled to the 5 days’ notice of cancellation.
 
·         Steele v. Seibels, Bruce & Co. (1988):
o        Π bought a car (car 1) and had it insured through ∆ and financed his premiums through a premium finance company, IFCO. They had a K saying that if Π didn’t make his monthly payments, IFCO had power of attorney and could cancel the Π’s policy with ∆. Then Π bought another car (car 2), and had it insured through ∆, and paid the whole premium up front.
§         Π missed a payment, and IFCO told him it would cancel the insurance K if Π didn’t pay the payment, and he didn’t. IFCO properly cancelled the insurance K, and car 2 got into an accident. ∆ refused to pay benefits for it.
o        Issue: Whether lower court properly ordered ∆ to pay Π benefits for the cancelled insurance policy?
§         Lower court said that since IFCO only financed car 1, the power of attorney only extended to car 1, and not to car 2; ordered ∆ to pay for damage to car 2.
o        Held: No.
§         ∆ only cancelled b/c of IFCO’s request as power of attorney; was not unreasonable and no reason why ∆ should’ve questioned IFCO’s ability to do this.
§         The question of whether IFCO exceeded its authority is a whole different issue; but no basis for holding insurer ∆ liable to Π.
 
·         Gallant v. Todd (1960):
o        Π is suing ∆ to get her to execute a K for sale of her house, after Horton Brothers entered into a K with Π to sell the property after ∆ said she wanted $60k for it. Π said she is ready, willing and able to buy the house, but ∆ won’t get in the K now.
o        ∆ says Horton Bros ≠ have authority to bind her to a K, and that it only empowered Horton to find an acceptable purchaser for ∆.
o        Issue: Whether an document (authorizing Horton Brothers to sell a house, for $60k or price accepted, as sole agent for that sale for 5% commission) signed by a homeowner authorized Horton (a real estate broker) to execute a contract for sale on behalf of the signer?
o        Holds: No.
§         Unless the price and other terms have been completely stated by the ∆, it is the normal inference that a broker auth’d to sell or buy is not given formal power of attorney and is auth’d merely to find a seller/buyer with whom the ∆ is to conduct the final negotiations.
·         Strengthened if the agent is a broker who normally solicits.
§         Even where the complete terms are set out, ordinarily inferred that the broker is normally employed merely to find a customer.
§         Rule: Auth to accept or make a conveyance of land for the ∆ is only found if clearly expressed in the auth or clearly indicated by the circumstances.
§         In some cases, a provision in a brokerage K to the effect that owner, for certain amt of $, will convey the property to any purchaser is some evidence of intention to confer power of attorney for K of sale. Here, not so specific.
·         In light of the rest of the terms, not sufficient to confer auth to bind.
o        “In undertaking to ascertain the intention of the parties, all terms of the brokerage K must be considered. No provision must be disassociated from the others.”
·         Distinguishes Wharton v. Tolbert, where owner gave broker “sole right and privilege of selling” with stated amt of $ to execute and deliver to the buyer good title. But had fixed terms, no retention by owner of right to sell, and agreement to convey title to ANY purchaser was clear. Also, had an option for broker to get excess of asking $ in certain amt of time.
·         Notes that in Shillinglaw v. Simms, agreement auth’ing broker to effect a sale of property at certain $ with fixed terms ≠ sufficient to auth execution of sale K for the owner.
 
·         Edens v. S.C. Farm Bureau (1983):
o        Π had homeowner’s policy with ∆ for 20 years; house was destroyed by fire; ∆ denied liability b/c it said it cancelled the policy two months earlier. Π says he never got the policy, so the cancellation is ineffective.
§         Notice of cancellation was sent by regular mail (not certified or registered mail), and no return receipt requested. Policy didn’t say how notice should be given, just that 5 days notice would be given before cancellation.
o        Issue: Whether the cancellation was effective?
o        Holds: No.
§         Court says where the language of a K is ambiguous, or capable of two reasonable interpretations, should be given the one most favorable to insured.
·         The ambiguous “5 days notice” language doesn’t specify method, so should be read in favor of Π & construed to mean some method of notice other than dropping a letter in the regular mail.
·         But cites Moore v. Palmetto Bank which held that where the policy specifies that insurer can mail the notice of cancellation to insured, it is sufficient to mail.
o        Here, not the case. No reason to hold that the terms “mailing written notice” and “giving written notice” mean the same thing.
§         “Giving written notice” means that the insured will personally receive notice in a way that he will be aware of having received the notice. Involves physical delivery of a document. Can’t be accomplished by a mailbox letter which he might not even get.
§         Rule: Cts usually find that where a policy provides for cancellation by giving notice a certain number of days in advance to cancellation, actual receipt by the insured is a precondition to cancellation.
§         Here, policy says insured’ll get notice 5 days prior to cancellation, so needs actual receipt.
·         Rule: Cancellation of a policy is an affirmative defense, and the standard of proof is “preponderance of the evidence.”
o        No proof of receipt of the letter.
o        Dissent: Says that the evidence was enough that it should’ve been a jury question of fact where Π received the notice or not.
§         The judgment here was a reversal of a JNOV.
·         In a JNOV, judge views all the evidence and reasonable inferences from the evidence in a light most favorable to the party resisting the motion.
§         ∆ said that the letter & refunded premium check were sent to Π according to normal procedures.
·         Included using Π’s name, address, etc.
§         Although Π says he never got the stuff, two mortgage holders got notice of the cancellation.
§         The jury charge here was:
·         Whether the ∆ mailed (proper postage, address, etc.) the notice properly?
·         Whether the Π received notice?
§         The jury charge stated that in Glenn v. Western Union, Court held that evidence that it was properly mailed raises a presumption that it was received by the addresses, but when the receipt is denied, it raises as strong a presumption that it was never mailed, and it was for the jury to decide.
§         Jury found that the Π got the letter.
§         Law ≠ req the ∆ to prove that Π got the cancellation notice, merely req’s the ∆ to prove it properly mailed to Π’s address. Policy said it could give notice 5 days in advance, and the Court has held in the past that it was sufficient to mail where the language of the cancellation clause was substantially similar. 
·         Says actual receipt ≠ a precondition to cancellation.
·         ∆ could’ve done better to use registered/certified mail, but the legislature hasn’t required it yet. Court’s job of construing ambiguities in favor of insured doesn’t mean they can legislate.
 
·         Foster v. Ford Motor Co. (1990): 
o        Πs bought 2 cars and signed a retail installment Ks granting the seller a security interest in the cars; and seller assigned security interest to ∆; Πs defaulted on payments on the cars, and ∆ repossessed the cars.
o        Πs alleged that the ∆s violated SC consumer protection law and was liable for conversion as well as the federal Fair Debt Collection Practices Act.
§         Πs said the repossession was improper b/c ∆ mailed no notice of default and right to cure pursuant to the statute.
o        ∆ moved for summary judgment, and it was granted by lower court.
§         Considered affidavits by ∆ saying they mailed it properly and Π saying they never got it.
§         Says that the conflicting evidence creates material issue of fact, so summary judgment is improper.
o        (Ct also says that dismissing the federal cause of action was improper (trial court dismissed b/c said that the Act doesn’t apply to Lender’s, who was the one who repossessed for ∆) because it defines debt collect to include a person whose business’s principle purpose is to enforce security interests. Not sure if this is important.)
 
·         Holley v. Mt. Vernon Mills, Inc. (1994):
o        Π sued ∆ (employer) b/c didn’t want to work on Saturdays (was a 7th Day Adventist which prohibits members to work on Sunday); was fired for that; said violates a statute. The statute in question offered some rights as far as Sunday goes, but the mention of Saturday worship was sparse, and not alongside the rights to refuse work portion, necessarily. 
o        Court held that the ∆ was exempt.
§         Says that “When interpreting a statute, the Court’s primary function is to ascertain the intent of the Legislature. When a statute is clear and unambiguous, the terms of the statute must be given their literal meaning.”
 
·         Nationwide Mutual Ins. v. Commercial Bank (1996):
o        Π brought declaratory judgment action to determine if ∆, refinancer & listed lien holder, is entitled to recover for destruction of a car by owner (arson).
§         ∆ doesn’t dispute Π’s finding that owner destroyed car intentionally, but says is an innocent party who is still entitled to payment based on the policy language and its status.
o        Standard of review is that factfinding ≠ overturned unless without evidence which reasonably supports judge’s findings.
o        Policy said that lien holder will be protected except for from fraud or omissions by the policyholder/owner.
o        Issue: Whether Π is liable to ∆?
o        Held: No.
§         Insurance policies are subject to general rules of statutory construction.
§         Insurer’s duties are defined by terms of policy and can’t be enlarged by ct.
§         With out ambiguity, terms of policy must be interpreted/enforced according to their plain & ordinary meaning.
§         If intent of parties is clear, courts can’t torture the meaning to favor either party.
§         The terms of the policy were clear that fraud by policyholder would invalidate the policy.
§         The term fraud alongside omission (which usually occurs during formation of K) together don’t limit the fraud to formulation of the policy.
§         Fraud is “conduct intended to cheat and deceive the insurer.”
·         Deliberate destruction of property/staged accident/arson is fraud.
§         Also, the ∆ wasn’t a loss-payee but was an innocent co-insured. 
·         Limited under loss-payee provisions.
o        Cites Rawl’s language about the mortgagee standing or falling with the owner under a policy.
·         Says that an “open mortgage” or “loss payable” clause is a simple provision that the loss will be payable to mortgagee as his interest may appear.
o        Distinguished from “standard form” which also says that coverage for mortgagee shall not be invalidated by certain specific acts of insured which constitute grounds of forfeiture against him.
o        This is a loss payable clause, so the mortgagee can’t recover if the owner can’t.
·         Also distinguishes McCracken v. Gov’t Employees Ins.,

ife Ins. (1942): when an application or even by-laws are attached to insurance policy and form a part of the consideration, the insured is bound to that attached document.
·         Delivery
o        Bowling v. Palmetto State Life Ins. Co. (1957): test for constructive delivery of insurance policy; “whether the policy is mailed to the agent without any other intention than its unconditional delivery to the applicant.” No constructive delivery when the delivery is still subject to the applicant being alive.
o        McKinney v. Guardian Life Ins. (1936): Found constructive delivery when there was delivery of the policy to the agent for the insurance company.
o        Cantor v. Reserve Loan Life Ins. Co. (1933): when an insurance company sends a policy, which was agreed to by insured, to ins co’s agent for delivery to insured, K is in force.
o        Ellis v. Capital Life & Health Ins. Co. of Columbia (1956): A condition, whether the insured knew of it or not, that the delivery of the policy required sound health of insured at time of delivery is enforceable.
·         Payment of First Premium
o        Listak v. Centennial Life Ins. Co. (1997): unless clear and unequivocally stated otherwise, application + payment of first premium = justifiable expectation of immediate coverage.
o        McCormick v. State Capital Life Ins. Co. (1970): Giving a worthless check to the insurer isn’t payment of premium, so if a bad check is given no payment of premium no coverage.
 
Cancellation of Insurance Policies
·         U.S. Fidelity & Guaranty Co. v. Security Fire & Indemnity (1966):
o        “Cancellation” = termination prior to end of policy period.
o        “Termination” = expiration of the policy by lapse of policy period.
o        Motor Vehicle Safety Responsibility Act requires insurers to notify highway department of either where a currently certified insurance K is to be cancelled on cars.
·         Right to Cancel
o        Grant v. United Ins. Co. of America (1957): No cancellation where the Π keeps the policy, makes payments & payments aren’t refused, no cancellation.
o        Wilbanks v. Prudential Property & Casualty (1982): Where both parties have the right to cancel upon notice, right to terminate is effective without consent of the other party.
o        Tyner v. Cherokee Ins. Co. (1974): says that generally can’t cancel policy without agreement of the other, but if both parties agree, don’t have to follow the procedures laid out in the policy.
o        Allied Concord Financial v. Sterling Ins. Co. (1968): Says that the insurer can’t cancel policy in means other than strict compliance with terms of K, but can K with the insured that cancellation can be effective prior to the return of unearned premiums.
·         Grounds for Cancellation
o        American Nat’l Fire Ins. v. Smith Grading and Paving Inc. (1995): S.C. Code Ann. § 38-76-730 which lists reasons why an insurance policy can be cancelled doesn’t apply retroactively.
o        S.C. Farm Bureau v. Courteny (2002): S.C. Code. Ann. § 38-77-120 forbids automatic termination clause that allows for unilateral cancellation by insured.
·         Procedure for Cancellation
o        Tyner v. Cherokee Ins. Co. (1974): mere procurement of an ins. policy with the intent of substituting for existing policy doesn’t cancel existing policy unless agreed upon by both parties.
o        Gordon v. Colonial Ins. Co. of CA (2000): Cancellation means termination of K that would be in effect but for the cancellation (can’t cancel an inactive/ineffective policy).
o        S.C. Farm Bureau v. Courtney: the fact that an insured got a new policy on the replacement vehicle doesn’t mean she intended to cancel the policy.
·         Notice
o        Nat’l Svc Fire Ins. v. Jordan (1972): burden is on insurer to give notice that a policy previously certified will be cancelled or terminated and in the absence of compliance therewith continuous coverage will be afforded to the insured.
o        Lundy v. Lititz Mutual Ins. Co. (1957): while notice isn’t formulaic, it must unequivocally indicate to insured intent to not be bound; if ambiguous, should be resolved in favor of insured.
o        Jones v. State Farm (Ct. App. 2005): says that § 120 only req’s notice when the insured had been ceded to the Facility.
·         Service or Mailing
o        Allstate v. Austin (1964): when cancellation notice isn’t mailed to last known address of the insured, not effective.
·         Repayment of Unearned Premiums
o        Middleton v. US Fidelity & Guaranty (1979): cancellation notice said that payment of premiums would be returned in due time, but this wasn’t good enough because the policy said would be returned either (1) with the cancellation notice or (2) on demand of the insured; rendered attempted cancellation ineffective.
o        Allied Concord Financial Corp. v. Sterling Ins. Co. (1968): while usually it is required that payment is returned with cancellation, parties can specify in K that cancellation will be effective before return of the premium.
o        Moore v. Palmetto Bank (1961): A policy provision which doesn’t require return of premium for cancellation turns the relationship into debtor-creditor relationship.
o        Elmore v. Middlesex Mut. Fire Ins. Co. (1951): Refund can’t occur by crediting it to some other indebtedness or account that the insured owes on.
·         Waiver or Ratification of Defective Cancellation
o        McElmurray v. American Fidelity Fire Ins. Co. (1960): ??