NATIONAL INSURANCE ASSOCIATION v. GWENDOLYN T. APPLEGATE, BY AND THROUGH JANET TIMBERLAKE, HER GUARDIANAnnotate this Case
RENDERED: December 23, 1998; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NATIONAL INSURANCE ASSOCIATION
APPEAL FROM FLEMING CIRCUIT COURT
HONORABLE ROBERT I. GALLENSTEIN, JUDGE
ACTION NO. 96-CI-000116
GWENDOLYN T. APPLEGATE,
BY AND THROUGH JANET
TIMBERLAKE, HER GUARDIAN
AFFIRMING IN PART,
VACATING IN PART, AND REMANDING
** ** ** ** **
JOHNSON, KNOX, AND SCHRODER, JUDGES.
This is an appeal from a declaratory judgment
finding that appellee, Gwendolyn Applegate (Applegate), was
insured by National Insurance Company (National) on June 30,
1996, when she and her husband were involved in a tragic car
National argues that the trial court erred in finding
coverage and that the Notice of Cancellation clearly provided
that Applegate was not insured on the date of the accident.
disagree and therefore affirm that part of the judgment which
found that Applegate had until July 27, 1996 in which to pay the
additional premium to reinstate her policy, but remand for a
finding as to whether the premium was actually timely tendered so
as to reinstate coverage, and if not, whether Applegate’s ongoing
disability extended the grace period.
Appellee’s automobile was covered by National policy
number KY113725, which was effective from February 15, 1996
through August 15, 1996.
However, once National discovered that
Applegate had failed to disclose her husband's conviction for
reckless driving, it sent her a bill on March 12, 1996, for an
additional amount due to maintain coverage.
When no payment was
received, National sent Applegate a document entitled “NOTICE OF
CANCELLATION,” dated March 26, 1996.
When National denied
coverage of the June 30, 1996 accident, appellee sought a
declaration that the policy was in effect at that time.
The NOTICE OF CANCELLATION indicates that the policy
number is KY113725.
Under the title "IMPORTANT," it states, in
YOUR PREMIUM PAYMENT OF $28.50 HAS NOT BEEN
RECEIVED. THE KENTUCKY INSURANCE DEPARTMENT
REQUIRES A CANCELLATION NOTICE BE SENT
TERMINATING COVERAGE ON 6/28/96. IF WE
RECEIVE YOUR PAYMENT OF $28.50 BEFORE THE
CANCELLATION EFFECTIVE DATE, YOUR POLICY WILL
NOT BE CANCELED. IF YOUR PAYMENT IS RECEIVED
AFTER THE CANCELLATION EFFECTIVE DATE, A NEW
POLICY WILL BE ISSUED. YOUR NEW POLICY WILL
BEGIN AT 12:01 AM THE DAY FOLLOWING THE
POSTMARK DATE OF YOUR PAYMENT AS SHOWN BELOW.
The document further notifies that "your insurance will cease at
and from the hour and date mentioned above due to NONPAYMENT OF
June 28, 1996 is clearly indicated as the effective
date of cancellation.
The bottom third of the document is labeled
It also notes the policy number as
being KY113725 and states in bold, capital letters, "OFFER VALID
FOR 30 DAYS."
It states that if payment is postmarked on or
before June 27, 1996, the amount due is $28.50, but if payment is
postmarked after June 27, 1996, the amount due is $95.50.
also instructs appellee to write her policy number on her check.
No other policy number besides KY113725 is mentioned on the
The trial court considered the document ambiguous
inasmuch as it indicated on one hand that payment would reinstate
the policy but that on the other it would cause coverage to lapse
and a new policy to be issued.
The court relied on rules of
construction as they apply to insurance policies and concluded
that, "the ordinary person reading the purported cancellation
notice would reasonably expect provision of a 'thirty (30) day
grace period' rather than forfeiture."
purported cancellation of the policy was deemed ineffective, and
Applegate's coverage was found to be effective on the date of her
National contends that the notice was not a contract to
be construed and that Applegate had to prove that she relied upon
the notice to her detriment.
In the alternative, appellant
maintains that when read as a whole, the notice specifically
informed Applegate of the effect of a payment made after the
cancellation date, and that by not so construing the notice, the
court improperly made a new contract for the parties.
The trial court clearly had to construe the notice in
order to determine whether the policy was in effect on the date
of the accident.
However, we do not find the notice ambiguous,
but we agree with that part of the trial court's finding that the
original policy may have been in effect.
The upper two-thirds of
the document clearly informs the policy holder that if National
received the additional premium of $28.50 by the cancellation
effective date, June 28, 1996, the policy would not be canceled.
It further stated that if the payment were received after June
28, 1996, a new policy would be issued and effective the day
after the postmark of the payment.
This is reinforced by the
statement that the insurance would cease at 12:01 a.m. on June
28, 1996 if the premium were not paid.
We consider this part of
the document to set forth the company's general rule on
cancellation due to nonpayment of premium.
The lower third of the instrument entitled
"REINSTATEMENT BILLING," however, acts as an exception to the
In the first place, its very title reveals
that payment will result in reinstatement.
a restoration of the insured’s rights under a
policy which has lapsed or been cancelled.
To reinstate a policy holder or one who has
allowed his policy to lapse does not mean new
insurance or taking out a new policy, but
does mean that the insured has been restored
to all the benefits accruing to him under the
policy contract, the original policy.
Black's Law Dictionary 1157 (5th ed. 1979).
But see the minority
point of view, 43 Am. Jur. 2, Insurance, § 453 (1982).
follows the majority view that reinstatement of an insurance
policy that was cancelled for nonpayment of premiums has been
held to restore or reinstate all the benefits accruing to the
policy holder under the original contract.
Ins. Co. v. Haskins, 259 Ky. 780, 83 S.W.2d 457, 459 (1935); Sun
Life Assur. Co. of Canada v. Wiley, 258 Ky. 311, 79 S.W.2d 937
(1935); Home Insurance Company of New York v. Caudill, Ky., 366
S.W.2d 167, 170 (1963).
See Carden v. Liberty Mutual Ins. Co.,
278 Ky. 117, 128 S.W.2d 169 (1939) for the proposition that the
insurer may place conditions on reinstatement in addition to
payment of past due premiums.
Also, in New York Life Ins. Co. v.
Duff’s Adm’r., 207 Ky. 800, 270 S.W. 51 (1925), the Court said
the insurer could condition reinstatement on certain terms, like
proof of insurability.
In the case sub judice, the only
conditions for reinstatement were:
(1) if the premium of $28.50
is paid and postmarked on or before June 27, 1996; and (2) if the
premium of $95.50 is paid and postmarked after June 27, 1996 but
before July 27, 1996.
We believe the reasonable interpretation
of the language "OFFER VALID FOR 30 DAYS" is that the policy
holder had thirty days from June 27, 1996 in which to reinstate
her coverage by paying the $95.50 premium.
premium required if the payment were postmarked after June 27,
1996 is further indication that the same policy would be
reinstated, but because payment was made within thirty days after
the otherwise effective date of cancellation, National demanded
The record doesn’t reveal whether or not
the $95.50 was offered or tendered in a timely manner, nor if the
grace period was tolled by Applegate’s disability.
the case must be remanded for these findings.
Accordingly, we agree with the trial court that under
the exception to the notice of cancellation, Applegate had until
July 27, 1996 in which to pay $95.50 to reinstate policy number
KY113725, and we remand to the Fleming Circuit Court for further
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Ronald L. Green
John F. Estill