Green Mtn. Ins. v. Maine Bonding Casualty

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No. 91-113

Green Mountain Insurance Company Supreme Court

v. On Appeal from
Orleans Superior Court
Maine Bonding & Casualty Co.,
Carol Carter, Alan Buck, Judye June Term, 1991
Cheney, Individually and as Next
Best Friend of Sheena Cheney Buck
and Gregory Hammond.

John P. Meaker, J.

Bruce C. Palmer of Downs Rachlin & Martin, St. Johnsbury, for plaintiff-
appellant

Allan R. Keyes and John A. Serafino of Ryan Smith & Carbine, Ltd., Rutland,
for defendant-appellee

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

JOHNSON, J. This is a declaratory judgment action to establish which
insurance carrier is primarily liable for damages resulting from an automo-
bile accident. Plaintiff Green Mountain Insurance Company (Green Mountain)
appeals from an order of the Orleans Superior Court granting summary judg-
ment to defendant Maine Bonding & Casualty Company (Maine Bonding). Maine
Bonding had insured a vehicle involved in a collision with a car insured by
Green Mountain, but claimed that its policy had been cancelled. We affirm.
On October 4, 1987, Gregory Hammond was driving a car lent to him by
its owner, Carol Carter, when it collided with a car driven by Alan Buck.
Hammond was insured by Green Mountain, and the Carter vehicle carried the
policy that Maine Bonding claims was cancelled. Each policy provided that
its coverage was primary with respect to the policy owner's vehicle and
excess with regard to non-owned vehicles, with the result that the Maine
Bonding policy would afford primary coverage if it were in effect. The
Maine Bonding policy had initially covered a 1976 Ford Pinto, but in March
1987 Carter notified Maine Bonding that she was substituting a 1985 Ford
Escort for the Pinto. Prior to learning of the change in cars, Maine
Bonding issued declarations of coverage for the period April 7 to October 7,
1987, and on March 16, 1987, sent a bill for $81 for the renewal, with a
minimum payment due of $27. The due date for payment was April 8, 1987.
Carter received the bill.
On March 23, 1987, Maine Bonding issued Carter two amended declarations
with respect to her new car, one covering the initial policy period from
October 7, 1986 to April 7, 1987, and the second covering the renewal period
from April 7 to October 7, 1987. The first amended declaration reflected a
"full term total premium" of $237 and stated at the bottom of the document,
"Above amendments identified by * developed a premium of $24.00." The
second amended declaration also stated a "full term total premium" of $237
and indicated at the bottom of the document that the amendments identified
"developed a premium of $156.00."
By check dated April 3, 1987, Carter paid Maine Bonding $27, apparently
in response to the March 16, 1987 bill. Maine Bonding received and negoti-
ated the payment on April 6, 1987, applying $24 of the $27 toward the
additional premium due for the new car for the remainder of the initial
term, i.e., from March 10, 1987 through April 7, 1987, and applying the
balance of $3 to the renewal period.
On April 6, 1987, Maine Bonding rebilled Carter for $24, the difference
between the minimum due for the renewal period ($27) and the $3 credit
remaining from the check received from Carter on April 6, 1987. Receiving
no further payment thereafter, Maine Bonding on April 20, 1987 mailed the
following notice to Carter:
YOUR PREMIUM PAYMENT DUE APRIL 08, 1987 HAS NOT BEEN
RECEIVED. YOU HAVE AN OPPORTUNITY TO KEEP YOUR POLICY
IN FORCE IF THE MINIMUM DUE OF $24.00 IS RECEIVED BEFORE
THE CANCELLATION OF MAY 05, 1987. SEND PAYMENT TO P.O.
BOX 226, PORTLAND, MAINE 04112. IF YOU HAVE ALREADY
MAILED YOUR PAYMENT, PLEASE DISREGARD THIS NOTICE.

Carter testified in deposition with respect to this notice that "I threw it
away, because I'd already paid it." The reason for her impression that she
had paid the bill was the similarity of the $27 she had paid and the $24
billed.
Nearly five months later, Carter's Ford Escort was involved in the
collision that resulted in the present action.
Both Green Mountain and Maine Bonding filed motions for summary
judgment. Green Mountain stated that "the essential facts of this case are
undisputed" and argued that Maine Bonding could not establish an effective
cancellation as a matter of law because its notices to Carter were
ambiguous. Maine Bonding's motion also asserted that there were no material
facts at issue and argued that its policy had been effectively cancelled as
a matter of law. The trial court ruled that Green Mountain had not met its
burden of demonstrating that the cancellation notice was ambiguous, finding,
on the contrary, that "the surrounding circumstances verify that the cancel-
lation notice was an accurate integration of the bills sent by Maine Bonding
and the payment received from Ms. Carter." The court stressed that Carter
should have been aware that her new car would require an additional premium
and that she made no inquiry of the company after receiving a cancellation
notice. The court concluded that retention of the $3 toward payment of the
renewal period premium did not estop Maine Bonding from relying on the
cancellation notice.
I. Standing
Maine Bonding argues that Green Mountain has no standing to assert that
its policy was not validly terminated for nonpayment of the premium. Maine
Bonding contends that the present issue is "personal to Carter and Maine
Bonding." We disagree. That Carter has a significant interest in the
issue cannot be disputed, because her vehicle was involved; but so does
Green Mountain, for if the Maine Bonding policy was in force on the date of
the accident, then Maine Bonding was the primary carrier, and Green Mountain
the excess carrier. It is hard to think of a question that would bear more
on both Green Mountain's and Maine Bonding's respective interests in the
underlying litigation and the declaratory judgment action is designed to
raise and resolve such issues. 12 V.S.A. { 4722 (purpose of the declaratory
judgment is "to settle and afford relief from uncertainty and insecurity
with respect to rights, status and other legal relations and it is to be
liberally construed and administered.").
Maine Bonding cites no cases in which standing has been denied in a
suit between insurance companies over the validity of, or the meaning of a
term or clause within, one of the company's policies. Declaratory judgment
actions involving such issues are legion. See, e.g., Concord General Mut.
Ins. Co. v. Home Indem. Co., 368 A.2d 596, 597 (Me. 1977); Motor Club of
America Ins. Co. v. All American Rental, Inc., 14 Mass. App. 1031, 442 N.E.2d 739 (1982); Lumberman's Mut. Casualty Ins. Co. v. Progressive
Casualty Ins. Co., 168 A.D.2d 708, 563 N.Y.S.2d 566 (1990). We therefore
conclude that Green Mountain Insurance Company had standing to assert that
its policy was not validly terminated for nonpayment of premium.
II. Cancellation of the Carter Policy
Green Mountain argues that Maine Bonding did not effectively cancel the
policy with the insured because its billing and crediting procedures created
ambiguity in the notice of cancellation. As we stated in Isbrandtsen v.
North Branch Corp., 150 Vt. 575, 579, 556 A.2d 81, 84 (1988), "Ambiguity
will be found where a writing in and of itself supports a different inter-
pretation from that which appears when it is read in light of the surround-
ing circumstances, and both interpretations are reasonable." Thus, for
example, a purported notice of cancellation can fail to include the word
"cancellation" and hence not deliver its primary message with sufficient
clarity. Travelers Ins. Co. v. Hendrickson, 1 Conn. App. 409, 413, 472 A.2d 356, 358 (1984). Or a cancellation notice plain on its face can fail to be
explicit and unequivocal under unusual circumstances. Caduff v. Universal
Underwriters Ins. Co., 381 N.W.2d 9, 12 (Minn. Ct. App. 1986).
In the present case, Green Mountain does not argue that the
cancellation notice itself was ambiguous, but rather that in the context of
surrounding events, its message could not be adequately deciphered. We
disagree. Carter notified Maine Bonding of a change in the covered vehicle
at or near the time when she was renewing her policy with Maine Bonding.
Because she gave notice of her new car during the initial coverage period,
she incurred an additional premium for that period and should have expected
to do so. Although the March 16, 1987 bill arrived before Maine Bonding
had processed her request regarding the new car, the premium bill
specifically referred to the old car, "1 76 Ford Pinto." The declarations
she received a week later, on March 23, 1987, referred to the new car and a
new premium. Therefore, she could not reasonably conclude that her
obligation to pay her insurance premium was satisfied when she paid the
March 16 bill, which referred to her old car.
Maine Bonding received the $27 payment on April 6, 1987, after it had
processed Carter's request to change the covered vehicle and after the
company sent the March 23, 1987 declaration stating that an additional $24
would be due by subsequent billing for the initial coverage period on
account of the new car. (FN1) Although Green Mountain contends that Maine
Bonding "credited payments out of sequence" when it applied the $27 first to
the initial premium period and then to the renewal period, that procedure
was proper, even though the due date for the initial premium surcharge was
later than the due date for the renewal premium. Maine Bonding's crediting
procedure prevented a current policy from lapsing, after Carter initiated a
change in vehicles. Carter received notice that her vehicle change would
result in premium increases for the initial coverage period as well as the
renewal period. She was also on notice that the $27 she paid was
sufficient only for the minimum renewal payment for her 1976 Pinto and
could not have been sufficient to insure her new vehicle because she had
received two declarations from Maine Bonding stating that her premiums for
the initial and renewal periods would be increased. She ignored what Maine
Bonding's notices stated because the $27 she paid was similar to the $24 she
was later billed. Finally, when she received notice that Maine Bonding was
about to cancel her policy, she made no inquiry whatever.
The facts of the present case are far different from those in the
cases relied on by Green Mountain. In Caduff v. Universal Underwriters
Insurance Co., 381 N.W.2d at 11, the termination notice was followed five
days later by a new declaration sheet amending the policy to provide
coverage, and stating in the space for "Return or additional premium" the
amount of "$.00." In Automobile Club Ins. Co. v. Donovan, 550 A.2d 622
(R.I. 1988) the insurer billed the insureds for a premium to cover their son
as an additional insured, and received notice that March 24, 1983 was both
the "due date" and the "expiration date," without stating whether the entire
policy or just the added coverage would expire on that date. The court held
that the purported cancellation did not meet state regulatory requirements.
Id. at 624. In Fifty States Management Corp. v. Public Service Mut. Ins.
Co., 67 Misc.2d 778, 784, 324 N.Y.S.2d 345, 353 (N.Y. Sup. Ct. 1971), the
insurer neglected to send each of two insureds one of two cancellation
notices, and the court concluded therefore that the notice procedure failed
to meet state statutory standards.
In sum, Carter received a cancellation notice that followed a series of
communications from Maine Bonding, each one of which was proper and correct.
Carter knew that she had not paid an increased premium for her new car
despite two notices declaring increases, and she did not inquire about a
notice of cancellation. She had an opportunity to avoid the negative con-
sequences of confusion inherent in the subject transactions and did not
act. Therefore, the policy was not in effect at the time of the accident.
III. Waiver and Estoppel
Green Mountain argues that when Maine Bonding credited $3 to the
payment of Carter's renewal premium, it retained an unearned premium for an
unreasonable length of time and this waived Maine Bonding's right to cancel
the policy, or that Maine Bonding was estopped from cancelling it. We do
not agree. Here, the notice of cancellation itself was definite and
unequivocal -- it was without facial ambiguities that rendered its message
unclear. Because a waiver is the voluntary relinquishment of a known right,
Segalla v. United States Fire Ins. Co., 135 Vt. 185, 189, 373 A.2d 535, 538
(1977), Green Mountain is arguing in effect that by failing to return the
unearned premium payment promptly, Maine Bonding expressed its intention to
revoke the cancellation notice and to reinstate Carter's lapsed policy. But
Green Mountain offers no theory, based either on the policy or Vermont law,
from which such a waiver could be inferred. Green Mountain concedes that
the refund of an unearned premium is not specified in the policy as an
explicit condition for cancellation, but relies on the holdings of some
courts that retention of a premium may be evidence of waiver where an
insurer specifically undertakes to effect return and does not do so within a
reasonable time. See, e.g., Riverside Ins. Co. v. Parker, 237 Ark. 594,
597-98, 375 S.W.2d 225, 227-28 (1964). In Riverside, a divided court held
that the failure of an insurer's undertaking to return an unearned premium
"as soon as practicable" nullified a prior policy cancellation. Id. at 598,
375 S.W.2d at 228. Green Mountain argues that Maine Bonding's policy
contained language similar to that in Riverside, specifically a statement in
an amendment to Part F of defendant's policy reciting "Other Termination
Provisions":
2. If this policy is cancelled, you may be
entitled to a premium refund. If so, we will
send you the refund. The premium refund, if
any, will be computed according to our
manuals. However, making or offering to make
the refund is not a condition of cancellation.
(Emphasis added.)

In addition, the actual cancellation notice contained the language "Premium
adjustment, if any, will be made after cancellation is effective." Neither
of these excerpts provides a basis for concluding that failure to repay the
$3 should result in voiding the cancellation notice. The Maine Bonding
insurance contract explicitly stated that the offer to make the refund was
not a condition of cancellation.
In response, Green Mountain points out that the Riverside majority held
that failure to return the unearned premium in accordance with the policy in
that case nullified the cancellation notice, despite language in the policy
that "payment or tender of unearned premium is not a condition of
cancellation." Riverside is, nevertheless, unpersuasive here. First, the
language in Maine Bonding's policy stating that unearned premiums shall be
returned does not contain language promising a prompt return and is
distinguishable from that in Riverside. But more importantly, where the
insured does not raise the issue of reliance on return of the unearned
premium, and no statutory or regulatory command requires prompt return in
order to maintain a cancellation, there is no reason not to honor the clear
language of the policy warning policyholders that cancellation is not
conditioned on return of unearned premiums. As the court stated in
Marchessault v. National Grange Mut. Liab. Co., 229 F.2d 698, 701 (2d Cir.
1956):
In the absence of a statute on the subject,
and no such Vermont statute has been called to
our attention, the parties were at liberty to
determine by contract the conditions upon
which cancellation might be had. Cases
involving cancellation provisions identical
or similar to those of the policy here in suit
are almost unanimous in holding that return
of the unearned premium is neither a condition
precedent or a condition subsequent to
effective cancellation, and that the
insurer's obligation to return the premium is
only a contractual duty arising in
consequence of the cancellation.

See also Riverside, 232 Ark. at 599, 375 S.W.2d at 229 (Ward, J.,
dissenting)(policy cancelled when notice received and insurance company's
failure to return premium only created a debtor/creditor relationship
between parties); Osborne v. Atlas Assurance Co., 61 Tenn. App. 618, ___,
457 S.W.2d 364, 370 (1969)(insurance company's failure to return premium
within reasonable time did not negate cancellation). Although a contractual
undertaking by an insurer or a Vermont statute could condition cancellation
on its timely return of unearned premiums, neither condition applies in this
case, and no case for waiver has been made.
Green Mountain's estoppel argument with respect to the retention of the
unearned premium also fails, since there is no genuine issue of fact
concerning Carter's reliance on the failure to return the $3 following
cancellation of the policy. Green Mountain's argument is that return of the
unearned premium might have given Carter another chance to consider that the
policy had been truly cancelled. This argument is not based on estoppel,
but rather public policy -- that it would be salutary for insurers to be
required to return unearned premiums promptly as conditions subsequent to
the issuance of cancellation notices. In the absence of language in the
insurance contract that invites reliance, we leave such concerns to the
Legislature.
IV. Suitability for Summary Judgment
Green Mountain contends that Maine Bonding's summary judgment motion
should not have been granted because genuine issues of fact remained that
were unsuitable for disposition under V.R.C.P. 56. Although some factual
issues may have been presented, none was material. For example, Green
Mountain cites uncertainty over receipt of certain bills from Maine Bonding,
most notably the bill for the $24 due on the renewal premium, after Carter
made her $27 payment, $24 of which was credited to her increased premium for
the initial period. But Carter did receive declarations clearly indicating
the sums that would be due on both the initial and renewal periods, and she
never denied that she was notified that $24 was due prior to termination.
Her claim was that the $24 amount was similar to the $27 that she recalled
paying. But if Maine Bonding's declarations and bills were clear and
accurate as to amounts due for the initial and renewal periods, appropriate
adjustments for Carter's new automobile, and credits for amounts that she
paid, as we have held they were, Carter's mistaken recollection could not
give rise to a genuine issue of material fact. The question whether Maine
Bonding's retention of the $3 unearned premium was waiver of the earlier
cancellation was similarly an issue of law. The matter was ripe for summary
judgment.
Affirmed.

FOR THE COURT

_________________________________
Associate Justice

FN1. The trial court's decision is unclear on whether Maine Bonding ever
sent a separate bill for the extra $24 due for the initial coverage period.
In her direct deposition testimony, Carter stated that she had received and
had disregarded a $24 bill, since she believed she had paid it. On cross-
examination, she was equivocal as to whether the document she remembered was
a bill or a declaration of coverage. On appeal, Green Mountain concedes
that she received either a bill or a declaration stating that $24 was due on
account of the initial period, and the declaration in evidence makes clear
that the $24 was an additional premium due because of the substitution of
vehicles.

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Concurring

No. 91-113

Green Mountain Insurance Company Supreme Court

John P. Meaker, J.

Bruce C. Palmer of Downs Rachlin & Martin, St. Johnsbury, for plaintiff-
appellant

Allan R. Keyes and John A. Serafino of Ryan Smith & Carbine, Ltd., Rutland,
for defendant-appellee

PRESENT: Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.

ALLEN, C.J., concurring. I concur in the result but decline to join
the majority in Part I of the opinion as I do not believe it addresses the
arguments raised by the defendant.

Chief Justice

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