From the desk of Kyle Riley: Under most standard mortgage clauses, a lender shall be notified at least 20 days before the date cancellation or nonrenewal homeowners insurance policies take effect. If a loss occurs during this notice period, a lender will have coverage despite the fact that the policy may have already been cancelled to the borrower’s interest.
Claims Pointer: When an insured fails to renew its homeowners’ insurance policy, the insurer will not be liable for breach of contract, bad faith, or Consumer Protection Act (“CPA”) violations despite the fact the mortgagor may have coverage under the cancelled policy. It is imperative that the insurer conform to all statutory and policy notice provisions in order to properly cancel the policy, or they potentially risk exposing themselves to coverage when an insured fails to pay the policy premium.
Johnson v. Safeco Ins. Co. of Am., 176 Wash. App. 1022 (2013)
The plaintiff in this case (Johnson) owned a house that was insured by the defendant (Safeco Insurance Co). Johnson refinanced the house with Taylor Bean & Whitaker Mortgage Corp. (TBW) who assumed responsibility for paying the insurance premium from the escrow account. Safeco sent TBW and Johnson a renewal notice for the upcoming 12–month policy period and TBW sent Safeco a check for the premium amount due to renew the policy. However, TBW stopped payment on the check and did not reissue another check to pay for the premium. Safeco sent Johnson an expiration notice stating that Safeco had not received the renewal premium from the mortgage company. The notice gave Johnson at least 31 days to send Safeco the premium to “keep your policy in effect.” Neither Johnson nor TBW paid the premium to renew the homeowners’ insurance policy.
A week after the deadline to cure passed Safeco sent a notice of cancellation to TBW stating that the mortgage company’s interest in the policy would be cancelled in 20 days. Before the cancellation period expired, the chimney in Johnson’s house caught fire, destroying the house and personal property. Safeco denied coverage to Johnson, but concluded that TBW was entitled to coverage for the structural damage to Johnson’s house.
Johnson filed a lawsuit against Safeco alleging it breached the terms of the insurance policy by failing to provide proper notice to Johnson before cancellation, and a breach of contract by failing to pay for the cost of structural repairs, personal property damage, and living expenses. Johnson further alleged claims of bad faith under the Insurance Fair Conduct Act and a violation of the CPA. Safeco filed a motion for summary judgment arguing that because Johnson did not pay the premium, the homeowners’ policy expired before the fire occurred. The trial court granted the motion and Johnson appealed.
On appeal, Johnson argued the insurance policy became effective when Safeco sent him a copy of the renewal policy because TBW sent payment of the premium. Johnson further contended that Safeco did not comply with either the policy or the statutory notice requirements because he failed to receive Safeco’s expiration notice. The Court rejected these arguments because the renewal notice and express terms of the policy require payment of the premium in order to renew the policy and that, under Washington law, proof of mailing is proof of service.
Next, Johnson claimed that because Safeco did not properly notify TBW, the policy was in effect as to both TBW and Johnson at the time of the fire. The Court disagreed noting that under the terms of the policy, TBW had a separate interest as the mortgagee. The policy specifically provided additional protection to the mortgagee that requires notification before cancellation or renewal. The court did not err in granting the summary judgment dismissal of the claims against Safeco.
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