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INSURANCE LAW: Superior Court holds that insurance policy not cancelled due to 24-cent underpayment

In a declaratory judgment action, the defendant auto insurer claimed that there was no duty to defend or indemnify based upon a cancellation that occurred for lack of full payment.  On May 5, 2012, the insurer informed the insureds that they owed $62.24 on or before June 11 as a result of a substitution of vehicles on the policy.  The insureds did not pay.

According to the court, on June 19, the insurer “sent a notice of cancellation, reflecting that the amount due was $124.48, more than twice the monthly installment actually due, and further advising that the policy would be cancelled as of July 4, 2012.”  The insureds paid $62.00 on June 26.  On July 28, one of the insureds was driving a covered vehicle when she was involved in an accident.  In the insurer’s declaratory judgment action to attempt to avoid a duty to defend and indemnify, the court concludes that the policy was not effectively cancelled.  “As an explanation regarding the $124.48 listed as the amount not paid on the cancellation notice, rather than the $62.24 that was actually due, [the insurer] advises the court that this was an amount ‘calculated internally by the plaintiff’s automated premium computation system’ that somehow calculates an amount the company believes would restore ‘premium equity.’  The amount stated in the cancellation notice, however, was not the amount due, therefore, the cancellation notice was incorrect, and might not be valid.”

The court further concludes that the insureds substantially paid the premium due and that the “incorrect and misleading” notice listing an incorrect amount due could not be allowed to obliterate “any rights of the insureds to the coverage for which they had contracted and paid”. 

21st Century North America Ins. Co. v. Perez, CV14-6051072 (March 11, 2016)