Zausmer attorneys Jim Wright, April Moore, Karen Beach, and Logan Kovach recently prevailed in the Court of Appeals in a case involving the expiration of an insurance policy.
The case involved the distinction between the cancellation of an insurance policy due to non-payment of premiums and the expiration of an insurance policy due to non-renewal, an issue that is critical when an insurance carrier is determining whether to deny a claim due to lapsed coverage.
In Michigan, to cancel a policy for non-payment of premiums before the expiration of the policy term, an insurance carrier must send written notice to its insured at least 10 days before the cancellation. Insurers often issued cancellation notices before the payment due date, advising insureds that their policies would be canceled if the required premium payment was not received by the due date. But in 2019, the Michigan Court of Appeals issued a published decision in Zoo Yang v Everest Natl Ins Co, precluding this practice.
Conversely, in the case of an expired policy, an insurer has no obligation to provide notice to an insured. The distinction between a cancelled policy and an expired policy was recently reaffirmed by the Michigan Court of Appeals in Allen v Everest Natl Ins Co.
In Allen, the plaintiff’s insurance policy was scheduled to expire at the end of its six-month term. Before expiration, the plaintiff was sent an offer to renew the policy, which was accompanied by updated policy declarations that would have been effective once the initial policy period expired if the required premium payment had been made. But the plaintiff did not pay the premium by the due date, so the policy was not renewed.
The plaintiff was then issued an offer to reinstate (rather than renew) the policy, but with a lapse in coverage. If the reinstatement payment was made by mail, the policy would have gone into effect on the date payment was received by the insurer. If the reinstatement payment was made online, the policy would have gone into effect on the date and time the payment was received.
“Unlike cancellation, an insurer has no obligation to provide notice to an insured when a policy expires.”
The plaintiff did not renew or reinstate the policy before he was in a motor vehicle accident. After the accident, he made an online payment in an attempt to reinstate his policy. Upon receipt of the premium payment, the policy was reinstated and updated policy declarations were issued. But when the claim was reported a few days later, the insurer discovered that the policy was not reinstated before the accident and the claim was denied. The denial was upheld by the trial court and this appeal followed.
The plaintiff argued on appeal which were both rejected by the court:
- The proposed policy declarations sent with the renewal offer, which showed an effective date before the accident provided the plaintiff coverage for the accident even though he did not make the required renewal payment by the due date; and
- The proposed policy declarations sent with the reinstatement offer, which also showed an effective date before the accident, provided him coverage for the accident even though he did not make the required reinstatement payment before the accident.
As to the first argument, the court reaffirmed the distinction between an insurance policy that is cancelled due to non-payment and an insurance policy that expired at the end of its term due to non-renewal. In the case of an expired policy, a notice of cancellation is not required to be sent after the period of coverage has expired. The court agreed that the proposed policy declarations sent with the renewal offer were merely part of an offer to renew the policy and not a newly issued policy, which would require a cancellation notice. Because the required renewal payment was not made by the due date, the plaintiff declined the insurer’s renewal offer and the policy automatically terminated at the end of its term – two days before the accident.
As to the second argument, the court affirmed the ruling of the trial court and agreed that the proposed policy declarations sent with the reinstatement offer did not provide coverage because the plaintiff failed to reinstate his policy before the accident. The plaintiff argued that the offer to reinstate the policy indicated that coverage would be effective on the date payment was received. But because the plaintiff made his payment online, the court held that he was bound by the additional terms and conditions of the online payment system, including that “his lapsed automobile insurance policy would not be reinstated until the date and time of payment.” There was no ambiguity because the additional terms and conditions imposed by the online payment system did not conflict with the terms of the offer to reinstate by mail. Thus, despite the reinstatement of the policy, there was no available coverage for the claim under the policy because the accident occurred before the date and time of payment.
The state of the law regarding the cancellation of insurance policies is in flux. The Michigan Supreme Court recently announced that it will hear oral argument regarding an application for leave to appeal the ruling in Zoo Yang. But, while further changes to the law surrounding the cancellation of insurance policies may be coming, the law surrounding the expiration of insurance policies has been solidified by Allen. Insurance carriers can rest assured that claims denied due to policy expiration will remain intact.