response to the outcome of this case John was an experienced agent at a medium s
ID: 416531 • Letter: R
Question
response to the outcome of this case
John was an experienced agent at a medium sized agency. John placed CGL, Commercial Auto and Work Comp for his longtime client Hannah. John also sold Hannah her homeowners policy. In addition to her business interests, Hannah owned a very large house valued at $950,000 on which there was no mortgage. Hannah paid her insurance premiums directly.
Hannah had an extensive history of neglecting to pay her premiums on both her business and her homeowners policies. Over the years, when Hannah missed premium payments on her business coverages, her agent John would routinely call Hannah and /or write to her and remind her to pay her premium. On certain occasions, the agent even paid the premium on Hannah’s behalf. With respect to her homeowners coverage, Hannah had received 9 notices of cancellation for non-payment of premium in a six year period. On 5 of those 9 occasions, John called Hannah and reminded her to pay her premium.
The agency had an internal procedure in the event that one of its clients received a notice of cancellation. It was the agency’s policy to call the carrier any time a notice of cancellation was received to confirm whether the account had been paid. Then the agency would follow-up either with a letter or a phone call to the insured if the payment was still outstanding.
In this case, Hannah failed to pay her homeowners premium yet again. The carrier properly sent out its notice of cancellation to both the agency and Hannah. The agency did not contact Hannah upon its receipt of the notice of cancellation and the policy was ultimately cancelled. Four months following the cancellation, the home and all of its contents were completely destroyed by fire. Because there was no mortgage on the property, no forced placed coverage had been obtained by a mortgage company. Hannah submitted a claim and proof of loss to the carrier. The carrier denied coverage for the loss based on the cancellation. Hannah then sued both the carrier and John and his agency.
Explanation / Answer
As per the general rule in case of cancellation of a policy, an agency have no obligation to notify the client of the same. However, if an agent undertakes the duty to notify the client in case of issuance of notice of cancellation, then it becomes their duty to notify the client.
As per the mentioned information, it was the internal policy of the organization to call the carrier whenever a notice of cancellation was received to confirm whether the amount has been paid by the client or not. If the payment was still outstanding, it was the duty of the agency to follow-up with the client using letter or phone call to inform him/her the same.
In this case, Hannah has received nine notices of cancellation in a time frame of six years. Out of those, John has called Hannah to remind the payment of premiums on five times. Besides, when Hannah again failed to pay her premium, the carrier has sent notice of cancellation to her as well as the agency. Despite of the company policy, the agency did not contact Hannah regarding the cancellation and ultimately the policy was cancelled. Hence, it can be concluded that in this case Hanna was right in suing the agency and the agency would be liable to reimburse for the loss.
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