Summary
In Gibbons and Plotner the Ohio courts were called upon to construe the contract language in order to determine whether the policy had been cancelled effectively.
Summary of this case from L'Orange v. Medical Protective CompanyOpinion
No. 32494
Decided October 31, 1951.
Insurance — Automobile liability — Person injured by insured cannot recover from insurer, when — Cancellation of insurance before injury — Rights on cancellation fixed by contract — Refund of unearned premiums not condition to effective cancellation, when — Incorrect reason for cancellation given by insurer — Validity of cancellation not affected thereby, when — Section 9510-4, General Code.
1. A person injured by an insured cannot recover from the insurer under the provisions of Section 9510-4, General Code, if, before the injuries were received, there was a valid cancellation of the insurance which would otherwise have justified recovery against the insurer by the person so injured.
2. In the absence of legislation the rights of the parties on cancellation of an insurance policy pursuant to its terms are as fixed by the contract as set forth in the policy.
3. Where a policy of insurance provides that it "may be cancelled by the company by mailing to the named insured * * * written notice stating when not less than five days thereafter such cancellation shall be effective," that the time of cancellation "stated in the notice shall become the end of the policy period," that "earned premiums shall be computed pro rata," that "premium adjustment may be made at the time cancellation is effected and, if not then made, shall be made as soon as practicable after cancellation becomes effective" and that "the company's check or the check of its representative mailed or delivered as aforesaid shall be a sufficient tender of any refund or premium due to the named insured," the refund of unearned premium to the insured is not a condition, either precedent or subsequent, to effective cancellation of the policy; and, after cancellation pursuant to such written notice, the insurer is merely indebted to the insured for the amount of any such unearned premium.
4. Where an insurer is not required by the terms of the policy to give a reason for its cancellation, the fact that its notice of cancellation gives a reason and that reason is not a correct reason will not affect the validity of such cancellation.
APPEAL from the Court of Appeals for Ashland county.
Plaintiff recovered a judgment against the defendant Kelly on account of personal injuries sustained by the plaintiff on March 19, 1949, as a result of the negligence of Kelly in the operation of his automobile. Thereafter, the judgment not being paid, the plaintiff filed a supplemental petition against the defendant insurer for recovery pursuant to Section 9510-4, General Code.
The defendant insurer had on April 5, 1948, issued an automobile liability policy to Kelly and shortly thereafter received payment from Kelly of the premium due thereon for a period of one year.
The provisions of the policy with respect to cancellation so far as material in this case were as follows:
"* * * This policy may be cancelled by the company by mailing to the named insured at the address shown in this policy written notice stating when not less than five days thereafter such cancellation shall be effective. The mailing of notice as aforesaid shall be sufficient proof of notice and the effective date and hour of cancellation stated in the notice shall become the end of the policy period. * * *
"* * * If the company cancels, earned premium shall be computed pro rata. Premium adjustment may be made at the time cancellation is effected and, if not then made, shall be made as soon as practicable after cancellation becomes effective. The company check or the check of its representative mailed or delivered as aforesaid shall be a sufficient tender of any refund or premium due to the named insured."
It is conceded that on September 1, 1948, the insurer mailed to Kelly a written notice of cancellation of this policy stating that such cancellation should be effective on September 6, 1948.
Instead of sending to Kelly the pro rata part of the premium for the period after the date of cancellation, the amount of such unearned premium was credited by the insurer's agent as a partial payment on the unpaid indebtedness of Kelly to such agent on account of premiums paid by such agent on behalf of Kelly for other insurance policies which Kelly had the agent take out for him with other insurers.
In fact, the written notice of cancellation to Kelly stated that it was for nonpayment of premium and that, therefore, nothing was due from the insurer to Kelly on account of any unearned premium.
A jury having been waived by the parties, trial was had before the Common Pleas Court which rendered judgment for the defendant insurer. That judgment was affirmed by the Court of Appeals and the cause is now before this court on appeal, a motion to certify having been allowed.
Mr. Kenneth J. Nordstrom, for appellant.
Mr. Robert L. Ross, for appellee.
Previous decisions of this court require the conclusion that a person injured by an insured cannot recover from the insurer under the provisions of Section 9510-4, General Code, if, before the injuries were received, there was a valid cancellation of the insurance which would otherwise have justified recovery against the insurer by the person so injured. See, for example, In re Estate of Basmajian, 142 Ohio St. 483, 52 N.E.2d 985; Conold v. Stern, 138 Ohio St. 352, 35 N.E.2d 133, 137 A.L.R., 1003.
Thus, the question in the instant case is whether the refund of unearned premium to the insured, either at or within a reasonable time after the notice of cancellation is sent to him, is a condition, either precedent or subsequent, to effective cancellation of an insurance policy having the foregoing cancellation provisions.
Defendant insurer has contended that the facts relative to these transactions would justify a finding that the insurer had paid the unearned premium to Kelly. Because of the conclusion which we have reached on the foregoing question, we do not deem it necessary to consider that contention in deciding this case.
Unless we are to depart from the decision and reasoning of this court in Insurance Co. v. Brecheisen, 50 Ohio St. 542, 35 N.E. 53, we believe that the answer to the foregoing question is that such refund of unearned premium is not either a condition precedent or subsequent to effective cancellation of a policy such as that involved in the instant case.
The reasons given in support of this court's conclusion in the Brecheisen case require such an answer even though the provisions for cancellation involved in that case differed from those involved in the instant case.
Thus, in the opinion by Burket, J., in that case, it is said at page 547:
"The Legislature has seen fit to leave the rights of the parties, when the cancellation is upon request of the company, as such rights may be fixed by the contract in the policy."
It has not been claimed that any legislation might justify a conclusion that the rights of the parties in the instant case are to be other than as fixed by their contract as set forth in the insurance policy.
In the opinion in that case it is said at page 548:
"No contract is found in this policy for the return of the unearned premium as a condition precedent to the termination of the insurance, and the rights of the parties must be determined by the contract which they have made, and not by a contract to be made for them by the court. The question in such case is not what contract the parties should have made, nor what would be equitable, but what contract did they in fact make? Each party must stand or fall upon the written contract found in the policy.
"True, there is a class of cases which hold that both notice and the return of the unearned premium, are required to cancel the policy and terminate the insurance, but in all these cases the contract contained in the policy so provided.
"The contract in this policy does not so provide, and therein lies the distinction."
The fact that the insurer stated that cancellation was for nonpayment of premium, when the premium had been paid, has no significance in the instant case. Under the terms of this policy the insurer was not required to give any reason for cancellation. Where an insurer is required to give no reason for cancellation of a policy, the fact that its notice of cancellation gives a reason and that reason is not a correct reason will not affect the validity of such cancellation.
The rights of Kelly have not been prejudiced by the failure of the insurer to recognize any obligation to return anything to Kelly on account of any unearned premium. If there was any unearned premium due at the time of cancellation, the insurer under the terms of the policy became indebted to Kelly for the amount of such unearned premium. The mere statement of the insurer that it was not so indebted could not affect that obligation.
The question, as to whether a refund of the unearned premium is a condition of cancellation of a policy containing provisions substantially identical to the cancellation provisions of the policy in the instant case, has been considered by other courts. The same conclusion reached by this court has been reached by almost all of them. The cases are set forth in the annotation at 16 A.L.R. (2d), 1200, at 1204 et seq. See, also, Woodard v. Calvert Fire Ins. Co., 239 S.W.2d 267 (Kentucky 1951).
The plaintiff argues that, by stating that such a conclusion would follow "in absence of proof that refund had not been done as soon as practicable after the cancellation," the Tennessee Supreme Court in Wallace v. State Farm Mutual Automobile Ins. Co., 187 Tenn. 692, 216 S.W.2d 697, indicated that refund of the unearned premium is a condition subsequent to effectiveness of a cancellation. It may be observed that this qualification of the statement of the conclusion reached by the Tennessee court merely represented an effort by that court to confine its decision to the precise facts involved in the case. We do not believe that it amounts even to a dictum that a different result would have followed if there had been proof in that case that the refund had not been made as soon as practicable after the cancellation.
A contrary conclusion to that of this court has been reached by the courts of Louisiana and South Carolina. Ellzey v. Hardware Mutual Ins. Co., 40 So.2d 24 (Louisiana 1949); Crotts v. Fletcher Motor Co., 64 S.E.2d 540, 546, 547 (South Carolina 1951); Elmore v. Middlesex Mutual Fire Ins. Co., 65 S.E.2d 871 (South Carolina 1951).
The only authority cited by the Louisiana court in support of its conclusion on this question in the Ellzey case is a quotation of the subheading of Section 451 (a) in 45 Corpus Juris Secundum, 96, that "the return or tender of the unearned premium to the insured is generally a condition precedent to cancellation of a policy by the insurer." However, a reading of the text under that subheading reveals the following statement at page 98:
"* * * under a provision for cancellation on notice with or without tender of the unearned premium, and for the refunding of such premium, if not then tendered, as soon as practicable after cancellation, the giving of notice of cancellation without such tender terminates the policy on the specified date and creates a debtor and creditor relationship as to the unearned premium."
This conclusion necessarily follows from the statement, which precedes it on page 97 in the same text under the same subheading, that "in the absence of a statute to the contrary, the parties are at liberty to contract on this subject." We believe that the authority relied upon by the Louisiana court calls for a a conclusion contrary to that reached by that court.
A reading of the South Carolina court's opinion in the Crotts case discloses that it relied upon authorities which involved cancellation provisions that required not merely notice of cancellation but either such notice and a return of premium with it or such notice and a statement with it that the premium would be refunded upon demand. There are no such provisions in the policy involved in the instant case. The court in the Elmore case merely relied upon the Crotts case and some of the authorities cited in the Crotts case as authority for the court's decision. In those two cases, the South Carolina court apparently failed to even consider whether the cancellation provisions which it was construing might require a different conclusion than did the different cancellation provisions involved in the authorities relied upon.
Judgment affirmed.
WEYGANDT, C.J., ZIMMERMAN, STEWART, MIDDLETON, MATTHIAS and HART, JJ., concur.