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July 31, 2008

Cancellation Of Homeowner's Policy For Failure To Pay Premium

The Appellate Division, Third Department, recently considered an insured's claim that his homeowner's policy was improperly cancelled by his insurer and also that he had a special relationship with his insurance agent whereby the agent was required to inform him when his premium payments were past due in order to avoid cancellation of the policy. Kaufman v. Leatherstocking Cooperative Ins. Co., __ A.D.3d __ (April 22, 2008).

The plaintiff requested that the defendant, Hughson & Benson Associates Insurance ("Hughson") provide him with a homeowner's insurance policy on property he owned in Schenevus, New York. After issuance of the policy, plaintiff began to fall behind in premium payments. His late payment of a premium altered the installment payment schedule resulting in a higher monthly payment for August 2004. The plaintiff failed to make that payment and Leatherstocking Insurance sent a letter notifying him that his policy would be cancelled on September 26, 2004 if the minimum premium payment was not received. Plaintiff failed to remit payment and the policy was cancelled. Ten days later, the plaintiff's property was destroyed by fire resulting in a loss of $92,243.

Leatherstocking Insurance disclaimed coverage based upon its policy cancellation for nonpayment of premium. Plaintiff commenced suit against both Leatherstocking Insurance and Hughson alleging causes of action for breach of contract and negligence. After joinder of issue and discovery, the defendants moved for summary judgment. Supreme Court granted the motions and the plaintiff appealed.

The Appellate Court rejected plaintiff's argument that the notice of cancellation was defective since it did not specify the amount due as required by Insurance Law § 3425(c)(1)(A). The court noted that that provision was applicable to automobile rather than homeowner's policies and that the notice clearly stated that the minimum payment of $87.40 was due to maintain the policy in effect.

The Court also rejected plaintiff's argument that the cancellation notice was not received. Leatherstocking's proof of its standard operating procedure for mailing notices of cancellation and proof of the actual mailing by an affidavit of an employee with personal knowledge was sufficient to create a presumption of receipt and the plaintiff's testimony that he had not received the notice of cancellation was insufficient to rebut such presumption.

Finally, the Court rejected the plaintiff's contention that he had a "special services agreement" with Hughson requiring the agency to inform him when payments were past due. The court noted that Hughson submitted affidavits from its principals and deposition testimony demonstrating that no such special arrangement existed and that the plaintiff had been specifically informed that he would receive direct bills from Leatherstocking. "Significantly, plaintiff did not submit proof sufficient to raise a question of fact on this issue as plaintiff's deposition testimony indicates that his claim is based upon conversations that he had with one of [Hughson's] principals regarding an unrelated commercial policy."

This case is an example of a successful defense by the insurance carrier and the agent to claims for coverage based upon the insured's alleged failure to have received notice of cancellation for past due premiums.


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