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In RE:

This proceeding arose upon a request for hearing made by Patrick O'Donnell of Sinclair, ME, to contest the pending nonrenewal of homeowners insurance coverage provided to them by MMG Insurance Company. On September 13, 2002, the insurer mailed a notice of nonrenewal effective October 21, 2002 on policy number HO 0223040, citing "present condition of the dwelling including incomplete construction of the exterior and interior (unsided portions, unfinished floors, walls, etc.), excessive water/moisture in the crawl space substructure and surrounding premises creating hazards to covered perils, including fire" as the grounds for nonrenewal. Pursuant to 24-A M.R.S.A. §§ 3051 and 3054, MMG Insurance Company provided the insured with proper notice and the insured's hearing request was timely.

A hearing in this matter was held on November 7, 2002, and November 14, 2002 with Connie Mayette sitting as designated hearing officer pursuant to 24-A M.R.S.A. § 3054. The purpose of the hearing was limited to establishing the existence of proof or evidence given by the insurer to support its reason for policy nonrenewal. James Stout, Marketing Representative, and Dianne Collins, Assistant Personal Lines Manager, appeared on behalf of MMG Insurance Company. William Kelleher, Esq., also represented the insurer. Patrick O'Donnell represented himself at the hearing.

On November 7, the Bureau was notified just minutes prior to the hearing that the insured was unable to attend and wished to reschedule. As the insurer's representatives had already arrived, the parties agreed to a bifurcated hearing, with the insurer presenting its case as scheduled, and a separate time being set for Mr. O'Donnell to make an appearance to present his case. On each date the absent party participated by telephone.

Title 24-A, M.R.S.A. § 3051 states that the reason for nonrenewal must be a good faith reason rationally related to the insurability of the property, and 24-A, M.R.S.A. § 3054 requires the insurer to establish the proof or evidence of their reason for nonrenewal.

In his opening statement, Mr. Kelleher indicated that the subject property had previously been written as a seasonal residence, and was rewritten to the current homeowners form in 1997, based on the representation that the property was being converted to a year-round residence.

Mr. Stout submitted 19 photographs (EXHIBIT 4) demonstrating the unfinished exterior and interior of the home. He testified that the photos show unsided portions of the exterior with bare sheathing in areas which increases the exposure to water and wind intrusion, and heat loss leading to freezing and ice dam development. He testified that the interior unfinished floors have exposed nail/screw heads and splinters that could result in claims under the medical payments coverage. He stated that the unfinished walls increase the susceptibility to heat loss and freezing and to electrical hazards: the lack of proper coverings increase the fire hazard from dust or water that has infiltrated from the unfinished exterior getting into the junction boxes.

An engineer's report (EXHIBIT 6) was also submitted, along with a copy of a letter Mr. O'Donnell had written to the insurer dated August 2, 2002 (EXHIBIT 7). Mr. Stout testified that these exhibits document the extreme wetness of the surrounding area and moisture condition of the house. He stated that the saturated substructure and high levels of resultant humidity cause corrosion of wiring which could lead to a malfunction of the system, arcing, power surge and/or fire. He stated the saturation also increases susceptibility to sump pump overflow, which is another covered exposure under the policy (EXHIBIT 3). Additional photos (EXHIBIT 5) show moisture and standing water in the crawl space.

Mr. Stout also stated that the engineer's report addressed problems with the structure's foundation, and during cross-examination raised the issue of the fire hazard presented by the storage of hay bales in the crawl space, but those issues will not be considered. The reason given for the nonrenewal action did not reference inappropriate foundation construction or the storage of hay. Consideration is given only to testimony concerning the incomplete construction and the existence of water in the crawl space that were stated in the notice.

Mr. O'Donnell referenced the stated reasons listed on the notice and testified that he did not dispute them. He indicated his intention to demonstrate why the construction was unfinished and where the water was coming from. Mr. Stout stated that the insurer is not concerned about why these conditions exist, just that they do exist. Mr. O'Donnell objected, arguing that he felt the circumstances causing the damage and the company's refusal to pay a previously submitted claim were an important issue to the proceeding. The referenced claim was made by Mr. O'Donnell against an adjacent property owner for alleged improper diversion of surface water. Mr. O'Donnell believed this resulted in the flooding and contamination of his property. The adjacent property owner also happens to be insured with MMG Insurance Company, or was at the time, and thus the claim was brought against MMG. The claim was a third-party liability claim to the company and not a claim submitted under the policy at issue in this proceeding. The circumstances surrounding this claim were not mentioned in the notice of nonrenewal as grounds for the pending nonrenewal. According, the hearing officer believed the claim was not relevant to this proceeding.

Mr. O'Donnell then objected to Mr. Stout's presentation of the photographs, and repeatedly demanded to establish Mr. Stout's qualifications to make the conclusions he was presenting. He also demanded to be allowed to establish when each photo was taken, by whom, and for what purpose. He stated that Mr. Stout had never inspected his property and did not take the photos, and argued that Mr. Stout therefore could not submit the photos as he could not swear to their validity, and that his presentation was hearsay at best and misrepresentative at worst. The hearing officer did not permit this line of questioning. When directly asked by the hearing officer if the photos accurately depict the current condition of his dwelling, Mr. O'Donnell refused to either specifically confirm or deny that the photos were of his house. He stated only that he does own a property that strongly looks like the one in the photos and "would not contend" that it is not his house "at this point."

Mr. O'Donnell at one point argued that there was no photo showing unfinished outlets, and that therefore that allegation was unproven; however photo 12 (bathroom) shows an outlet with no cover. He also argued that there is no proof that the outlets are now or ever were in service or energized. It is noted that photo 9 shows a coffee maker and toaster oven; photo 10 shows a microwave, stove and refrigerator; photo 11 shows a washing machine with a box of detergent sitting next to it; and photo 18 shows a television in the corner that appears to have been on at the time the photo was taken. These photos (in EXHIBIT 4) lead to a reasonable conclusion that electrical appliances have been in use. Upon direct questioning by Mr. Kelleher, Mr. O'Donnell did eventually concede that there is a "limited" amount of electricity present, and that at the present time he is residing there.

In closing, Mr. O'Donnell argued the company should not be allowed to use the evidence they presented. He stated the company began developing information in May 2001 under the guise of investigating a legitimate claim that was presented, and now was attempting to use the information against him. He also stated that only the actual persons who took the photos can swear to their validity, therefore they could not be submitted as sworn evidence; additionally he was not permitted to cross-examine the producers of this visual documentation. He also objected to the submission of the engineer's report, stating that he was not given the opportunity to cross-examine its author or establish her credentials. He also reiterated that he was refused the right to question Mr. Stout's professional qualifications.1

1 The Maine Administrative Procedures Act, 5 M.R.S.A. § 9057 (2) states that "evidence shall be admitted if it is the kind of evidence upon which reasonable persons are accustomed to rely in the conduct of serious affairs." In the general conduct of business, insurers routinely rely upon photos taken by their adjusters, agents, inspectors and other employees or subcontractors, as well as upon reports by engineers commissioned by them to evaluate a risk. It is also noted that Janet Packard, P.E., obtained her status of "Professional Engineer" through licensing by the State of Maine, as evidenced by her seal on the report.

Mr. O'Donnell also argued that the policy contract does not set the quality or quantity of exterior siding, interior walls or floor coverings as requirements for insurability. He stated that the policy should be required to disclose anything that could potentially result in cancellation or nonrenewal of the policy and that the failure to do so is grossly deceptive and unfair. He also argued that the contract only permits cancellation for a material misrepresentation of fact or if the risk has changed substantially since the policy was written, referencing page 17 of 18 in the coverage form HO 00 03 04 91 (EXHIBIT 3). He stated that there has been no change since the last renewal, so no substantial change could have occurred, and concluded that the company has no grounds to cancel his policy.

The hearing officer pointed out that the action under review is a nonrenewal, and not a cancellation, and that the contract contains a separate section for nonrenewal which does not include the contractual reasons found in the cancellation section. Mr. O'Donnell countered that there is no definition in the policy of either term, and that he would consider any termination to be a cancellation. He also stated that the contract does not reference "rationally related to the insurability." It is noted that although no specific definition is provided for the terms "cancellation" and "nonrenewal," the cancellation section does reference a return of the premium for the period from the date of cancellation to the expiration date, implying a termination prior to the expiration date of the policy. The nonrenewal section states that written notice will be given at least 30 days before the expiration date of the policy.2

2 24-A, M.R.S.A § 2412 requires forms to be filed with and approved by the Bureau of Insurance prior to their use. The form in question had been reviewed and approved for use in Maine.

The Superintendent of Insurance has jurisdiction over this matter pursuant to 24-A M.R.S.A. § 3054. MMG Insurance Company bears the burden of proof for establishing that the statutory grounds for policy nonrenewal exist. Based on the evidence presented at the hearing, the Superintendent hereby concludes that MMG Insurance Company has established adequate grounds for nonrenewal.

Mr. O'Donnell stipulated to the conditions cited by the insurer in the reason for nonrenewal, as he stated that he was not disputing them. The insurer has established their reasonable concerns that the property in its unfinished condition is more susceptible to the perils insured against by the policy. While sympathetic to Mr. O'Donnell's plight with the conditions preventing him from completing the home, the Bureau must uphold the insurer's statutory right to nonrenew when they have established a good faith reason rationally related to the insurability of the property.

INDEX OF RECORD:
Exhibit 1 - Postal Proof of Mailing
Exhibit 2 - Copy of Nonrenewal Notice
Exhibit 3 - Copy of Policy
Exhibit 4 - Photos:
1 - Easterly side of dwelling 9/16/02
2 - East side from distance 7/2/02
3 - Fence & drainage area between subject dwelling
(on the right) and neighboring property
4 - Side of dwelling with electrical entrance
5 - Northeast corner view (snow on ground) 4/29/02
6 - East side of dwelling (snow on ground) 4/29/02
7 - Close-up east side (green grass) 7/2/02
8 - Close-up east side, "For Sale" sign 7/2/02
9 - Interior/Kitchen table area (unfinished wall and floor) 7/2/02
10 - Interior/Kitchen traffic area (unfinished floor) 7/2/02
11 - Interior/Room beyond kitchen - Tide box (unfinished floor) 7/2/02
12 - Interior/Bathroom (unfinished floor, uncovered outlet) 7/2/02
13 - Interior/unfinished floor - water damage 4/29/02
14 - Interior/unfinished floor - water damage 4/29/02
15 - Interior/heating duct (unfinished ceiling) 4/29/02
16 - Interior/ceiling fan (unfinished ceiling) 4/29/02
17 - Interior/bedroom (unfinished wall) 4/29/02
18 - Interior/sliding doors & television (unfinished ceiling) 4/29/02
19 - Interior (unfinished walls & floor) 4/29/02
Exhibit 5 - Photos:
1 - Crawl space/hay (dampness on floor/chimney base) - tagged 7/31/01
2 - Crawl space/fan (standing water on floor) - tagged 7/31/01
Exhibit 6 - Engineer's report dated 8/30/02 and 8/98 Administrative Settlement Agreement LURC
Exhibit 7 - Insured's letter to MMG dated 8/2/02

Order and Notice of Appeal Rights

The intended termination is hereby approved. MMG Insurance Company is directed to continue coverage until February 15, 2003 at 12:01 a.m. to allow the policyholder an opportunity to seek other coverage.

This Decision and Order is a final agency action within the meaning of the Maine Administrative Procedure Act. It is appealable to the Superior Court in the manner provided in Title 24-A M.R.S.A. § 236 and M.R. Civ. P. 80C. Any party to the hearing may initiate an appeal within 30 days after receipt of this notice. Any nonparty whose interests are substantially and directly affected may initiate an appeal within 40 days of the effective date of this Decision and Order.

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