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In RE:

This proceeding arose upon a request for hearing made by Douglas Dubois to contest the pending cancellation of homeowners insurance coverage provided by York Insurance Company of Maine. On November 6, 2002, the insurer mailed a notice of cancellation effective December 3, 2002 on policy number YMSP 08730, citing as the reason for cancellation:

“grossly negligent acts or omissions by the insured substantially increasing the hazards insured against.

A. )Insured has had three chimney fires in the past but has only reported one. Chimney is in need of cleaning and inspection by a professional to eliminate fire danger. In present condition chimney should not be used due to creosote build up which is a fire hazard.

B.) Because of multiple devices on a single flue chimney it does not meet present codes. The insured has an oil furnace, a wood furnace, and a woodstove all on one flue. This presents a fire hazard.

C.) Chimney is in poor condition due to the deterioration of the bricks. Chimney should not be used in present condition as it is a fire hazard.

D.) Roof appears worn and patched over time. Roof needs to be replaced to prevent loss to property from weather related perils such as wind, rain, snow, and/or ice.”

Pursuant to 24-A M.R.S.A. §§ 3049 and 3054, York Insurance Company of Maine provided the insured with proper notice and the insured's hearing request was timely.

A hearing in this matter was held on January 7, 2003 with Connie Mayette sitting as designated hearing officer, pursuant to 24-A M.R.S.A. §§ 210 and 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 cancellation. Staff representing York Insurance Company of Maine appeared at the hearing. Douglas Dubois represented himself at the hearing.

FINDINGS OF FACT

The following facts have been proven by a preponderance of evidence submitted:

1. York Insurance Company of Maine currently insures the subject property under an HO3 Form policy, with a policy term of July 23, 2002 to July 23, 2003.
2. The original inception date of coverage is not known, nor is the condition of the chimney at the time coverage was first written.
3. On October 28, 2001, the property sustained a chimney fire which was not the first chimney fire in this chimney. Although the loss was reported the next day, an adjuster was unable to inspect the chimney until 11 months later, due to scheduling difficulties with the insured.
4. At the time of the loss, and also when inspected by a chimney contractor in November 2002, an oil furnace, wood furnace and wood stove were connected to the single-flue chimney. The chimney contractor indicated the chimney has many cracks and breaks throughout.
5. Claims documents indicate the insured had reported the chimney liner was cracked. After his inspection, the adjuster indicated the chimney had a heavy buildup of creosote, was in poor condition and required replacement.

ANALYSIS AND CONCLUSION OF LAW

Title 24-A, M.R.S.A. § 3049 permits an insurer to cancel a policy of this type for a number of specific reasons. In its reason for cancellation, the insurer has specifically referenced subsection 4, which permits cancellation for “discovery of grossly negligent acts or omissions substantially increasing any hazard insured against.”

Heather Rosewall, Personal Lines Senior Underwriter at York, testified that the underwriting department had received an advisory from claims regarding the condition of the chimney. She stated that the adjuster had had difficulty scheduling time with the insured to inspect the chimney, and was not successful until nearly a year after the loss had occurred. She submitted the adjuster’s notes showing he had been told several times by the insured that he was waiting for a mason to come inspect and also indicating that the insured was not attempting to make time to meet with him.

York hired a chimney contractor, Doug Jones of Flue Master, to inspect the chimney. Ms. Rosewall submitted his report into the record. It states that the chimney has many cracks and breaks throughout, and also states that it had been used one full heating season after reporting the chimney fire damage. Ms. Rosewall argued that continued use of the faulty chimney is a negligent act that increased the exposure to another fire loss as well as the potential for a total fire loss. She also referenced the condition of the roof as noted by the adjuster.

Mr. Dubois testified that he has not burned wood since the chimney fire, and that no one has told him the chimney cannot be used for the oil furnace. He emphasized that no one who is licensed has told him that it cannot be used for wood, only unlicensed individuals have said so. He further stated that Doug Jones is not a licensed furnace technician or a licensed mason; he just puts in flues and chimneys. It is noted that the State of Maine does not license masonry contractors.

Mr. Dubois testified that he purchased a new hot air furnace to replace the old one, and submitted copies of the purchase and labor (installation) invoices. He stated that the furnace installer has noted that the new furnace is functional and safe.

Mr. Dubois also stated that neither the woodstove nor the wood furnace are being used, and said they have “both been taken away from that.” He testified that the openings for those wood appliances have been capped off, but offered no evidence, such as an invoice from a mason or a photo. He also stated that old chimneys constantly need repair, and that it was just a question of fixing the mortar, which he did himself, sometime in December 2002. He did acknowledge receipt of the claim settlement from the company in the amount of $3295, which the adjuster’s notes indicate is 50% of the estimated cost to replace the existing chimney. The offer was based on the probability that damage had occurred previously that was not reported, as the company’s expert indicated there were older cracks as well as more recent ones.

The Superintendent of Insurance has jurisdiction over this matter pursuant to 24-A M.R.S.A. § 3054. York Insurance Company of Maine bears the burden of proof for establishing that the statutory grounds for policy cancellation exist. Based on the evidence presented at the hearing, the Superintendent hereby concludes that York Insurance Company of Maine has not established adequate grounds for policy cancellation.

For 24-A § 3049(4) to apply, both elements of the statute must be satisfied. Those elements are (1) a grossly negligent act by the insured, which (2) substantially increases in a hazard insured against. As to the increase in hazard, the evidence suggests a substantial increase in hazard due to the condition of the chimney. It appears that the chimney is in need of repair or replacement and may need to be cleaned. It also appears that burning wood may increase the likelihood of a fire unless and until the chimney is cleaned and repaired. Whether that likelihood also applies to the use of an oil-burning furnace is unknown. Mr. Dubois maintained that the chimney is safe for use with an oil furnace, as “no one has told him” otherwise.

Although Mr. Dubois stated that the wood burning appliances were not used after the chimney fire in October 2001 and have since been removed, no evidence was provided. According to the insurer’s chimney contractor, those devices were still connected and operational as of his inspection in November 2002. A new furnace was installed one week before the hearing; although Mr. Dubois testified that the installer noted the furnace was functional and safe, no evidence was submitted about the condition of the chimney.

The insurer has argued that the policyholder’s behavior regarding the continued use of the chimney constitutes a negligent act by the insured. The grounds stated in 24-A M.R.S.A. § 3049(4), however, require a showing of “grossly negligent acts or omissions by the insured substantially increasing any of the hazards insured against.” (emphasis added) The statute does not define what constitutes a “grossly” negligent act or omission in this context. [It is noted that negligence involves a breach of duty (i.e. standard of care) to others.] Nonetheless, the plain language of the statute suggests that a showing of mere negligence would not meet the statutory requirement for cancellation. A showing of gross negligence implies a gross or extreme deviation from the standard of conduct that a reasonable and prudent person would observe in the same situation. Based on the evidence submitted by the company and in light of the testimony of the insured, I believe there is insufficient evidence to establish that the insured’s conduct in this case constitutes a grossly negligent act or omission. While there may be some evidence to indicate that the insured may have been able to take additional steps (and at an earlier time) to minimize the risk of fire in relation to the heating appliances and the chimney, there is insufficient evidence to suggest that his actions (or inactions) constitute a gross deviation from an ordinary standard of care.

INDEX OF RECORD:
Exhibit 1 – Copy of HO3 Policy
Exhibit 2 – Postal Proof of Mailing
Exhibit 3 – Claims Information
Exhibit 4 – Cancellation Notice
Exhibit 5 – Insured’s letter dated 11/22/02
Exhibit 6 – New Furnace invoices

Order and Notice of Appeal Rights

The intended cancellation is not approved. York Insurance Company of Maine is hereby ordered to continue coverage under Policy #YMSP08730. Coverage shall continue unless and until a subsequent valid notice of cancellation or nonrenewal is effected in accordance with applicable law.

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 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.

Dated May 27, 2003                                                    Alessandro A. Iuppa
                                                                                    Superintendent of Insurance

                                                                                    ____________________________________
                                                                                    by Connie Mayette
                                                                                    Designated Hearing Officer

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