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This proceeding arose upon a request for hearing made by Joane Lloyd of Brunswick, ME, to contest the pending cancellation of property insurance coverage issued by Concord General Mutual Insurance Company. On December 9, 2002, the insurer mailed a notice of cancellation effective January 6, 2003 on policy number F409677-9, citing “property is vacant, under major renovation” as the grounds for cancellation. Pursuant to 24-A M.R.S.A. § 3007, Concord General Mutual Insurance Company provided the insured with proper notice and the insured's hearing request was timely.

A hearing on this issue was held on January 28, 2003 with Connie Mayette sitting as designated hearing officer pursuant to Title 24-A M.R.S.A. §§ 210 and 3007. 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 Concord General Mutual Insurance Company submitted a sworn statement in lieu of appearance at the hearing. Joane Lloyd represented herself at the hearing.

FINDINGS OF FACT

1. The subject property is a rental dwelling, not owner-occupied.
2. Extensive water damage was reported in July 2002. During the repairs, the policyholders decided to effect upgrades to the electrical and other systems in the areas where the damage had occurred. There is no tenant in the dwelling while the repairs and upgrades are being done, but Ms. Lloyd indicated there is a prospective tenant waiting to occupy the house.
3. The current policy term is December 1, 2002 to December 1, 2003.

ANALYSIS AND CONCLUSION OF LAW

Concord references the Maine Property Insurance Cancellation Control Act (24-A M.R.S.A. §§ 3048 – 3056) in its testimony, the applicability of which is limited to residential property up to four units, and which is also owner-occupied. The property covered by the subject policy is a one-family dwelling that is normally tenant-occupied, thus a proposed cancellation it is governed by 24-A M.R.S.A. § 3007. Subection 2 of section 3007 states, no contract of property insurance may be cancelled by an insurer prior to the expiration date of the policy, except for one or more of the following grounds:

A. Nonpayment of premium;
B. Fraud or material misrepresentation made by or with the knowledge of the named insured in obtaining the policy, continuing the policy or in presenting a claim under the policy;
C. Substantial change in the risk which increases the risk of loss after insurance coverage has been issued or renewed, including, but not limited to, an increase in exposure due to regulation, legislation or court decision;
D. Failure to comply with reasonable loss control recommendations;
E. Substantial breach of contractual duties, conditions or warranties; or
F. Determination by the Superintendent that continuation of a class or block of business to which the policy belongs will jeopardize a company’s solvency or will place the insurer in violation of the insurance laws of this State or any other state.

James Gardner, Personal Lines Underwriter, testified that a water damage loss occurred at the premises on July 15, 2002, and that as of December 7, the repairs still were not completed. He stated that the insured was doing other repairs to the dwelling not related to the water damage, leaving the property vacant for an extended period of time. He stated that a dwelling under major renovation and vacant is a substantial change in the risk which increases the risk of loss. He also stated that a notice of nonrenewal would have been issued if the company had known prior to the renewal date of December 1, 2002 that the dwelling was going to be vacant for an excessive amount of time. There was no indication that the policyholder had concealed the renovation or continued vacancy.

The Superintendent of Insurance has jurisdiction over this matter pursuant to 24-A M.R.S.A. § 3007. Concord General Mutual Insurance Company 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 Concord General Mutual Insurance Company has not established adequate grounds for policy cancellation.

The company did not submit evidence to establish that the grounds identified in 24-A M.R.S.A. § 3007 exist. As the company testimony references a substantial change, we will focus on 24-A M.R.S.A. § 3007(2)(C) which permits cancellation for a substantial change in the risk that increases the risk of loss after insurance coverage has been issued or renewed. To meet this statute, the insurer must demonstrate three distinct components:

• That a substantial change in the risk has occurred;
• That the stated change increases the risk of loss; and
• That the change has occurred since the policy was issued or renewed.

Mr. Gardner stated that the damage occurred in July 2002. Presumably, the vacancy and renovations began at or near that time. He also stated that the policy was renewed effective December 1, 2002. Although a substantial change appears to have occurred, it occurred during the prior policy term. Mr. Gardner did not elaborate as to how that increases the risk of loss. Moreover, as the change did not occur since the policy renewed, it does not provide grounds for cancellation pursuant to 24-A M.R.S.A. § 3007(2)(C).

INDEX OF RECORD:
Exhibit 1 - Affidavit of James Gardner
Exhibit 2 - Cancellation Notice
Exhibit 3 - Proof of Mailing
Exhibit 4 - Adjuster’s Memo
Exhibit 5 - Copy of Policy

Order and Notice of Appeal Rights

The intended cancellation is not approved. Concord General Mutual Insurance Company is hereby ordered to continue coverage under Policy #F409677 without interruption. 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 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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