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This proceeding arose upon a request for hearing made by Kenneth Hodgkins protesting the pending cancellation of a General Liability insurance policy underwritten by Harleysville Worcester Insurance Company. The insurer mailed a notice of cancellation effective November 23, 2003, on policy number 2E8481 citing nonpayment of premium as the grounds for cancellation.

A hearing in this matter was held on January 13, 2004 with Connie Mayette sitting as designated hearing officer pursuant to Title 24-A M.R.S.A. §§ 210 and 2908. The purpose of the hearing was limited to establishing the existence of the proof or evidence given by the insurer to support its reason for policy cancellation. Staff representing Harleysville Worcester Insurance Company submitted a sworn statement in lieu of appearance at the hearing. Kenneth Hodgkins represented himself at the hearing, and called his agent as a witness.

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

1. The actual policy term is unknown, although it appears the expiration is in June 2004. An invoice dated 09/10/03 with a due date of 09/30/03 indicated three options (one-pay, two-pay or four-pay) with $312 as the current balance.
2. Mr. Hodgkins paid $317 for this general liability policy at the agency (including a $5 fee) and the payment was received by the company on 09/19/03.
3. A subsequent invoice dated 10/10/03 was received, showing that $317 had been received by the company, but that the general liability policy had a current balance of $187.75. This invoice was requiring payment of $31.75 by 10/30/03. Harleysville had taken $187.75 of the payment intended for the general liability policy, and applied it to an outstanding balance on the insured’s terminated Worker’s Comp policy.
4. Mr. Hodgkins paid the $31.75, as evidenced by cancelled check dated 10/20/03. The check was deposited to Harleysville National’s account on 10/24/03.
5. Harleysville issued a cancellation notice on 11/07/03 for nonpayment of premium if $31.75 was not received by 11/23/03.

ANALYSIS AND CONCLUSION OF LAW
24-A M.R.S.A. § 2908 permits an insurer to cancel a policy for nonpayment of premium.

Ronald Novelli, Underwriting Manager for Harleysville, stated in his affidavit that the insured’s account was in arrears, and that payments were applied to the period of time that was in arrears before current periods could be satisfied. He also testified that the insured had incurred 16 nonpayment cancellations over three policy terms, resulting in 49 telephone calls or messages needed to explain the process to both the agent and insured. He did not submit a postal service certificate of mailing or a copy of the policy. He did, however, submit documentation of many of the referenced messages, along with copies of billing screens.

Mr. Hodgkins testified that he made a payment in September to the agency, and the payment was intended to be payment in full for the general liability policy. He stated he was never notified by the company that part of the payment was diverted to be applied to a totally separate policy. He stated there have been long term problems with the application of payments. He testified that the $31.75 was paid, even though the policy had already been paid in full, and it was paid before the cancellation notice was issued. He submitted a copy of a cancelled check showing the funds were deposited in Harleysville’s account on October 24. The cancellation notice was presumably mailed on November 7, although that cannot be determined as the company failed to provide the necessary documentation.

Bob Fryer, President of the Whitney and Sanborn Agency, testified that there have been a number of billing and payment disputes, and there have been problems with the company issuing unexplained bills. He stated the payment he received from the Hodgkins’ in September was intended only for the general liability policy. He also stated that Harleysville has made it clear to him in the past that payments coming into the company will be applied to other policies for the same insured if those policies have outstanding balances.

The Superintendent of Insurance has jurisdiction over this matter pursuant to Title 24-A M.R.S.A. § 2908. Harleysville Worcester 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 Harleysville Worcester Insurance Company has not established adequate grounds for policy cancellation.

Harleysville itself demonstrated in the submitted documents that $187.75 of the $317 received for payment in full of the general liability policy was applied not to that policy, but to a worker’s comp policy. This is not an acceptable practice, as a company does not have the right to appropriate funds made in payment of one policy to apply to another. From that perspective, the policy in question was paid in full as of 09/19/03, and further billing and cancellation of the policy prior to an annual audit of exposures was inappropriate. Beyond that, however, Mr. Hodgkins provided evidence that he did pay the additional $31.75 being billed before its due date. Again, the cancellation notice was inappropriate. Although the check was clearly deposited in Harleysville National’s account, its receipt was not reflected in any of the payment screens provided by the company; therefore the company has received a payment that was not applied. Finally, Harleysville failed to document the mailing of the notice of cancellation, as no postal certificate of mailing was provided, and we are left to question whether the notice was mailed in a timely fashion. Any of these issues taken separately serve to defeat the attempt to cancel the policy.

ORDER AND NOTICE OF APPEAL RIGHTS
The intended cancellation is hereby not approved. 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.

Dated January 20, 2004                                               Alessandro A. Iuppa
                                                                                    Superintendent of Insurance

                                                                                    ____________________________________
                                                                                    by Connie Mayette
                                                                                    Designated Hearing Officer

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