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This proceeding arose upon a request for hearing made by Brian & Beverly Buyers (the “Insured”) to contest the pending cancellation of homeowners insurance coverage provided by AIU Insurance Company (the “Company.”) On July 7, 2004, the Company mailed a notice of cancellation effective August 2, 2004, on policy number 00359656, citing “Material Misrepresentation” as the grounds for cancellation. Pursuant to 24-A M.R.S.A. § 3054, the Insured's hearing request was timely.

A hearing in this matter was held pursuant to 24-A M.R.S.A. § 3054 on October 14, 2004, with Connie Mayette sitting as designated hearing officer. See 24-A M.R.S.A. § 210. The purpose of the hearing was limited to establishing the existence of the proof or evidence given by the Company to support its reason for policy cancellation. Kathleen McCarthy, Senior Regional Underwriter for the Company, submitted a sworn statement in lieu of appearance at the hearing. Although the Insured twice requested a continuance to allow attendance at the hearing, an unsworn statement was submitted in lieu of appearance.

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

1. The Company issued a new homeowners policy on the Insured’s seasonal residence in Searsport, Maine, within the past year. Although the inception date and policy term are unknown, the application is dated November 26, 2003.
2. An inspection conducted April 17, 2004, identified a significantly higher replacement value for the home than requested on the application. It was also discovered that the furnace had failed in January 2004 and had not been replaced. The application indicated the heating system was last renovated in 1963, but was in good shape.
3. The inspector also noted that the home had been operated as a Bed and Breakfast establishment, and was up for sale. The application indicated no business was operated on the premises and that the home was not for sale.
4. The application was not signed by either the Insured or the producing agent.

ANALYSIS AND CONCLUSION OF LAW

Under the Maine Property Cancellation Control Act, a policy may be cancelled for a reason based upon one or more of the permitted grounds in 24-A M.R.S.A. § 3049. Section 3049(3)(A) permits an insurer to cancel a policy upon discovery of fraud or material misrepresentation by the insured or the insured’s representative in obtaining the insurance. In addition, § 3049(4)(B) permits cancellation for a failure to disclose a material fact in relation to the application for insurance.

Ms. McCarthy stated in her affidavit that the inspection of the Insured’s property revealed significant differences from the information provided in the application. She submitted copies of the inspection report and the application to support her position. She testified that the replacement cost developed by the inspector was over $1 million more than the limit requested on the application. In addition, she stated the heating system was inoperable, there was no caretaker on the property, and there were several abandoned vehicles. She further testified that the business use of the property had not been disclosed, and the property was also for sale. She indicated that these issues constitute material misrepresentation.

The Superintendent of Insurance has jurisdiction over this matter pursuant to 24-A M.R.S.A. § 3054. The 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 the Company has not established adequate grounds for policy cancellation.

As the application was not signed by the Insured, the information contained therein does not constitute a representation, material or otherwise. No testimony was provided from the producing agent as to what information was obtained from the Insured at the time of application, and thus, the Company has not demonstrated that the Insured made any type of material misrepresentation to the Company during the application process. In addition, the Company failed to provide a post office certificate of mailing, and therefore the actual mailing date of the cancellation notice could be not determined. Section 3050 requires that the notice of cancellation be received by the insured at least 20 days prior to the effective date of the cancellation. As the cancellation was to be effective August 2, 2004, and the hearing request from the Insured was sent July 29, 2004, I can only be certain that the Insured had three days notice of the intended cancellation. Therefore, the Company failed to establish the merits of its argument, and also failed to establish that the notice complied with statutory notice requirements.

INDEX OF RECORD:
Company Exhibit 1 – Affidavit of Kathleen McCarthy
Company Exhibit 2 – Inspection Report
Company Exhibit 3 – Unsigned Application dated 11/26/03

ORDER AND NOTICE OF APPEAL RIGHTS
The intended cancellation is not approved. AIU Insurance Company is directed to continue coverage under Policy #00359656 without lapse. Coverage shall continue unless and until a subsequent valid notice of cancellation or nonrenewal of the policy is effected in accordance with applicable law. If a subsequent termination has taken effect, the policy will terminate on the date stated in the subsequent cancellation or nonrenewal notice.

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 aggrieved nonparty whose interests are substantially and directly affected may initiate an appeal within 40 days of the date of this Decision and Order. There is no automatic stay pending appeal; application for stay may be made in the manner provided in 5 M.R.S.A. § 11004.

Dated November 8, 2004                                             Alessandro A. Iuppa
                                                                                    Superintendent of Insurance

                                                                                    ____________________________________
                                                                                    by Connie Mayette
                                                                                    Designated Hearing Officer

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