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Cancellation / Nonrenewal Docket No. INS 05-15733 Decision
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This proceeding arose upon a request for hearing made by Melissa Norton, owner of Maine Wood Artisans & Island Elements, Inc. (the “Insured”) to contest the pending cancellation of commercial insurance coverage provided by Acadia Insurance Company (the “Company.”) On January 4, 2005, the Company mailed a notice of cancellation effective January 19, 2005, citing “Nonpayment of Premium” as the reason for cancellation. The Insured’s hearing request was timely. A hearing in this matter was held pursuant to 24-A M.R.S.A. § 3007(6) on February 16, 2005, with Pamela Stutch sitting as designated hearing officer pursuant to 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. Timothy Carter, Wood Product Specialist Underwriter, testified on behalf of the Company at the hearing. Daniel Swift, Esq. represented the Company at the hearing as Counsel. The Insured also attended the hearing in person. FINDINGS OF FACT
ANALYSIS AND CONCLUSION OF LAW The proposed cancellation of the subject policy is governed by the 24-A M.R.S.A. § 3007. Section 3007(2)(A) permits cancellation of the subject policy for nonpayment of premium, which is defined as “the failure or inability of the named insured to discharge any obligation in connection with the payment of premium on a policy of insurance subject to this section…” See § 3007(1)(C). Mr. Carter testified that at policy renewal it was requested that the account be paid via EFT, and Mr. Carter provided a copy of the EFT authorization agreement signed by Ms. Norton on behalf of the Insured, which provided that payments were to be withdrawn on the 15th of the month. Mr. Carter noted that as of August 31, 2004, the EFT notification stated that the total premium for the Insured’s policies was $10,145 to be paid in 10 installments. He stated that on September 15, 2004, the Company received payment of $1,014.50, and that on September 16, 2004, the Company processed an endorsement that reduced the premium by $20. He noted that a revised EFT notice was issued on September 30, 2004, reflecting that endorsement. Mr. Carter then indicated that on October 15, 2004, an EFT payment of $1,009.86 was unable to be processed due to insufficient funds in the Insured’s bank account. He noted that on October 21, 2004, the policy was changed from the EFT payment arrangement to a direct bill policy. He indicated that bills were sent dated November 4, 2004, on all amounts owned. He stated that on November 12, 2004, an endorsement was processed at the request of the Insured which reduced the coverage amount by $3,030. He noted that this endorsement was to be applied to future installments. He stated that the Company issued a notice of cancellation regarding the Insured’s automobile and umbrella policies on December 3, 2004. He noted that the Company received a partial payment from the Insured on December 7, 2004, and the Insured instructed the Company to apply $498 to the umbrella policy and the remaining $2 to the automobile policy. Mr. Carter noted that this action left the commercial package policy without any payment. Mr. Carter then testified that a notice of intent to cancel was sent out on January 4, 2005, regarding the commercial package policy. He stated that the Company has received payments to be applied to the other policies and those have been kept current. Mr. Carter then explained the billing process associated with the subject policy. He stated that the policy became effective on June 24, 2004, and payments for such a policy are typically collected in 10 installments beginning at the inception of the policy. He stated that processing of the EFT arrangement delayed collection of the premium and instead of being collected in June, the first installment on the policy was collected in September of 2004. He noted that as a result, the billing was behind on coverage already provided. He indicated that if an insufficient funds situation arose during an EFT withdrawal, the policy would change automatically to a direct bill arrangement. Ms. Norton testified that the Insured has been insured by the Company since 1999 and that the past several years have been difficult financially. She stated that at the time of the renewal of the commercial package policy, she was attempting to devise ways to reduce costs. She stated that she discovered that the building insurance constituted about half of her premium expense. She explained that in September 2004, she notified her agent that her landlord would be taking over the building insurance, and she requested that the agent cancel the building insurance portion of her commercial policy. Ms. Norton testified that the agent stated that the adjustment would not be possible for the September payment, and accordingly, she directed the agent to have it taken care of for the October payment. She stated that she hadn’t heard anything back from the agent and sometime in early October she called the agent to inquire about the status of her request. She noted that the agent advised her that the matter would be looked into and that at that point, the agency sent a letter to the Company requesting that the change be made. She stated that she hadn’t expected the request to take so long and thus, there were only sufficient funds to pay a $500-$800 insurance payment which is the amount she estimated the cost would be following the adjustment. As indicated previously, the relevant statute permits cancellation of the subject policy for “the failure or inability of the named insured to discharge any obligation in connection with the payment of premium on a policy of insurance subject to this section…” See § 3007(1)(C). The evidence indicates that the Insured notified the Readfield Insurance Agency in September 2004 of its wish to delete the building coverage in order to lower the monthly premiums.1 The evidence further indicates that the agent did not act upon the request until October 12, 2004. The Company received the agent’s letter on October 13, 2004, two days prior to the October 15, 2004, EFT withdrawal date. The agent’s letter advised the Company’s immediate attention to the matter precisely because of the EFT payment arrangement, but the Company processed the requested change almost a full month after receipt of the agent’s letter. Although the Company argued at hearing that there is no statutory requirement mandating the time within which such a request must be processed, the Company agreed to set the effective date of the endorsement at October 12, 2004. Accordingly, I find that by accepting the Insured’s request to delete the building coverage and then agreeing to an effective date of prior to October 15, 2004, the Company negated the failed EFT withdrawal of October 15, 2004. Although the Company maintained that the endorsement was intended only to apply to future premium installments once the change was processed, the Company has not demonstrated that the amount attempted to be withdrawn from the Insured’s bank on October 15, 2004, was in fact the premium amount owed in connection with the subject policy in light of the coverage change and the effective date. Although it could be argued that the full amount attempted to be withdrawn was owed for coverage already provided, the Company did not offer sufficient evidence to demonstrate that position. Following the failed EFT withdrawal, on November 4, 2004, the Company sent the Insured an invoice the commercial package portion of which the Company asserts the Insured did not pay. However, I find that the same argument articulated above applies. Given the circumstances in this case, the Company is precluded from asserting that it meets the statutory definition of nonpayment of premium when its delay in processing a request results in the failure of an EFT withdrawal and then an accelerated bill, but nonetheless, it agrees to reduce the coverage effective prior to the occurrence of the events it asserts as grounds for cancellation. 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. INDEX OF RECORD:
ORDER AND NOTICE OF APPEAL RIGHTS 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. 1 Pursuant to 24-A M.R.S.A. § 2422, the agent of an insurer is “…regarded as in the place of the insurer in all respects regarding any insurance effected by him.” It could be argued that the Company through its agent knew of the Insured’s request as early as September 2004.
Dated March 15, 2005
Alessandro
A. Iuppa
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