How an Insurance Company Should Treat a Payment made After Cancellation that Insurer used in Its Notice is a Jury Question
In Edwards v. State Farm Ins. Co., Madeline Edwards brought a breach of contract action against State Farm Insurance Company and State Farm Insurance agent, Gaylord Nelson. Edwards purchased a six-month insurance policy from State Farm on July 7, 2008, and made a partial payment. On October 5, 2008, a balance of $3,478.58 was due. Edwards did not pay; and on October 10, 2008, State Farm mailed her a written cancellation notice that acknowledged her non-payment and lapse of coverage. It also informed her that she had to make a payment by October 23, 2008, or her policy would be cancelled. If she paid after October 23, 2008, she would receive notice of whether the policy would be reinstated. The notice specifically informed Edwards that there would be no insurance coverage between the date of cancellation and the date of reinstatement. Edward’s policy was cancelled on October 23, 2008. A month after the auto insurance was cancelled, Edwards was involved in an accident. Two days after the accident, Edwards called State Farm and stated she had been in an accident and now wanted to make her payment. Plaintiff was informed that the State Farm claims department would determine if it would provide coverage. Without any assurances, Edwards sent a payment of $3,47.58 via a cybercheck. However, the cybercheck did not clear due to insufficient funds. About a week later, on November 28, 2008, she paid the $3,47.60 in cash to a clerk at her agent’s office. Her auto insurance policy was reinstated effective November 28, 2008; and on December 3, 2008, State Farm sent a check to plaintiff for $96.95, the amount calculated to be due back to her for the period the policy was not in force because of cancellation for non-payment.
The court reviewed whether State Farm waived its right to enforce the October 23, 2008, cancellation when an insurance agent’s clerk accepted a late premium payment after the cancellation date. There is no dispute that Edwards failed to discharge her obligation in connection with the payment of her auto insurance premium. There is no dispute that State Farm afforded Edwards an appropriate grace period within which she could have made her late payment of the insurance premium. There is no dispute that State Farm cancelled her auto insurance because of non-payment of the premium, and there is no dispute that she received State Farm’s notice. Edwards did finally make a payment of the premium and the amount was accepted. State Farm processed the payment and applied it to the policy. State Farm acted consistently with the language in the notice. It reinstated the policy but did not provide retroactive coverage. The language in the notice informed Edwards that retroactive coverage would only be provided if the premium payment was made by a date certain. She did not pay her premium by that date and allowed her policy to be cancelled for non-payment.
The facts provided by Edwards are not materially sufficient to support an allegation of State Farm’s actual waiver of its defense that the policy was cancelled. She argued, though, that the mere act of accepting plaintiff’s payment after cancellation is enough to reinstate and backdate the policy to provide coverage for an accident that occurred during the cancellation period. Illinois cases that considered acceptance of a premium after the insurance company learned of a loss was one factor in determining whether an insurance company has waived its right to cancel. However, those cases did not include the unequivocal language in a written notice regarding how the insurance company would treat a payment made after cancellation that State Farm used in its notice to plaintiff.
The court found that whether or not State Farm can be found to have impliedly waived its written cancellation is, at least in part, a question of fact that should be resolved by trial.
Edwards v. State Farm Ins. Co., 980 N.E.2d 87 (Ill.App. 1st Dis. 2012)
