Lee v. Industrial Indemnity Co.

California Court of Appeal Feb 24, 1986 No. A023632Published

Before: Racanelli

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Holding. An insurance company's failure to include the mandatory statutory language informing an insured of their right to request the facts underlying a policy cancellation renders the cancellation null and void.

Issues

Whether an insurance cancellation notice that omits the statutory requirement to inform the insured of their right to request the facts underlying the cancellation is effective.
Whether the trial court erred in granting summary judgment for the insurer based on a theory of substantial compliance with Insurance Code section 677.

Disposition. reversed

Quotations verified verbatim against the opinion

“The statute specifically provides that the cancellation notice “shall state” that the insured may request the underlying facts; and the use of the term “shall” connotes a mandatory obligation.”

“strict compliance with the terms of contractual requirements for notice of cancellation is essential to effect a valid policy cancellation.”

Opinion

RACANELLI, P. J.

This appeal is from an order granting summary judgment for defendant Industrial Indemnity and dismissing plaintiff’s complaint. The issue presented is whether a purported cancellation of appellant’s insurance policy which did not strictly comply with the provisions of Insurance Code section 677 was effective. We conclude that it was not effective and reverse.

llene Lee’s residence was totally destroyed by a fire on February 4, 1981. Industrial Indemnity had insured the home since 1976. In 1980, Lee re

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quested defendant McLemore, Griswold, Lumley Insurance Associates, Inc. (hereafter Broker) to rewrite her policy of fire insurance on the residence after the previous policy on the property was cancelled for nonpayment of premium. On May 23, 1980, an application was prepared by Broker on behalf of Lee for fire insurance in the amount of $30,000 as requested by Lee. Lee paid the annual premium of $112 on the same date. On June 11, 1980, Industrial Indemnity notified Broker that coverage could only be extended for 100 percent of the replacement value of the residence, or $61,380. On June 17, Lee was orally notified of the need to increase the requested coverage and she consented. Subsequently a policy was issued effective from May 23, 1980, to May 23, 1981.

The policy and a request for payment of an additional premium of $73 generated by the increase in coverage were mailed to Lee. Without realizing that one of the documents was a bill, Lee put the documents away without reading them or paying the extra amount. No additional bills were sent to Lee. Subsequently, Industrial Indemnity acknowledged existing coverage as of December 15, 1980, when it mailed a notice of cancellation to Lee. The notice stated as follows:

“You are hereby notified in accordance with the terms and conditions of the above mentioned policy that your insurance will cease at and from the hour and date mentioned above due to nonpayment of premium. Premium adjustment, if any, will be made as soon as practicable.”

The referenced date upon which the insurance coverage would cease was January 1, 1981. This notice did not contain the statement required by Insurance Code section 677 that Lee could, upon written request, obtain a statement of the facts upon which cancellation was based.

Lee v. Industrial Indemnity Co.

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RACANELLI, P. J.

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