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FEDERAL KEMPER INSURANCE COMPANY v. COMMONWEALTH PENNSYLVANIA (11/12/85)

decided: November 12, 1985.

FEDERAL KEMPER INSURANCE COMPANY, APPELLANT,
v.
COMMONWEALTH OF PENNSYLVANIA, INSURANCE DEPARTMENT, AND THE INSURANCE COMMISSIONER, APPELLEES



Appeal from Order of Commonwealth Court Denying Reargument Dated February 13, 1984, at No. 2734 C.D. 1982. 79 Pa. Commonwealth Ct. 345, Nix, C.j., and Larsen, McDermott, Hutchinson, Zappala, and Papadakos, JJ. Flaherty and McDermott, JJ., did not participate in the consideration or decision of this case. Nix, C.j., files a dissenting opinion.

Author: Hutchinson

[ 509 Pa. Page 2]

OPINION OF THE COURT

Federal Kemper Insurance Company appeals by allowance Commonwealth Court's order, 79 Pa. Commw. 345, 469

[ 509 Pa. Page 3]

A.2d 344, affirming a ruling by the Insurance Commissioner. The Commissioner had extended a policy term to provide coverage to one of appellant's insureds for an automobile accident. The Commissioner held the policy covered the accident despite the insured's failure to respond to premium notices until after the policy and its grace period had expired and the accident occurred. The Commissioner held for the insured and ignored appellant's three premium notices because they were not in the precise form required by a regulation prescribing the content of an insurer's notice of either intent to cancel or refusal to renew at the end of a policy term. 31 Pa.Code § 61.5.*fn1 Appellant contends the regulation has no application here where the cancellation is for nonpayment of premiums. The Commissioner contends that subsection 1(2) of the Act of June 5, 1968, P.L. 140, No. 78, as amended by Act of October 5, 1978, P.L. 1060, No. 248, 40 P.S. §§ 1008.1-1008.11,*fn2 which prohibits refusals to renew at less than twelve-month intervals, requires the notice prescribed by the regulation before coverage under any policy can be terminated by an insurer prior to the policy's anniversary date.

Commonwealth Court affirmed the Insurance Commissioner's holding that the insurer was required to issue the formal notice required by regulation under the Act, 31 Pa.Code § 61.5, whenever it wished to end coverage within

[ 509 Pa. Page 4]

    the twelve-month policy period during which the statute prohibited it from refusing renewal. On the facts before us, we disagree with this result. Although an insurance company may itself initiate cancellation of coverage under an automobile insurance policy for nonpayment of premium at the end of its nominal six-month term only by using the Commissioner's prescribed notice, cancellation of policy coverage for nonpayment of premium before the anniversary date is nevertheless effective if the insurer can show that the insured knowingly refused to pay a properly charged premium, thus manifesting by overt acts his own intent to cancel the policy. Section 6(2) of the Act, 40 P.S. § 1008.6(2). An insurer who does not use the prescribed notice must prove that the insured knew his premium was due and refused to pay it. On the stipulations and administrative findings in this record, it is plain the insured had this knowledge. On the facts of this case, the Commissioner's attempt to avoid subsection 6(2) of the Act by reference to another of his regulations, which states that mere nonpayment of premium does not trigger subsection 6(2), effectively deletes the subsection 6(2) exemption from the statute and is inconsistent with the Section 4 express statement permitting cancellation for nonpayment of premium.*fn3 We therefore reverse Commonwealth Court.

The essential facts are not in dispute. Appellant issued an insurance policy to Ronald Monn on October 13, 1978. Coverage under it expired on April 13, 1979 unless a premium for additional time was paid. On March 20, 1979, appellant sent out a premium notice for coverage during the next six months. The insured did not pay. On April 18, 1979, appellant sent a second notice which stated that payment made on or before April 28, 1979 would result in coverage retroactive to the April 13 expiration date. The insured did not pay. Appellant discontinued coverage at 12:01 A.M. on April 28, but sent the insured a third notice offering to reinstate the policy one day after payment of the premium without retroactive coverage.

[ 509 Pa. Page 5]

After 12:01 A.M. on April 28, 1979, the insured had an automobile accident. After the accident, he did pay the premium installment. He delivered the money for it directly to his insurance agent on April 30, 1979 and appellant noted a resumption of coverage effective that day, but refused to retroactively cover the April 28 accident. The insured appealed this refusal to the Insurance Commissioner pursuant to Section 8 of the Act, 40 P.S. § 1008.8, and 31 Pa.Code § 61.6. The Commissioner eventually held for the insured and Commonwealth Court affirmed.*fn4

On these facts we turn to an analysis of the Act. It deals in two sections with the reasons for which coverage under automobile policies can be terminated. Section 3, 40 P.S. § 1008.3, prohibits cancellation for various discriminatory reasons such as race, religion, marital status, and residence in a particular geographic area. It has no relevance to this case. Section 4, 40 P.S. § 1008.4, which is relevant, restricts the reasons for which an insurer may cancel to nonpayment of premium, suspension of the driver's license or registration of the principal driver, or concealing a material fact. Only the nonpayment provision applies here.

Section 5, 40 P.S. § 1008.5, sets forth generally the required contents of the insurer's notice of "cancellation."*fn5 Its detail is specified by the Commissioner's regulation. 31 Pa.Code § 61.5 and Appendices A-C to Code Chapter 61. Neither Section 4 nor 5 deals with cancellation by an insured. The second paragraph of Section 6 of the Act, 40 P.S. § 1008.6(2), expressly renders the statute inapplicable to those actions of an ...


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