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Pennsylvania Court Rules On The Effectiveness of An Insurer’s Cancellation of a Policy

June 14, 2016

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In <em><a href="http://www.pacourts.us/assets/opinions/Superior/out/J-A03003-16m%20-%201026698227129314.pdf">Philadelphia Showcase Lounge, LLC, et al. v. Landmark American Ins. Co</a>., et al</em>., the Pennsylvania Superior Court was asked to analyze the effectiveness of a cancellation of an insurance policy.
Landmark American Ins. Co. insured Philadelphia Showcase Lounge, LLC, which operated a bar/restaurant.  The Policy was in effect from December 24, 2011 to December 24, 2012, at 12:01 a.m.  On November 28, 2012, Landmark sent a renewal quotation at the same price and on the same terms to Showcase.  Showcase made no effort to renew the Policy.  Rather, Showcase looked to secure quotes from other insurance companies in December 2012.
On December 24, 2012, at approximately 1:00 p.m. there was a fire at the Property.  Following the loss, on December 24, 2012 at 7:21 a.m., Showcase attempted to bind coverage with Landmark.  However, Showcase was informed that the Policy expired at 12:01 a.m. on December 24, 2012.  Showcase attempted to seek coverage under the Policy for the loss by commencing a lawsuit.
Eventually, all parties moved for summary judgment.  Showcase argued that since Landmark never sent a notice of midterm cancellation or nonrenewal pursuant to Pennsylvania statute 40 P.S. Section 3403, the Policy remained in effect.  Conversely, Landmark argued Showcase was not entitled to protection under Section 3403 and, thus, the Policy was properly cancelled.  The trial court agreed with Landmark.
On appeal, Showcase argued the lower court erred in failing to apply the protections of Section 3403.  Section 3403 requires insurers to provide written notice to insureds 60 days in advance of “midterm cancellations or nonrenewals”.  In analyzing the validity of Showcase’s appeal, the Superior Court ultimately concluded Section 3403 was not applicable.  The Court reasoned that the Policy was in effect from December 24, 2011 to December 24, 2012, 12:01 a.m.  At no time during the Policy period did Landmark terminate the Policy.  Also, Landmark did not provide notice to Showcase that it intended to non-renew the Policy.  Conversely, Landmark sought to renew the Policy by sending a renewal quotation.  However, Showcase opted not to accept the renewal offer.  Thus, the Court concluded, since Section 3403 does not prescribe a responsibility onto insurers to send out a nonrenewal notice if the insured fails to respond to or reject the insurer’s prior renewal offer, Section 3403 was not applicable under the circumstances.  Additionally, the Policy’s Cancellation Endorsement also did not require such action.  Therefore, since Landmark was not in violation of any applicable statute and had cancelled the Policy in accordance with the Policy’s terms, the Policy was not in effect at the time of the fire.
This case illustrates the importance of ensuring that policy cancellations not only comply with the language of the applicable policy but also any relevant statutes – as statutory noncompliance could result in coverage, notwithstanding an insurer’s intent to cancel.
Thanks to Colleen Hayes for her contribution to this post.
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