Automobile Club Ins. Co. v. Jackson

Decision Date27 December 1993
Docket NumberNo. 20016,20016
Citation865 P.2d 965,124 Idaho 874
PartiesAUTOMOBILE CLUB INSURANCE COMPANY, a corporation, Plaintiff-Appellant/Cross-Respondent, v. William G. JACKSON and Patricia L. Jackson, husband and wife, Defendants-Respondents, and Lisa Marie Nielson; and Kenneth V. Bowerman and Norma Bowerman, husband and wife, Defendants-Respondents-Cross-Appellants. Coeur D'Alene, Oct. 1993 Term
CourtIdaho Supreme Court

Etter & McMahon, P.S., Spokane, WA, for plaintiff-appellant, cross-respondent. Stephen M. Lamberson, argued.

William G. Jackson and Patricia L. Jackson, pro se, respondents.

James A. Raeon, Coeur d'Alene, Bruce A. Kaiser, Spokane, WA, David A. Manko, Hayden Lake, for defendants-respondents, cross-appellants. James A. Raeon and Bruce A. Kaiser, argued.

SILAK, Justice.

This is an appeal from a declaratory judgment. Automobile Club Insurance Co. ("Auto Club") began this declaratory judgment action on the issue of auto insurance coverage of William Jackson and his wife, Patricia Jackson ("Jacksons"). The coverage question arose from a car accident involving a car driven by Lisa Marie Nielson ("Nielson"), but owned by the Jacksons. The district court ruled that coverage existed on the date of the accident. We affirm.


On October 30, 1989, Nielson was driving a car owned by the Jacksons and in which Patricia Jackson was a passenger, when she was involved in an accident which injured Kenneth Bowerman ("Bowerman").

Auto Club originally issued an automobile insurance policy (the "policy") to William Jackson in 1987. Coverage began on December 20, 1987, and continued for a period of six (6) months. The application for the policy stated that the "policy issued thereon is void if any check tendered in payment of premium is not honored." Auto Club offered Jackson a "budget payment plan" whereby Jackson could renew his policy for a new six month term upon payment of one-half of the premium prior to the effective date with the balance of the premium plus a finance charge to be paid ninety (90) days later.

Auto Club provided Jackson with two categories of billing notices: renewal notices and budget notices. Renewal notices were sent in advance of the usual policy termination date. Upon payment of either the full premium or the budget amount (one-half), Jackson's policy would be renewed for an additional six month term. Budget notices were sent in advance of the due date of the deferred budget payment. Both renewal and budget notices contained statements that coverage would terminate if payment was not made on the due date. Each notice also contained the following language: "If payment is made by check which for any reason is not honored, no coverage will be afforded beyond the due date."

Jackson failed to pay the June 20, 1989 policy renewal payment on time, and his policy was therefore cancelled on or about July 7, 1989, for nonpayment of premium. Jackson subsequently paid the budget payment necessary to reinstate the policy for a six month term effective July 11, 1989. The policy reinstatement notice stated: "Your policy is paid to October 11, 1989," which was the due date of the next budget payment. Jackson was sent two budget premium notices, one on September 1, 1989, and the second on September 26, 1989.

Jackson failed to timely pay the "budget payment" due on October 11, 1989. A check dated October 13, 1989, was received and processed by Auto Club on or about October 17, 1989. The check was returned by the bank for a second time on November 2, 1989, for nonsufficient funds. Auto Club sent Jackson a cancellation notice on or about November 6, 1989, purporting to cancel Jackson's policy "EFFECTIVE AT 10/11/89 12.01 AM STANDARD TIME."

On January 9, 1990, Jackson notified Auto Club that on December 1, 1989, Bowerman and his wife, Norma Bowerman ("Bowermans"), had filed suit in Kootenai County against him, his wife and Nielson for damages resulting from the October 30, 1989 accident. On March 26, 1990, Auto Club filed a declaratory judgment action seeking a determination that no coverage existed under the policy for the accident which occurred with the Jacksons' vehicle. Auto Club alleged that no coverage existed because the Jacksons' premium check was dishonored, thereby rendering the policy void prior to the accident. On February 26, 1992, the district court issued its memorandum opinion, findings of fact, conclusions of law, and order in favor of the Jacksons, Nielson, and the Bowermans. Auto Club later moved to amend the findings of fact and conclusions of law, which motion was denied at a hearing on May 8, 1992. On the same date, the district court entered judgment against Auto Club, ruling that it had not properly cancelled the Jacksons' policy pursuant to I.C. § 41-2508, and that coverage existed for the Jacksons on the date of the accident in question. The district court also entered an order on May 8, 1992, denying the Bowermans' and Nielson's request for discretionary costs pursuant to I.C.R.P. 54(d)(1)(D), and attorneys fees under I.C. § 41-1839, I.C. § 12-121, and I.R.C.P. 54(e)(1) and (e)(5). Auto Club appeals the district court's ruling on the coverage issue. The Bowermans and Nielson cross-appeal the district court's ruling on costs and attorney's fees.


The coverage issue on this appeal involves a question of law regarding the applicable provisions of Idaho statutory law relating to insurance contracts. See I.C. § 41-2501, et seq. When questions of law are presented, this Court is not bound by the findings of the trial court, but is free to draw its own conclusions from the evidence presented. Clark v. St. Paul Property & Liab. Ins. Cos., 102 Idaho 756, 757, 639 P.2d 454, 455 (1981). Our standard of review is therefore one of free review. Clements Farms, Inc. v. Ben Fish & Son, 120 Idaho 185, 188, 814 P.2d 917, 920 (1991).

Auto Club first argues that no coverage existed under the Jacksons' policy because it was void on the date of the accident. Auto Club contends that payment of a premium by check is conditional unless or until the check is honored upon presentment. The policy application stated: "[T]his binder or any policy issued thereon is void if any check tendered in payment of premium is not honored." The renewal and budget payment notices both provided that if payment was made by check and that check was dishonored, coverage would cease as of the payment due date. Therefore, Auto Club claims that when it received the Jacksons' check after the due date and it was then dishonored by the drawee bank, the policy was void as of October 11, 1989, and there was no coverage on October 30, 1989. Auto Club also argues that because the check sent by the Jacksons was dishonored and the time for the premium payment had elapsed, the policy was automatically forfeited on the premium due date.

The Bowermans and Nielson argue that the Jacksons did have automobile coverage on October 30, 1989, because Auto Club did not follow the proper statutory and contractual procedures for cancelling the policy prior to the accident. 1 We agree, and thus for the reasons stated below, affirm the district court's decision in favor of the Defendants/Respondents and hold that coverage existed on the date of the accident.

I.C. §§ 41-2506 through 41-2508 concern the cancellation of insurance policies. I.C. § 41-2506 provides, in pertinent part:

Cancellation of policies--Definitions.

(d) "Nonpayment of premium" means failure of the named insured to discharge when due any of his obligations in connection with the payment of premiums on a policy or any instalment of such premium, whether the premium is payable directly to the insurer or its agent or indirectly under any premium finance plan or extension of credit.

(2) Sections 41-2506 through 41-2512 of this act shall not apply to any policy which has been in effect less than sixty (60) days at the time notice of cancellation is mailed or delivered by the insurer, unless it is a renewal policy.

I.C. § 41-2507 provides, in pertinent part:

Cancellation of policies--Grounds.--No notice of cancellation of a policy shall be effective and the insurer shall not refuse renewal of a policy, unless based on one or more of the following reasons:

(1) Nonpayment of premium.

I.C. § 41-2508 provides, in pertinent part:

Notice of cancellation or intention not to renew.--(1) No cancellation of a policy to which section 41-2506 of this act applies shall be effective unless notice thereof is mailed or delivered by the insurer to the named insured at least twenty (20) days prior to the effective date of cancellation, except that where cancellation is for nonpayment of premium at least ten (10) days' notice of cancellation accompanied by the reason therefor shall be given.

(Emphasis added.)

The policy also contained cancellation provisions which required ten days notice if the cancellation was for nonpayment of premium:

Cancellation. This policy may be cancelled during the policy period as follows:

2. We may cancel by mailing to the named insured shown in the Declarations at the address shown in this policy:

a. at least 10 days notice:

(1) if cancellation is for nonpayment of premium; or

(2) if notice is mailed during the first 60 days this policy is in effect and this is not a renewal or continuation policy ...

Pursuant to I.C. § 41-2506(2), it is clear that the above-quoted sections of the Idaho Code regarding the cancellation of insurance policies apply in this case. Although the policy had been paid on a budget basis, it had been issued for a six month term. In this case, the payment made was the second payment under a "budget payment plan" whereby the insured paid one-half of the premium at the beginning of the six month policy term and was allowed to pay the remaining half of the premium after ninety days. Even though Jackson only paid half of the premium at the...

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