Holland v. Sterling Casualty Ins. Co.
| Decision Date | 09 June 1994 |
| Docket Number | No. B070986,B070986 |
| Citation | 30 Cal.Rptr.2d 809,25 Cal.App.4th 1059 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Larry L. HOLLAND, et al., Plaintiffs and Appellants, v. STERLING CASUALTY INSURANCE COMPANY, Defendant and Respondent. |
Robert L. Porter, Long Beach, for plaintiffs and appellants.
Sheehan & Booser, and Howard V. Sheehan, Jr., Van Nuys, for defendant and respondent.
Larry Holland and his daughter Shelley Holland appeal from a judgment on the pleadings rendered in favor of defendant Sterling Casualty Insurance Company ("Sterling") after the trial court found that (1) Sterling's policy of automobile insurance for appellants had been cancelled by the financial institution which supplied the premiums for the policy and (2) therefore there was no policy in effect which would support the appellants' causes of action against Sterling for breach of the implied covenant of good faith and fair dealing and breach of contract. We find the trial court correctly construed the governing provision in the Insurance Code and we affirm the judgment.
Sterling issued an auto insurance policy to plaintiff Larry Holland ("plaintiff") for a Toyota Celica for a one-year period commencing May 3, 1985. Plaintiff's daughter Shelley Holland ("Shelley" or collectively with plaintiff "the Hollands") was also an insured driver under the policy. Defendant Central Bank dba Coast Program ("Bank") financed the insurance premiums for the policy.
Insurance Code section 673 permits a lender such as Bank, who has advanced the premium for an insurance policy and who has received, from the insured, the insured's right to cancel the policy, to give written notice of intent to cancel the policy. Certain qualifications, discussed infra, apply to the lender's exercise of the right of cancellation.
According to Bank, it served plaintiff and Sterling with notices of its intention to exercise the right of cancellation. Sterling then cancelled the auto policy. Five days after the date of cancellation, Shelley drove the Toyota and struck and injured a pedestrian. Sterling denied coverage and refused to recognize the pedestrian's claim. The pedestrian filed suit against the Hollands.
Plaintiff then filed the instant action, naming as defendants Sterling, Bank and the insurance broker, FGS. When Shelley was named as a cross-defendant, she cross-complained against Sterling, Bank and FGS. Plaintiff and Shelley both alleged causes of action against Sterling for breach of the implied covenant of good faith and fair dealing and for breach of contract.
Sterling brought motions for judgment on the pleadings and the trial court granted the motions. The court found that because the policy had been cancelled prior to the time Shelley hit the pedestrian, there was no implied covenant or contract of insurance which could be breached by Sterling. On that basis, the court also denied the Hollands' request for leave to amend. The court awarded judgment against the Hollands in favor of Sterling. It is from this judgment that the Hollands appeal; they challenge both the trial court's construction of Insurance Code section 673 ("s 673") 1 and the court's denial of leave to amend.
When an insured defaults on its payment obligation to a lender under a premium payment loan agreement, and when the insured has transferred to that lender its right of cancellation, the lender may exercise that right of cancellation in accordance with the provisions in section 673. The lender must mail written notice to the insured and the insurer of the exercise of the right to cancel. The written notice must specify an effective date of cancellation and said date must be "five days or more after the date of mailing of such notice." (§ 673, subd. (c).) Thereafter, unless the insured has cured its default(s), the lender must mail to the insurer a written confirmation of the effective date of the cancellation. This second mailing is to be made within five days following the effective date of cancellation. (§ 673, subd. (e).) Thus, section 673 provides, in effect, for (1) a written notice of intent to cancel, with a specific cancellation date, (2) a right of the insured to cure its defaults, and (3) a confirmation notice by the lender if the defaults are not cured.
In the case before us, Bank's subdivision (e) notice of confirmation of cancellation states in part: "To the named insurance company[:] Central Bank herein acknowledges and affirms that written notice of the exercise of its right and intent to cancel has been mailed to the insurer and insured pursuant to section 673 of the California Insurance Code specifying a date five days or more after the date of said notices mailing as the effective date of cancellation[;] that the insured has failed to cure any and all defects as of the date of this cancellation notice and therefore lender instructs said insurer to cancel[,] on the date herein specified in accordance with our note and security agreement with the insured and in accordance with the notice of financed premium with the insurer[,] any existing coverages and to return all unearned premiums to the lender immediately." The stated date of cancellation is March 25, 1986.
This confirmation of cancellation notice was mailed by Bank to plaintiff and to Sterling. It bears a postmark date of March 28, 1986. The Hollands do not dispute receiving this notice. According to the Hollands' opening brief on appeal, they contend that Bank never mailed to plaintiff the five-day "pre-cancellation notice" required by subdivision (c) of section 673; they also contend that through discovery they found that Bank's "own records of mailing are devoid of any record that the 5 day notice was ever mailed." Sterling disputes that plaintiff did not receive the subdivision (c) pre-cancellation notice but argues that in any event, this factual dispute is not relevant to the true issue on appeal, which Sterling defines as the rights of an insurer under subdivision (i) of section 673.
It is clear from reading section 673 that it is the lender who controls cancellation of the policy when (1) the insured defaults in meeting its obligations and (2) the insured has transferred to the lender the insured's right of cancellation. Assuming arguendo that Bank did not mail a pre-cancellation notice to plaintiff, the issue is whether Sterling can be held liable for Bank's wrongful cancelling of the plaintiff's policy when Sterling cancelled the policy in accordance with the cancellation notices sent to Sterling by Bank. We find Sterling cannot be held liable.
Section 673, subdivision (i), clearly provides that when a premium financing lender gives an insurer written notice that it is exercising the right to cancel a policy, the lender thereby represents to the insurer that it has the right to exercise said right of cancellation; and if the lender thereby obtains such a cancellation, the lender's representation is conclusive as between the lender and the insurer. By cancelling the policy, such an insurer (here, Sterling) acts in accordance with section 673. That section does not impose any additional notice requirements on the insurer.
The pre-cancellation notices to insurer and insured serve different functions. (Hoffman v. Citadel General Assurance, Ltd. (1987) 194 Cal.App.3d 1356, 1363, 240 Cal.Rptr. 253.) Notice to the insurer is for the benefit of the insurer so that the insurer does not pay out on a post-cancellation loss. (Ibid.) Obviously, notice to the insured is for the insured's benefit, so that it can cure its defaults. If the lender does not send the pre-cancellation notice to the insured, it must be the lender who is responsible to the insured, not the insurer. Subdivision (i) of section 673 specifically states that when the insurer relies on the confirmation of cancellation notice served by the...
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