In re John J. Sullivan, Inc.
| Decision Date | 11 June 1990 |
| Docket Number | Civ. A. No. 89-1315-T. |
| Citation | 128 BR 7 |
| Parties | In re JOHN J. SULLIVAN, INC., Debtor. SENTRY INSURANCE, a Mutual Company, Appellant, v. JOHN J. SULLIVAN, INC., Appellee. |
| Court | U.S. District Court — District of Massachusetts |
Daniel J. Carragher, Day, Berry & Howard, Boston, Mass., for plaintiff.
Paul D. Moore, Michael Dean Gaffney, Foley, Hoag & Eliot, Boston, Mass., for defendant.
This is an appeal from the bankruptcy court's decision to extend appellee's insurance coverage.
Appellant, Sentry Insurance ("Sentry"), issued certain insurance policies to the appellee, John J. Sullivan, Inc. ("Sullivan").1 On March 7, 1989, Sentry mailed a notice of cancellation, as of March 17, 1989, for nonpayment of premiums on all three policies.
Sullivan received the notice on March 13, 1989. Two days later, Sullivan filed a voluntary petition for Chapter 11 bankruptcy. On April 10, 1989, the bankruptcy court allowed Sullivan's emergency motion for an order directing Sentry to continue honoring the policies. The court based its decision on the extension provision of 11 U.S.C. § 108(b).2 See Bankruptcy Court Order on Debtor's Emergency Motion, April 10, 1989.3
Sentry filed a motion for relief from the order and a response to Sullivan's emergency motion on April 14, 1989. The court held a hearing on April 25, 1989 where Sentry argued that the court should reconsider the motion on the merits, partly because counsel had been absent despite diligent efforts to obtain a continuance. The court upheld its order "for due cause and not because Sentry failed to appear . . .," see Bankruptcy Court Order on Sentry Insurance's Motion for Relief From Order, April 27, 1989. Sentry's arguments in opposition to Sullivan's emergency motion were not discussed in the order.
At issue now is Sentry's notice of appeal from the April 10 and April 27 orders.
The issue presented is whether the bankruptcy court erred in ruling that 11 U.S.C. § 108(b) extended for sixty days the three insurance policies. The district court, in reviewing the bankruptcy court's decision, is to apply a clearly erroneous standard to findings of fact and a de novo review to conclusions of law. See In re Daniels-Head & Assoc., 819 F.2d 914 (9th Cir.1987).
Sentry argues that § 108(b) does not extend the period of insurance coverage, because none of the policies contains a grace period, although the Plan Package Policy does have a cure provision. Sentry avers generally that coverage with respect to all three policies expired on the cancellation date, and that § 108(b) cannot create additional coverage not provided for by contract, agreement, or statute. See In re Econo-Therm Energy Systems Corp., 80 B.R. 137, 140 (Bankr.D.Minn.1987) ().
Sentry makes this argument in an attempt to distinguish its situation from the facts in Counties Contracting and Construction Co. v. Constitution Life Ins. Co., 855 F.2d 1054 (3rd Cir.1988), and Econo-Therm, 80 B.R. 137. In those cases, the courts found that § 108(b), in conjunction with policy terms and state law, mandated insurance coverage during the entire sixty-day extension. Sentry offers three arguments to distinguish itself from Counties Contracting and Econo-Therm: 1) unlike the subject policies in those cases, there is no state law here creating a grace period that requires insurers to continue coverage after the policy would otherwise expire; 2) the Workers' Compensation and Umbrella policies contain no provision allowing the debtor to cure defaults; and 3) the Plan Package Policy has a cure provision, but no grace period.
Sentry's argument is similar to that advanced by Prudential Insurance as amicus, but rejected by the court in Counties Contracting:
Prudential urges that the right extended by § 108 is only the right to pay delinquent premiums until 60 days after the petition is filed. It does not, argues Prudential, compel an insurer to pay claims that accrued after the contractual grace period when the debtor elected not to cure the delinquent premium payment within the extension period provided by § 108(b). In effect, Prudential is claiming that although § 108(b) gives the debtor the right to make a delinquent payment for an additional amount of time, coverage is limited to the contractual grace period of 31 days. We find the argument of Prudential too restrictive a reading of § 108(b).
Counties Contracting, 855 F.2d at 1057 n. 4. The court there found that the purpose of the contractual grace period was to allow Counties time to act so as to maintain the policy, rather than merely to afford an opportunity to remedy cancellation. See id. "Therefore, under § 108(b), coverage and entitlement to proceeds continue during the entire 60-day extension." Id.
Sullivan cites Professor Corbin for the proposition that, if a period of notice is required, a contract remains in effect during the specified period after receipt of the notice of termination. See Corbin, 6 Corbin on Contracts § 1266 at p. 66 (1962). But, that argument misses Sentry's point which is that, even given the cure provision in the Package Plan Policy, § 108(b) cannot extend the coverage beyond the cancellation date because there is no statutory or contractual provision for coverage during the cure period. The Package Plan Policy cancellation provision provides:
Where the stated reason is nonpayment of premium . . . this policy may be cancelled at any time by giving to the insured a ten days written notice of cancellation . . . the insured may continue coverage and avoid the effect of the cancellation by payment at any time prior to the effective date of cancellation.
Sentry Plan Package Policy. The opportunity to cure, therefore, expires on the effective date of cancellation. Moreover, the clear import of the provision is that Sullivan had ten days after notice to cure the default. During that ten-day period, Sullivan would continue to have the benefit of coverage, because the policy would not yet have been effectively cancelled.
In Counties Contracting, the court found that the cure provision not only extended the time to cure default, but also allowed the policy holder to act so as to continue the policy. The court held that this opportunity to act fell within the "perform other similar acts" language of § 108(b). 855 F.2d at 1057 n. 4. Here, the nexus between the cancellation date and the expiration of the cure period permits an act that would continue the policy uninterrupted. This court agrees with the reasoning of Counties Contracting to the effect that § 108(b) extends the policy coverage, along with the Plan Package Policy's cure period, for the sixty-day statutory period. See id.
The more complex issue is whether § 108(b) acts to extend the coverage of the other two policies. Sentry argues that, even if § 108(b) automatically extends the Plan Policy's coverage along with its cure period, the bankruptcy court order is still in error as to the Workers' Compensation and Umbrella policies. Sentry argues that these policies contain no cure provisions and, therefore, Sullivan had no right to act so as to continue their coverage.
Indeed, these policies do not provide a right to perform curative acts after default. Because there is no contractual right to cure, therefore, § 108(b) cannot extend coverage of the two other policies, unless such a right is afforded by statute. See Econo-Therm, 80 B.R. 137, 140 ().
Sullivan argues, however, that a right to cure exists under the Notice of Insurance Cancellation and under Massachusetts law. Sullivan asserts that, because Sentry's notice stated that the policies were being cancelled for "non-payment of premium," and informed Sullivan of the "$100,058.76 payment requested on the last invoice," the compelling inference is that there was an implied right to cure. See Notice of Cancellation.
Sentry denies any implied right to cure. This court agrees. The language of the Notice of Cancellation, rather than supporting an implied right to cure, appears to simply state the reason for cancellation.
Moreover, the language of the Notice of Cancellation does not amount to an offer to provide an opportunity to cure. See Gilbert & Bennett Mfg. Co. v. Westinghouse Elec. Corp., 445 F.Supp. 537, 545 (D.Mass. 1977) (Julian, J.) (citations omitted).
Sentry does concede, however, that there was an implied offer to permit Sullivan to rescind the cancellation, and that § 108(b) extended this offer for sixty days. Sentry argues, however, that the recission offer was not accepted by Sullivan and, therefore, no agreement was ever formed.
As has been noted above, the Notice of Cancellation does not constitute such a precisely delineated writing that it could be construed as a legally binding "offer." See A. Boilard Sons, Inc. v. Solitario, 1980 Mass.App.Div. 193 (1980) (). The scope of the offer, therefore, must be determined from Sentry's concession. In an April 4, 1989 letter, Sentry's counsel wrote:
Although the policy coverage terminated on March 17, Sentry acknowledges that the notice of cancellation also contained an offer to rescind, conditioned upon Sullivan, Inc. paying the full amount due by March 17. In our conversation, I agreed that 11 U.S.C. § 108(b) extended Sullivan, Inc.\'s period for performance until May 14, 1989.
Sentry Letter April 4, 1989. The Sentry letter does constitute an offer to rescind, conditioned on full payment by Sullivan. See Gilbert, 445 F.Supp. at 545. But, section 108(b) cannot extend coverage on the basis of that mere offer, because the Sentry letter which constitutes the offer does not provide for coverage during the rescission period.
Sullivan cites Milona Corp. v. Piece O' Pizza of America Corp., 1...
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