Pennsylvania Mfrs. Ass'n Ins. Co. v. Waldron

• Decision Date: 31 August 1993
• Docket Number: No. 1630-92-3,1630-92-3
• Citation: 16 Va.App. 991,434 S.E.2d 690
• Parties: PENNSYLVANIA MANUFACTURERS ASSOCIATION INSURANCE COMPANY v. Dewey Jackson WALDRON, Jr. and Property Improvement Company. Record
• Court: Virginia Court of Appeals

Page 690

434 S.E.2d 690

16 Va.App. 991

PENNSYLVANIA MANUFACTURERS ASSOCIATION INSURANCE COMPANY v. Dewey Jackson WALDRON, Jr. and Property Improvement Company.

Record No. 1630-92-3.

Court of Appeals of Virginia.

Aug. 31, 1993.

Richard D. Lucas, Roanoke (William H. Fralin, Jr., Woods, Rogers & Hazlegrove, on briefs), for appellant.

Kenneth C. King, Jr., Roanoke (Steven L. Higgs, King & Higgs, P.C., on brief), for appellee Dewey Jackson Waldron, Jr.

No brief or argument for appellee Property Imp. Co.

Present: COLEMAN, KOONTZ and BRAY, JJ.

KOONTZ, Judge.

Pennsylvania Manufacturers Association Insurance Company (PMA) appeals from a decision of the Workers' Compensation Commission (commission), finding that its insurance coverage was in effect on June 22, 1991, when Dewey Jackson Waldron, Jr. (claimant) sustained an injury by accident. PMA contends that the commission erred in finding that PMA failed to comply with the notice provisions of Code § 65.2-804 (former Code § 65.1-105), and in extending insurance coverage for an additional thirty days. We agree and reverse.

On March 29, 1991, Property Improvement Company (employer) entered into an insurance premium finance agreement with Cananwill Consumer Discount Company (Cananwill) to finance its workers' compensation insurance. Pursuant to this agreement, Cananwill would advance the premium payments to the eventual insurer. The agreement also appointed Cananwill as employer's attorney-in-fact, authorizing it to cancel the policy in the event employer defaulted. Coverage was obtained through a policy issued by PMA for the period March 30, 1991 to March 30, 1992.

On May 7, 1991, Cananwill mailed employer a "Notice of Intent to Cancel," stating that employer was delinquent in its premium payments and that unless the payments were received by May 24, 1991, the policy would be canceled. Cananwill sent employer a "Notice of Cancellation" on May 29, 1991, indicating that the policy had been canceled, effective June 3, 1991. By letter dated June 6, 1991, PMA informed employer that the policy had been canceled. PMA mailed a "Cancellation Notice" (Form 45H) to the commission on June 19, 1991, which was received on June 24, 1991. ¹ In this notice, PMA listed June 3, 1991, as the effective date of cancellation and placed an "X" next to the term "Short Rate." However, PMA did not fill in the section of the form requesting an explanation "[i]f thirty days notice prior to effective date of cancellation not given." The commission's insurance department determined the effective date of cancellation as July 23, 1991, thirty days after receipt of PMA's cancellation notice.

On August 5, 1991, claimant filed an Application for Hearing with the commission, alleging an injury by accident on July 22, 1991. PMA defended the claim, in part, on the ground that its insurance coverage was not in effect on the date of the alleged accident because it had been canceled at employer's request, pursuant to Code § 65.2-804(A).

The deputy commissioner awarded benefits to claimant for an injury by accident. The deputy commissioner entered the award against PMA, finding that PMA had not properly canceled the insurance policy in question at the time of the accident. The deputy commissioner stated:

While we are ... cognizant of the cancellation mechanism apparently in effect between the insured and the finance company, and although we are mindful of the provisions of Code § 65.2-804(A)(1), we are of the opinion that the explanatory portion of the "Cancellation Notice" constitutes, in and of itself, a request "by the [commission] ... that a carrier ... set forth its reasons for cancellation." The need for an explanation is equally applicable to cancellation by the insurer for non-payment of premiums, or by the insured. We do not view the placement of an "X" after the term "Short Rate" to be an acceptable substitute for a verbal explanation as to the reason for the cancellation, and, accordingly, we are of the opinion that the Commission's administrative determination that the policy was not properly cancelled until July 23, 1991 was correct.

PMA appealed this decision to the full commission. ² The commission affirmed the decision, holding that "employer's insurance carrier did not give the Commission requested information."

We hold that the Commission, as standard policy, considers a cancellation by an insurance carrier to be effective thirty days after receipt of notice of cancellation unless the carrier provides an answer to the specific question posed on cancellation Form 45H and advises that the cancellation is for nonpayment of premium. In practice, the requested information is vital to determination as to whether immediate action must be taken by the Commission staff to require an employer to reinstitute coverage.

The issue before us concerns the proper application of the cancellation provisions of Code § 65.2-804 in this case. Specifically, we must determine whether Code § 65.2-804 requires an insurer to set forth the reasons for cancellation of a workers' compensation insurance policy when the employer, rather than the insurer, cancels the policy.

The notice and delay requirements of Code § 65.2-804 protect the worker against a lapse in his employer's insurance coverage where a workers' compensation insurance policy is canceled by giving the employer an opportunity to acquire other insurance and by giving the commission the opportunity to timely invoke its enforcement authority. Hartford Accident & Indem. Co. v. Fidelity & Guar. Ins. Underwriters, Inc., 223 Va. 641, 643-44, 292 S.E.2d 327, 328 (1982). Code § 65.2-804(A)(1) sets forth the notice requirements upon cancellation of a workers' compensation insurance policy:

Every employer who has ... cancelled his insurance ... shall immediately notify the ... Commission of such cancellation, the date thereof and the reasons therefor. Every insurance carrier ... shall in like manner notify the ... Commission immediately upon the cancellation of any policy issued by it ... under the provisions of this title, except that a carrier ... need not set forth its reasons for cancellation unless requested by the ... Commission.

Subsection B of this provision sets forth the delay provisions for cancellation of insurance by the insurer:

No policy of insurance ... shall be cancelled by the insurer issuing such policy ... except on thirty days' notice to the employer and the ... Commission, unless the employer has obtained other insurance and the ... Commission is notified of that fact by the insurer...