Rodeo, Inc. v. Columbia Casualty Co.
| Decision Date | 27 October 2006 |
| Docket Number | No. 25,652.,No. 25,648.,25,648.,25,652. |
| Citation | 150 P.3d 982,2007 NMCA 013 |
| Parties | RODEO, INC., d/b/a "Cowboys", A New Mexico Corporation, Ron Cowdrey, Phyllis Cowdrey, Gene Ellis Hinkle, Hinkle Properties, LLC, Montgomery-Eubank Co., Ltd., a New Mexico General Partnership, and Rita Trujillo, Third Party Plaintiffs/Appellees/Cross Appellants v. COLUMBIA CASUALTY COMPANY, Third-Party Defendant/Appellant/Cross Appellee. |
| Court | Court of Appeals of New Mexico |
L. Helen Bennett, Steven Vogel, Bryan Query, Albuquerque, NM, for Third Party Plaintiffs/Appellees/Cross Appellants.
Yenson, Lynn, Allen & Wosick, P.C., Patrick D. Allen, April D. White, Albuquerque, NM, for Third-Party Defendant/Appellant/Cross Appellee.
{1} This interlocutory appeal involves an issue of first impression: whether an insurer is required to return unearned premiums before cancellation of an insurance policy financed by a premium finance company can be effective. We decide that NMSA 1978, § 59A-45-11 (1984) requires the return of unearned premiums. We therefore affirm the district court's judgment that the policy remained in effect until the insurer returned the unearned premiums. Because of our disposition, we do not reach the merits of the conditional cross-appeal, which concern the notice requirements for additional insureds.
{2} Appellee/Cross-Appellant Rodeo, Inc. (Rodeo) owns and operates a country-western bar in Albuquerque, New Mexico, named Cowboys. In September 2000, Rodeo sought commercial general liability and liquor liability insurance coverage for Cowboys through an insurance broker, Northern Insurance (Northern). Northern was unable to place Rodeo's risk with an authorized New Mexico insurer, and therefore sought surplus lines insurance. See NMSA 1978, § 59A-14-2 (1991) and § 59A-14-3 (1993) (). Northern obtained a quote from Skanco International, Ltd. (Skanco), a wholesale surplus lines insurance broker, for an insurance policy issued by Columbia Casualty Company (Columbia). After Rodeo accepted Skanco's quote, Columbia issued a policy that became effective on December 1, 2000. Gene Hinkle, who leased the property on which Cowboys is located, and Rita Trujillo, who owned Cowboys' liquor license, were both named by Rodeo as additional insureds in endorsements to the Columbia policy.
{3} Instead of paying the annual premium in a lump sum, Rodeo entered into an insurance premium finance agreement with a company called Premium Finance Specialists, Inc. (PFS). In a premium finance agreement, a premium finance company pays the premium in full to the insurer and the insured makes payments to the premium finance company for the amount advanced to the insurer. See NMSA 1978, § 59A-45-2 (1984). In the agreement, the insured gives the premium finance company a power of attorney to cancel the policy if the insured defaults on a payment; however, in New Mexico, cancellation pursuant to such agreements is controlled by specific statutes governing premium financing. See § 59A-45-11. According to the financing agreement between Rodeo and PFS, PFS agreed to pay the full $7,998.98 annual premium to Columbia. Rodeo agreed to make an initial payment of $2,305.73 to PFS, followed by nine monthly payments of $670.71. The premium finance agreement between PFS and Rodeo appointed PFS as Rodeo's attorney-in-fact with the specific authority to cancel the Columbia policy on behalf of Rodeo in the event Rodeo defaulted on its payment obligations to PFS. Neither Skanco nor Columbia were parties to the premium finance agreement or had an agency relationship with PFS.
{4} The common policy conditions of the Columbia policy contained a cancellation section, which provided that the first named insured (Cowboys) "may cancel this policy by mailing or delivering to us advance written notice of cancellation." The cancellation section also provided: The policy also stated:
If this policy is cancelled, we will send the first Named Insured any premium refund due. If we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. The cancellation will be effective even if we have not made or offered a refund.
{5} In January and February 2001, Rodeo was late in making payments to PFS under the financing agreement and PFS sent Rodeo notices of intent to cancel. Rodeo made its payments and avoided cancellation. On March 12, 2001, PFS sent Rodeo another notice of intent to cancel because Rodeo's March payment was past due. The notice stated that if PFS did not receive payment by March 22, 2001, PFS would cancel Rodeo's insurance policy with Columbia. The notice stated: On March 29, 2001, PFS sent Rodeo a notice that pursuant to its power of attorney PFS would cancel Rodeo's insurance effective April 1, 2001, unless payment was received. The notice of cancellation, which was also sent to Northern and Skanco, instructed the insurer to forward gross unearned premiums to PFS "promptly for credit to the insured's account." Rodeo made its March payment on April 3, 2001, and on May 11, 2001, also tendered payments for April and May, which were accepted by PFS.
{6} By May 9, 2001, Northern received a cancellation endorsement from Skanco, which indicated that the policy was cancelled for non-payment and that there was "a 90% of pro rata return premium of $4604.00." On May 15, 2001, PFS sent Skanco a request for reinstatement, which stated: "If the insurance is to remain cancelled, please forward PFS the return premium promptly."
{7} On May 20, 2001, a patron died after being escorted from Cowboys. On May 22, 2001, Columbia rejected PFS's request to reinstate the insurance policy. A wrongful death action was filed against Rodeo by the patron's estate. Rodeo submitted the defense and indemnification of the claim to Columbia, which was rejected on grounds that the policy had been cancelled by Rodeo's attorney-in-fact on April 1, 2001. Columbia did not refund any of the unearned premium until June 11, 2001, when Skanco returned to Northern the unearned balance of premiums paid. Rodeo did not receive a refund for the unearned premium from Northern until November 9, 2001. Our review of the record reveals no indication that PFS ever received the balance of the unearned premium.
{8} Rodeo, Hinkle, and Trujillo filed third-party complaints against Columbia, alleging that Columbia had a duty to defend and indemnify them in the wrongful death action, and also claimed breach of contract, breach of duty of good faith and fair dealing, and violations of the New Mexico Insurance Code. The parties filed cross-motions for summary judgment on Columbia's duty to defend. After a hearing, the district court initially granted Columbia's motion for summary judgment against Rodeo, concluding that Columbia had no duty to defend Rodeo. The district court found that Rodeo's insurance policy was cancelled by Rodeo's attorney-in-fact on April 1, 2001, the date stated in the notice of cancellation, and was never reinstated. The district court also found that Rodeo had no reasonable expectation of insurance coverage after April 1, 2001. As to Hinkle and Trujillo, the district court denied Columbia's motion for summary judgment, finding under the doctrine of reasonable expectations that notice of cancellation was required as to Hinkle and Trujillo, and a question of fact remained as to whether they received proper notice. All parties filed motions for reconsideration. Following argument, the district court reversed its previous order. The district court found that Columbia did not have a duty to notify Hinkle and Trujillo of the cancellation of the policy. The district court ruled, however, that Rodeo's policy with Columbia remained in effect until the unearned premium was returned by Skanco, a decision which meant that Rodeo, Hinkle, and Trujillo were all covered at the time of the incident underlying the wrongful death action. The district court certified its order for interlocutory appeal, which was granted by this Court. See NMSA 1978, § 39-3-4 (1999); Rule 12-203 NMRA.
{9} In this interlocutory appeal, Columbia seeks review of the district court's ruling that cancellation of an insurance policy by a premium finance company, acting pursuant to a power of attorney from the insured, is not effective until the unearned premium is returned to the insured. Hinkle and Trujillo also filed a conditional cross-appeal to determine whether the district court erred in ruling that Hinkle and Trujillo were not entitled to notice of the policy's cancellation. Because we affirm the district court's ruling that the policy remained in effect until Columbia refunded the unearned premium on June 11, 2001, we do not address the merits of the cross-appeal. Although the parties dispute whether this Court should review the issue of whether Rodeo had a reasonable expectation of coverage after April 1, 2001, we do not need to address this issue based on our proposed disposition.
{10} The only issue we address in this appeal is whether, under our statutory provisions for cancellation of an insurance policy by a premium finance insurance company, the date of cancellation is rendered ineffective by an insurer's failure to return unearned premiums. Columbia argues that this Court should reverse the district court's interlocutory order in part and hold that the cancellation of an...
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