State Farm Mut. Auto. Ins. Co. v. O'Brien

• Decision Date: 15 May 1975
• Docket Number: No. 2,CA-CIV,2
• Citation: 535 P.2d 46,24 Ariz.App. 18
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Appellant, v. Fred F. O'BRIEN, Appellee. 1759.
• Court: Arizona Court of Appeals

Page 46

535 P.2d 46

24 Ariz.App. 18

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Appellant, v. Fred F. O'BRIEN, Appellee.

No. 2 CA-CIV 1759.

Court of Appeals of Arizona, Division 2.

May 15, 1975.

Rehearing Denied June 17, 1975.

[24 Ariz.App. 19] Fish, Briney, Duffield & Miller, P.C., by Richard C. Briney, Tucson, for appellant.

Schroeder, Soelter & Rosenthal, P.C., by J. Marc Montijo, Tucson, for appellee.

OPINION

KRUCKER, Judge.

Appellee, Fred F. O'Brien, filed a complaint for declaratory judgment against State Farm Mutual Automobile Insurance Company seeking a declaration that the policy for automobile liability insurance issued to him for the period of November 13, 1972 to March 26, 1973 was in full force and effect and provided full coverage for the accident in which he was involved April 6, 1973. Judgment was entered in favor of appellee and the insurer now brings this appeal.

Appellant raises two issues on appeal:

(1) Did the insurance policy expire by its terms on March 26, 1973, by reason of the appellee's failure to pay the renewal premium prior to the said expiration date?

(2) Were attorney's fees improperly awarded to appellee?

The insurance policy in question was issued by State Farm to appellee as a replacement policy. The policy period was to extend from November 13, 1972 to March 26, 1973. At no time prior to the expiration of the aforementioned 'current policy period' did the policyholder-appellee pay the renewal premium which would have continued the coverage for a succeeding period of six months.

On April 14, 1973 appellee mailed to appellant his check in the sum of $113.00 and, while driving the automobile described in the aforesaid policy, appellee was involved in an automobile accident on April 6, 1973. By letter, appellant's underwriting supervisor informed appellee that his coverage had expired at the end of the day, March 26, 1973, for failure to pay the premium when due and returned appellee's check. At no time prior to the expiration date of the policy period, i.e., March 26, 1973, did appellee receive any written notice from the insurer that the policy period would expire on a specified date, that a renewal premium was payable by said date, or that the policy had been cancelled by the company.

It is appellant's contention that the policy lapsed for non-payment of premium in accordance with the provisions of that part of the policy captioned 'DECLARATIONS', which reads:

'1. POLICY PERIOD: The policy shall be as shown under 'Policy Period' And for such succeeding periods of six months each thereafter as the required renewal premiums is paid by the named insured on or before the expiration of the current policy period. The 'Policy Period' shall begin and end at 12:01 A.M. standard time at the address of the named insured as stated herein. The premium shown is for the policy period and coverages indicated in the declarations.' (Emphasis added)

Appellee contends that what is involved in the instant case is a 'cancellation' of coverage requiring prior written notice by the company under the provisions of that part of the policy captioned 'POLICY CONDITIONS', which reads:

'17. Cancellation.

* * *

* * *

In the event the policy is cancelled during the first 60 days following the effective date of the policy, the Notice of Cancellation shall be mailed to the named insured not less than 10 days prior to the effective date of such cancellation.

After the policy has been in force for 60 days, subsequent notice of cancellation for non-payment shall be mailed to the named insured not less than 10 days prior to the effective date thereof. Notice of any other cancellation shall be mailed to the named insured not less than 30 days prior to the effective date thereof.' (Emphasis added)

In dealing with the instant case, certain general principles are applicable. First, a contract is read as a whole, and the intention of the parties as derived from the language of the policy itself must prevail. State Farm Mut. Auto. Ins. Co. v. Transport Indem. Co., 16 Ariz.App. 49, 490 P.2d 1177 (1971); Fireman's Fund Ins. Co. v. New Zealand Ins. Co., 103 Ariz. 260, 439 P.2d 1020 (1968). It is not the prerogative of the court to rewrite an insurance policy in an attempt to avoid possible harsh results. Lawrence v. Beneficial Fire & Casualty Ins. Co., 8 Ariz.App. 155, 444 P.2d 446 (1968). Any ambiguity in the cancellation clause of an insurance policy will be resolved in favor of the insured. Hartford Fire Ins. Co. v. Stephens, 18 Ariz. 339, 161 P. 684 (1916). And, to determine whether ambiguity exists, the language of the policy should be examined from the viewpoint of one who is not trained in law or in the insurance business. Heard v. Farmer's Insurance Exchange Company, 17 Ariz.App. 193, 496 P.2d 619 (1972); Droz v. Paul Revere Life Insurance Co., 1 Ariz.App. 581, 405 P.2d 833 (1965).

In reviewing the various policy provisions, we find that the trial court was justified in holding that the provisions are ambiguous and therefore should be construed in a manner most favorable to the insured. The appellant's contention that the policy automatically expired at the end of the policy period is clouded by that clause which states that cancellation for nonpayment shall not occur without prior notice. ¹ Also, we have noted that additional portions of 'Policy Provisions', No. 17, seem to imply that failure to make a renewal premium payment will give rise to a 'right to cancel' as opposed to appellant's assertion of an automatic 'expiration'. The applicable section reads:

'After this policy has been in effect for sixty days, or if the policy is a renewal, effective immediately, The company shall not exercise its right to cancel or fail to renew the insurance afforded under this policy solely because of age or Unless:

A. The named insured fails to discharge when due any of his obligations in connection with the payment of premium for this policy or any installment thereof whether payable directly or Under any premium payment plan.' (Emphasis added)

It is important to note that the preceding passage indicates that the company regards the failure to make payment as a condition which gives rise to a right to 'cancel' where the insured fails to make a premium payment 'under any premium payment plan' as opposed to causing an automatic expiration. Payment of a renewal premium pursuant to the terms outlined in 'Declarations' No. 1 Policy Period, which appellant relies upon to support its 'expiration' interpretation, would arguably seem to fall within the all-inclusive phrase 'any premium payment plan'.

Thus, when appellee failed to make his renewal payment pursuant to the terms of the policy, the above-quoted clause would suggest that a right to cancel, for the failure to make payment under 'any premium payment plan', arose. Once the right to cancel arises, the cancellation clause would then appear to be applicable with its notice requirements. Having failed to meet the notice requirement, appellant has failed to satisfy the apparent condition precedent to claim a forfeiture. See, Couch on Insurance 2d, § 30.127 (1960).

Thus, it reasonably appears that appellant's policy has imposed a duty to give the insured notice that he is no longer covered. This point is a significant distinction because it sets the instant policy apart from the ordinary term policy which could expire without notice and makes reference to cases interpreting the usual term policy inappropriate. See, Couch on Insurance 2d, § 32:69 (1961). We acknowledge that appellant's interpretation of the language of the policy is not completely without merit. Nevertheless, the policy is at best ambiguous and therefore must be construed in a light most favorable to the insured. ²

Appellant challenges the judgment on the grounds that an actual controversy does not exist in the instant case and therefore declaratory relief was inappropriate. We find no merit to this assertion. See, Kepner v. Western Fire Insurance Company, 109 Ariz. 329, 332, 509 P.2d 222 (1973); 22 Am.Jur.2d Declaratory Judgments § 46.

Appellant's final contention is that attorney's fees should not have been awarded to appellee and we agree. In United States Fidelity and Guaranty Co. v. Frohmiller, 71 Ariz. 377, 227 P.2d 1007 (1951), the general rule was stated that attorney's fees are not recoverable where there is no contractual or statutory basis for their award. The exceptions to the general rule stated in Frohmiller are not applicable here. A.R.S. § 12--1840 provides that the court may, in declaratory actions, award costs as may seem just and equitable. 'Costs' do not include attorney's fees pursuant to the declaratory judgments act. Rocky Mountain Fire & Casualty Company v. Rose, 62 Wash.2d 896, 385 P.2d 45 (1963); 20 Am.Jur.2d Costs § 72; 22 Am.Jur.2d Declaratory Judgments § 101. Furthermore, no special exception is recognized for actions on an insurance policy. Couch on Insurance 2d §§ 58:113, 78:170. We hasten to add that we do not necessarily find that the same would be true if the facts were reversed, wherein the insured defended against declaratory relief sought by the insurer. Standard Accident Ins. Co. of Detroit v. Hull, 91 F.Supp. 65 (D.C.Cal.1950); Occidental Fire & Casualty Co. v. Cook, 92 Idaho 7, 435 P.2d 364 (1967); But see, Carroll v. Hanover Insurance Company, 266 Cal.App.2d 47, 50, 71 Cal.Rptr. 868 (1968).

For the foregoing reasons, the judgment of the trial court is affirmed in its finding that the insurance policy was in effect and provided coverage for the April 6, 1973 accident. The trial court is reversed as to its award of attorney's fees.

HATHAWAY, J., concurring.

HOWARD, Chief Judge (dissenting).

The majority opinion takes an otherwise unambiguous insurance policy and creates an ambiguity out of whole cloth. The policy period clause set forth in the policy is as follows:

'The policy period shall be as shown under 'Policy Period'...