Taxter v. Safeco Ins. Co. of America

• Decision Date: 17 June 1986
• Docket Number: No. 6949-4-III,6949-4-III
• Citation: 44 Wn.App. 121,721 P.2d 972
• Court: Washington Court of Appeals
• Parties: Max E. TAXTER and Delores Taxter, husband and wife, Respondents and Cross Appellants, v. SAFECO INSURANCE COMPANY OF AMERICA, a corporation, Respondent and Rainier Insurance Company, a corporation, Appellant.

Page 121

44 Wn.App. 121

721 P.2d 972

Max E. TAXTER and Delores Taxter, husband and wife Respondents and Cross Appellants, v. SAFECO INSURANCE COMPANY OF AMERICA, a corporation, Respondent and Rainier Insurance Company, a corporation, Appellant.

No. 6949-4-III.

Court of Appeals of Washington, Division 3 Panel Four.

June 17, 1986.

As Amended July 18, 1986.

Review Denied Oct. 7, 1986.

W. Matt Murray, Murray, Dunham & Murray, Seattle, for appellant.

Stephen F. Backman, Joseph A. Blumel, III, Backman, Blumel & Reed, Spokane, for Taxter.

Ronald G. Morrison, Kenneth H. Kato, Huppin, Ewing, Anderson & Morrison, Spokane, for Safeco.

GREEN, Chief Judge.

This is a declaratory judgment action to determine coverage under automobile insurance policies issued by Rainier Insurance Company and Safeco Insurance Company to Max and Delores Taxter.

The Taxters had an automobile insurance policy with Safeco that was to expire on November 25, 1983. They were given a grace period in which to renew; it expired on December 15. The Taxters were dissatisfied with the amount of the premium and Mrs. Taxter informed Safeco they were considering other companies. Effective December 2, the Taxters obtained a policy from Rainier, intending to let the Safeco policy lapse. On December 13, Mr. Taxter, while driving his 1973 Toyota Land Cruiser, was struck head-on by an automobile driven by Howard Russell. The next day Mrs. Taxter informed Safeco of the accident. Unaware of the Rainier policy, Safeco told Mrs. Taxter to pay the premium on the Safeco policy to prevent it from lapsing, which she did. Thus, the Taxters had two automobile policies with limits of $100,000 each at the time of the accident.

Mr. Russell's company paid the Taxters its policy limits of $100,000. Safeco paid $3,997.70 for property damage to the Toyota, but declined further payment on the basis its policy automatically terminated as to other coverage upon Taxters' purchase of similar coverage under the Rainier policy. Rainier paid $14,462 under its personal injury protection (PIP) coverage, but, in light of Safeco's position, refused further payment contending the two companies should share equally in their underinsured motorist coverage. Rainier also took the position the PIP payment should offset whatever amount Rainier might be required to pay.

The Taxters then brought this action to determine coverage under these two policies. The trial court denied Rainier's motion for summary judgment, but granted summary judgment for Safeco, holding: (1) The doctrine of cancellation by substitution and the automatic termination provisions of Safeco's policy terminated coverage to the extent Rainier provided similar coverage and thus Safeco is not required to pay underinsured motorist benefits; (2) Rainier could not offset payments made under its PIP coverage against the amount due for underinsured motorist coverage; and (3) it was unnecessary to decide whether Taxters could stack coverage under both policies. Rainier and Taxters appeal.

First, it is contended the court erred when it ruled that Taxters' purchase of the Rainier policy terminated like coverage by Safeco under the doctrine of cancellation by substitution and the automatic termination provision of the Safeco policy. It is argued the exclusive method for cancelling the Safeco policy is by written notice pursuant to RCW 48.18.291, .300 and RCW 48.22.030. Since the termination of the Safeco policy was not effected according to statute, it is contended the policy remains in effect and Safeco should be required to equally share the underinsured motorist payment. We disagree.

Washington early recognized and applied the doctrine of cancellation by substitution in Bache v. Great Lakes Ins. Co., 151 Wash. 494, 499, 276 P.2d 549 (1929), where the court stated:

[T]he procuring of new insurance by an owner, or by his agent authorized so to do, for a term commencing before the expiration of the term of existing insurance, with intent to have the new insurance take the place of the existing insurance ... constitutes in law an effective, voluntary cancellation of the existing insurance.

While it is true, as Rainier contends, the doctrine has fallen into disfavor because it allows cancellation without notice to the insurer, Ector v. American Liberty Ins. Co., 138 Ga.App. 519, 226 S.E.2d 788 (1976); Lee v. Ohio Cas. Ins. Co., 58 Ill.App.3d 1, 15 Ill.Dec. 555, 373 N.E.2d 1027 (1978); Milbank Mut. Ins. Co. v. State Farm Fire & Cas. Co., 294 N.W.2d 426 (S.D.1980), and thus violates the contractual necessity of mutual consent, Franklin v. Carpenter, 309 Minn. 419, 244 N.W.2d 492 (1976), it is upheld where the insured communicates his intent to replace the policy to the insurer or the terms of the contract specifically provide for substitution as a method of cancellation. In those circumstances, the courts hold the necessary element of mutual consent is satisfied. Davidson v. State Farm Mut. Auto. Ins. Co., 161 Ga.App. 21, 288 S.E.2d 832 (1982); Sizelove v. INA Ins. Co., 104 Ill.App.3d 864, 60 Ill.Dec. 654, 433 N.E.2d 696 (1982); Songer v. State Farm Fire & Cas. Co., 91 Ill.App.3d 248, 46 Ill.Dec. 715, 414 N.E.2d 768 (1980); Wilbanks v. Prudential Property & Cas. Ins. Co., 277 S.C. 256, 286 S.E.2d 127 (1982); Tyner v. Cherokee Ins. Co., 262 S.C. 462, 205 S.E.2d 380 (1974); 43 Am. Jur.2d Insurance §§ 431, 432 (1982). Even the cases relied upon by Rainier that disfavor the doctrine uphold it when the above conditions are met. Glens Falls Ins. Co. v. Founders' Ins. Co., 209 Cal.App.2d 157, 25 Cal. Rptr. 753, 3 A.L.R.3d 1058 (1962); Ector v. American Liberty Ins. Co., supra; Franklin v. Carpenter, supra; Milbank Mut. Ins. Co. v. State Farm Fire & Cas. Co., supra.

Here, while the insureds did not communicate their intent to replace the policy, Safeco's policy terms provide the necessary mutual consent. These terms provide:

If you [the insured] obtain other insurance on your covered auto, any similar insurance provided by this policy will terminate as to that auto on the effective date of the other insurance.

(Italics ours.) We cannot ignore the language in the contract nor revise the contract under the theory of construing it. Farmers Ins. Co. v. Miller, 87 Wash.2d 70, 73, 549 P.2d 9 (1976). The Taxters consented to these terms when they obtained the Safeco policy. They cannot claim lack of notice when they had either actual or constructive knowledge of it. We conclude the Safeco policy terminated to the extent the Rainier policy provided similar coverage.

It is also contended Safeco's automatic termination provision violates the written notice requirement of RCW 48.18.291 which governs the method by which an insurer may cancel an automobile insurance policy. ¹ Safeco argues RCW 48.18.291 governs cancellation by the insurer, and not termination by unilateral acts of the insured. We agree.

The term "cancellation" refers to a unilateral act of the insurer terminating coverage during the policy term. Cf. Safeco Ins. Co. v. Irish, 37 Wash.App. 554, 681 P.2d 1294, review denied, 102 Wash.2d 1013 (1984); Continental Ins. Co. v. Paccar, Inc., 26 Wash.App. 850, 614 P.2d 675 (1980), rev'd on other grounds, 96 Wash.2d 160, 634 P.2d 291 (1981). The purpose of the "notice" statutes is to provide the insured the opportunity to obtain other insurance prior to cancellation. Dairyland Ins. Co. v. Kankelberg, 368 F.Supp. 996 (D.Or.1973). Courts have held RCW 48.18.291 is not applicable when it is the insured's act which brings about the termination of the policy and have refused to apply it. See Safeco Ins. Co. v. Irish, supra (RCW 48.18.291 held not applicable to an automatic termination provision where the insured failed to pay a premium as a condition to renewal); Dairyland Ins. Co. v. Kankelberg, supra (RCW 48.18.291 held not applicable to a termination provision based on the insured's stop payment on a check). Here, it was the act of the insured Taxters that resulted in the termination. That termination did not leave the Taxters without coverage because of the Rainier policy; hence, the purpose of the notice statutes remains unimpaired.

This analysis is in accord with the principle that in the absence of a restrictive statutory provision, the insurer and insured have the right to specify in their insurance contract the method by which it can be terminated. Department of Labor & Indus. v. Northwestern Mut. Fire Ass'n, 13 Wash.2d 288, 291, 124 P.2d 944 (1942). In Glens Falls Ins. Co. v. Founders Ins. Co., supra, relied upon by Rainier, the court stated the manner specified in the insurance code by which a policy may be cancelled does not restrict the rights of rescission to the methods contained therein. Superimposed upon the code are the provisions which govern contracts generally. Moreover, in several cases relied upon by Rainier there were state statutes, like Washington's, which required written notice of cancellation by the insurer and/or insured. Ector v. American Liberty Ins. Co., supra (Ga.Code Ann. § 33-24-45, effective 1968); Lee v. Ohio Cas. Ins. Co., supra (Ill.Ann.Stat. ch. 73, §§ 143.15, .16, effective 1976); Franklin v. Carpenter, supra (Minn.Stat.Ann. §§ 72A.142, .143, effective 1968); nevertheless, those courts agreed a policy of insurance may be cancelled by its terms or by mutual consent. We conclude, therefore, Safeco's automatic termination provision is not contrary to the notice requirements of RCW 48.18.

Additionally, Rainier argues Safeco's automatic termination provision is repugnant to RCW 48.22.030, the underinsured motorist statute, which requires the insured to reject its coverage in writing. ² Rainier contends the automatic termination provision is a restriction upon underinsuredmotorist coverage which is against public policy and therefore void. Touchette v. Northwestern Mut. Ins. Co., 80 Wash.2d 327, 494 P.2d 479 (1972). On the other hand, Safeco asserts the automatic termination provision is not...