Comply with Statute & Nonrenewal Will Be Affirmed

Failure to Cure Increased Risk Sufficient Ground to Nonrenew

Insurers will often renew a policy of homeowners insurance as a matter of course as long as the premium is paid. However, if an insurer determines that the risk of loss at the property has been increased it has the right to demand that the insured cure the increased risk of loss. If the insured does not cure the new hazards, it will either cancel or nonrenew the policy because the risk is one the insurer is unwilling to take.

Chartrease Grier appealed the trial court’s grant of summary judgment in favor of Nationwide Property & Casualty Insurance Company (Nationwide), arguing the court erred in (1) finding section 38–75–740 of the South Carolina Code (2015) was inapplicable to homeowners insurance policies, (2) ruling her breach of contract claim failed as a matter of law, (3) concluding Nationwide’s refusal to pay was not in bad faith, and (4) denying Grier’s motion to amend her third-party complaint. In Bank of New York Mellon Trust Co. v. Grier, Court of Appeals of South Carolina, — S.E.2d —-, 2016 WL 805861  (March 2, 2016) the Court of Appeals considered her arguments.

FACTS/PROCEDURAL HISTORY

In 2006, Grier purchased a homeowner’s insurance policy from Nationwide through her insurance agent, Tanya Parks. The policy covered her home and its contents in Columbia, South Carolina. The Bank of New York Mellon Trust Company (the Bank) held a mortgage on Grier’s property, and GMAC Mortgage, LLC (GMAC) serviced the mortgage on behalf of the Bank. Pursuant to the mortgage, Grier was required to pay the homeowners insurance premium as a part of her monthly mortgage payment into an escrow account managed by GMAC.

In March or April of each year, GMAC issued a check to Nationwide for the amount of the insurance premium it withdrew from the escrow account, and Nationwide renewed the policy. Nationwide renewed Grier’s homeowner’s policy annually from 2007 to 2010. In January 2011, however, Nationwide decided not to renew Grier’s policy—which was set to expire on March 24, 2011—because she failed to remedy various hazards and risks on her property. Nationwide claims it mailed proper notice of nonrenewal to Grier on January 14, 2011, at her home address listed on the policy.

On March 11, 2011—before the policy expired—a GMAC representative contacted Nationwide about paying the premium for Grier’s policy for the upcoming renewal period. Grier contends Nationwide welcomed the payment in this conversation and stated it would renew the policy if it received the premium.

Thereafter, GMAC mailed a check to Nationwide on March 15, 2011, for the same amount it submitted the prior year for the renewal. Nevertheless, because no active policy was listed for Grier in its records, Nationwide returned the premium to Grier by a check dated April 1, 2011.

On April 6, 2011, a fire destroyed Grier’s home, leaving it uninhabitable. Grier filed a claim for insurance coverage, but Nationwide denied her claim, explaining that Grier had no policy in place. Grier soon defaulted on her mortgage, and on September 13, 2011, the Bank filed a foreclosure action against her. Grier answered and filed a third-party complaint against Nationwide and Parks, asserting causes of action for breach of contract, bad faith failure to pay her insurance claim, and indemnity and contribution.

After conducting a hearing on cross-motions for summary judgment on November 28, 2012, the circuit court granted summary judgment in favor of Nationwide. Because Nationwide produced sufficient proof of mailing the notice of nonrenewal to Grier, the court concluded the policy was not in effect at the time of Grier’s loss and, therefore, Grier could not sue for breach of a nonexistent contract. The circuit court next granted summary judgment to Nationwide on Grier’s bad faith failure to pay claim. Given that no policy was in effect, the court held Grier’s cause of action failed as a matter of law because Nationwide had a reasonable, objective basis for denying her claim for coverage.

LAW/ANALYSIS

Where there is one statute addressing an issue in general terms and another statute dealing with the identical issue in a more specific and definite manner, the more specific statute will be considered an exception to, or a qualifier of, the general statute and given such effect.

When an insurer attempts to nonrenew a policy that provides property insurance on a risk located in the state the insurer must follow the procedures outlined in the statute. Nationwide was required to follow the nonrenewal procedures outlined in the statute. Specifically, to successfully nonrenew Grier’s homeowner’s policy, Nationwide had to deliver or mail notice of nonrenewal to Grier. Because Nationwide gave proper notice, as evidenced by its proof of mailing to Grier’s address listed on the policy, the court had no choice but to find that Nationwide complied with the appropriate statute and, therefore, effectively nonrenewed Grier’s homeowner’s policy.

BREACH OF CONTRACT

Grier next contends the circuit court erred in holding her breach of contract claim against Nationwide failed as a matter of law. According to Grier, GMAC—the Bank’s mortgage servicer—renewed the insurance policy on her behalf as her agent when it contacted Nationwide regarding the payment of the annual premium.

Although GMAC, the Bank’s mortgage servicer, submitted the annual insurance premiums for Grier’s policy to Nationwide, GMAC was not subject to Grier’s control. Under the mortgage, GMAC—acting on behalf of the Bank—required that Grier purchase homeowners insurance on the dwelling to protect the Bank’s collateral for the mortgage loan. Further, GMAC required that the insurance policy contain a standard mortgage clause listing it as the mortgagee. Grier’s choice of insurance was also subject to GMAC’s approval.

Additionally, if Grier failed to maintain property insurance, then the mortgage authorized GMAC to force-place a policy on Grier’s home at her expense. Because GMAC was not Grier’s agent the court found the circuit court properly ruled that Grier’s breach of contract claim failed as a matter of law.

ZALMA OPINION

The U.S. Constitution does not make insurance a right available to every citizen. Insurance is a contractual relationship between an insurer and one who would be insured. If the insurer determines that the risk it had taken in the past had changed and was no longer a risk it wished to take, it may cancel the policy or refuse to renew it if, in so doing, it complies with state statutes regulating cancellation and nonrenewal. Nationwide properly nonrenewed the policy issued to Ms. Grier and her failure to replace the insurance was neither the fault of the insurer nor the bank that paid the premium.

ZALMA-INS-CONSULT                      © 2016 – Barry Zalma

Barry Zalma, Esq., CFE, practiced law in California for more than 43 years as an insurance coverage and claims handling lawyer.  He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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