St. Paul Fire & Marine Ins. v. First Bank of Arkansas

Citations: 341 Ark. 851; 20 S.W.3d 372; 2000 Ark. LEXIS 357Docket: 99-1021

Court: Supreme Court of Arkansas; July 7, 2000; Arkansas; State Supreme Court

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RAY Thornton, Justice. St. Paul Fire and Marine Insurance Company appeals a judgment from the White County Circuit Court that awarded First Bank of Arkansas satisfaction of a judgment against Terry Kenyon, an alleged insured under St. Paul's automobile liability policy. The court found that the policy was in effect at the time of an accident on July 4, 1995, which resulted in the deaths of two individuals. The trial determined that the policy had not been canceled prior to the accident, leading to the affirmation of the circuit court's decision.

The facts revealed that St. Paul issued a garage liability insurance policy to Conway Auto Exchange, Inc., effective from April 17, 1995, to April 17, 1996. Terry Kenyon, president of Conway Auto, requested cancellation of the policy, suggesting it take effect on June 16, 1995. The policy required that the first named insured deliver the policy or notify the insurer by mail to effect cancellation. A letter from Carl Warren of Robinson-Adams Insurance Agency indicated successful negotiation for a pro rata cancellation, requesting Kenyon to sign a Cancellation Release Form.

Despite the request, the cancellation form signed by Kenyon and backdated to June 16, 1995, was not received by St. Paul until July 10, 1995. St. Paul subsequently issued a refund for the unearned premium. On July 4, 1995, Kenyon was involved in an accident while driving a vehicle licensed to Conway Auto, resulting in a lawsuit from First Bank, representing the victims' estates. Conway Auto sought coverage from St. Paul, which was denied on the grounds of policy cancellation.

First Bank obtained a judgment against Kenyon and Conway Auto for $1,425,000, then filed a direct action against St. Paul, claiming the policy was still effective on the date of the accident. St. Paul contested this, asserting the policy was canceled. The circuit court ruled in favor of First Bank, concluding that the cancellation request had not been received by St. Paul at the time of the claim. However, the court did not grant attorney's fees or a statutory penalty, which led to First Bank's cross-appeal. St. Paul’s appeal is affirmed, as is the cross-appeal regarding attorney's fees and penalties.

St. Paul argues on appeal that Conway Auto’s insurance policy was canceled by June 28, 1995, based on a letter from Warren to Kenyon, asserting that the notice of cancellation dated June 16 was clear and communicated to St. Paul by that date. Citing the case law, St. Paul emphasizes that actual notice of cancellation must be unequivocal, with mere intention being insufficient. However, the court finds the American States case unpersuasive regarding the specifics of this case due to the lack of explicit policy language on cancellation requirements.

St. Paul claims that the policy was terminated by mutual agreement prior to Warren's June 28 letter. The insurance contract required either the surrender of the policy or written notice of intent to cancel. Since Kenyon did not surrender the policy, he was instructed to complete a “Cancellation Request/Policy Release” form that indicated June 16 as the effective cancellation date. This form included a statement acknowledging that no claims would be made against the insurer for losses occurring after the cancellation date.

Warren's letter indicated St. Paul's willingness to terminate coverage but required the cancellation form from Kenyon. The court notes that St. Paul insisted on written notice compliance and did not agree to termination before receiving the cancellation form. Evidence shows that as of June 30, 1995, St. Paul still treated the policy as active, indicating that they had not processed the cancellation.

St. Paul also raises the “mailbox rule,” debating whether the cancellation notice was effective upon mailing or receipt. Kenyon mailed the cancellation form to Warren after June 28, which Warren received on July 6 and forwarded to St. Paul on the same day, two days after an accident occurred that led to the claim. Notably, St. Paul contends that Warren lacked authority to act on their behalf and characterized him as Kenyon's agent. The court concludes that cancellation can only operate prospectively, and a cancellation request sent after a loss does not relieve the insurer from liability for claims that have already arisen.

In Mann v. Charter Oak Fire Ins. Co., the court held that the rights of injured parties are established at the time of the accident, and any retroactive rescission of an insurance policy requires the consent of both the insured and any third parties with vested rights. The case noted that since Warren did not notify St. Paul about the policy termination until after the July 4, 1995 accident, the timing of when the notice was sent or received is irrelevant. On cross-appeal, First Bank claimed the trial court erred by not awarding attorney’s fees and a statutory twelve percent penalty against St. Paul for delayed payment, as mandated by Ark. Code Ann. 23-79-208 (Repl. 1999). However, the trial court's order did not indicate that First Bank sought a ruling on this issue, and their failure to do so was deemed a waiver of the argument on appeal. Consequently, the court affirmed the trial court's decision on this point. Judge Brown did not participate in the decision.