Auto Now Acceptance Corp. v. Catawba Insurance

Citations: 342 S.C. 526; 537 S.E.2d 553; 2000 S.C. App. LEXIS 158Docket: No. 3241

Court: Court of Appeals of South Carolina; September 11, 2000; South Carolina; State Appellate Court

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Catawba Insurance Company appeals a trial judge's ruling that it was obligated to notify Auto Now Acceptance Corporation of the cancellation of an insurance policy for a vehicle owned by Jacqueline Robinson and Michelle Jones. The vehicle was purchased under an installment contract requiring insurance with Auto Now as the loss payee. The insurance policy included a clause committing Catawba to provide the same cancellation notice to Auto Now as it would to the insured. Although Auto Now did not request a copy of the policy, it was informed via a 'New Business Declaration' that it was the loss payee.

Premium Budget, Inc. (PBI), contracted by the purchasers to finance the insurance, had the authority to cancel the policy if payments were defaulted. Following a default, PBI canceled the policy on October 16, 1995, without notifying Auto Now. After the insured vehicle was destroyed by fire on December 19, 1995, Auto Now sought reimbursement from Catawba, which denied the claim, asserting the policy was no longer active. Auto Now then filed an action against Catawba, claiming both the policy and relevant South Carolina law mandated notification of cancellation.

The trial judge concluded that Catawba was required to inform Auto Now of the cancellation and ordered reimbursement of $3,500 for the lost security interest. Catawba's appeal is based on its argument that no notice was necessary to the loss payee when the policy was canceled under the power of attorney granted to PBI. In reviewing the case, the standard of review affirms trial judges' findings unless there is a legal error or a lack of evidentiary support for the findings, particularly regarding contract interpretation and legislative intent, which are questions of law.

Catawba asserts that its policy did not mandate notifying Auto Now of a policy cancellation, arguing that PBI's cancellation under a power of attorney equated to a cancellation by the insured, thus negating the need for notice. The policy requires notice to the insured only when canceled by the insurer, implying no notice is necessary to a loss payee when canceled by the insured or their agent. However, this argument overlooks the specific statutory provisions governing cancellations by premium service companies like PBI, which dictate compliance with certain procedures. According to S.C.Code Ann. 38-39-90, a premium service company must provide at least ten days' written notice to the insured before cancellation, which PBI adhered to by sending a notice dated September 22, 1995. Catawba references a regulation, 25A S.C.Code Ann. Regs. 69-13(V)(B)(3), to support its claim, but the regulation only relieves the insurer from issuing additional notice to the insured after the premium service company has already notified them, and does not exempt the insurer from notifying a loss payee. The trial court determined that Catawba's cancellation followed the policy's provision for cancellation by the insurer, requiring a fifteen-day notice to the insured, rather than the insured's cancellation which has no notice requirement. The cancellation stemmed from the purchasers' nonpayment of premiums, which is a permissible reason for cancellation under S.C.Code Ann. 38-75-730.

Catawba's intention to cancel an insurance policy was complicated by its relationship with premium service companies, which does not override the rights of mortgagees, such as Auto Now, to receive notice of cancellation. If PBI had not been involved in the transaction, Catawba would have canceled the policy for nonpayment, necessitating notice to Auto Now under the insurance contract. S.C.Code Ann. 38-39-90, particularly subsection (d), underscores that mortgagees retain their rights to notice regardless of regulations affecting premium service companies. This statute mandates that insurers provide notice to mortgagees like Auto Now within two business days of receiving cancellation intent from the premium service company, reinforcing that these obligations remain intact regardless of Catawba's obligations to the policy purchasers. Consequently, even if the cancellation was seen as equivalent to that initiated by the insured, Auto Now's rights to notice would not be diminished. The court affirmed the trial judge’s order requiring Catawba to pay $8,500 to Auto Now, emphasizing that while Catawba was relieved from notifying purchasers, it was still obligated to inform Auto Now. Auto Now typically does not receive copies of the insurance policy but relies on declarations from insurers.