Rachel Alexander v. Terra Nova Insurance Company, Ltd

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

06-1348

RACHEL ALEXANDER

VERSUS

TERRA NOVA INSURANCE COMPANY, LTD., ET AL.

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APPEAL FROM THE
FIFTEENTH JUDICIAL DISTRICT COURT,
PARISH OF LAFAYETTE, NO. 2003-2126
HONORABLE MARILYN C. CASTLE, DISTRICT JUDGE

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JIMMIE C. PETERS
JUDGE

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Court composed of Jimmie C. Peters, Marc T. Amy, and Elizabeth A. Pickett, Judges.

AFFIRMED.

Kyle L. Gideon
Christopher J. Piasecki
Kevin M. Dills
Davidson, Meaux, Sonnier & McElligott
Post Office Drawer 2908
Lafayette, LA 70502
(337) 237-1660
COUNSEL FOR PLAINTIFF/APPELLEE:
Rachel Alexander

Jan P. Christiansen
Hudson, Potts & Berstein, L.L.P.

Post Office Drawer 3008
Monroe, Louisiana 71210-3008
(318) 388-4400
COUNSEL FOR DEFENDANTS/APPELLANTS:
Terra Nova Insurance Company, Ltd., Et Al.

PETERS, J.,

Terra Nova Insurance Company, Ltd. (Terra Nova), and Winchester General

Agency, Inc. (Winchester), two of the defendants in this litigation, appeal the trial

court grant of a partial summary judgment in favor of the plaintiff, Rachel Alexander,

holding that Terra Nova provided Ms. Alexander a policy of homeowner’s insurance,

issued through Winchester, which was in full force and effect on October 3, 2002.

For the following reasons, we affirm the trial court judgment.

DISCUSSION OF THE RECORD

The facts giving rise to this litigation are not in dispute. In March of 2000, Ms.

Alexander purchased a home in Lafayette, Louisiana, and financed the purchase price

through Cendant Mortgage Corporation (Cendant Mortgage). The financing

arrangement with Cendant Mortgage included an escrow account for her insurance

premiums. Ms. Alexander contacted Metro Insurance Agency, Inc. and its agent,

Clayton Williams (hereinafter collectively referred to as “Metro/Williams”),1 to

obtain a policy of homeowner’s insurance to cover her new home. Metro/Williams

applied for and obtained coverage for Ms. Alexander from Terra Nova through

Winchester, Terra Nova’s authorized agent.2

Thereafter, the collection of insurance premiums due by Ms. Alexander to

Terra Nova followed the usual custom for mortgaged property with an escrow

account for such premiums: Metro/Williams invoiced Cendant Mortgage when a

premium was due; Cendant Mortgage then took funds from the escrow account and

paid the premium to Terra Nova.

1
Mr. Williams and Metro Realty Company, Inc., another “Metro” business with which he was
associated, had helped Ms. Alexander obtain her loan.
2
Neither Metro Insurance Agency, Inc. nor Mr. Williams was authorized to represent Terra
Nova as an insurance producer.

This routine continued without incident until the premium for the policy year

ending on March 26, 2003 became due. On January 25, 2002, Winchester reminded

Metro/Williams that the policy was up for renewal. Metro/Williams then contacted

Ms. Alexander for her approval of the renewal. On March 11, 2002, Ms. Alexander

responded in writing that she wished to renew the policy at the stated annual premium

of $505.05. On that same day, having received Ms. Alexander’s approval,

Metro/Williams faxed Winchester requesting that a binder, or temporary policy, for

the renewal of the policy be issued. Immediately on receipt of the request,

Winchester faxed the requested binder to Metro/Williams. Winchester then

forwarded Metro/Williams the policy, which provided insurance through March 26,

2003.

This litigation arises because payment of the premium from the escrow account

did not immediately follow. Winchester forwarded Metro/Williams a notice or

reminder that the premium was due and, when it received no response, forwarded a

second notice to the effect that the premium was past due.3 When this second notice

received no response, on April 17, 2002, Terra Nova sent a notice of cancellation of

the policy effective May 18, 2002. The specific reason for cancellation was non-

payment of the premium.

On April 19, 2002, Metro/Williams responded to the cancellation notice by

notifying Cendant Mortgage of Terra Nova’s action. Five days later, on April 24,

2002, Cendant Mortgage issued a $505.05 check to Metro/Williams from Ms.

Alexander’s escrow account. Metro/Williams deposited the check in one of its

accounts, but never forwarded the premium to Terra Nova or Winchester.

3
Winchester forwarded these notices only to Metro/Williams.

2

On October 3, 2002, Ms. Alexander’s home sustained damage when a storm

struck the Lafayette, Louisiana area. When Terra Nova denied her claim for property

damage under the policy, Ms. Alexander filed the instant suit against several

defendants, including Terra Nova, Winchester, Metro/Williams, and Cendant

Mortgage. Terra Nova and Winchester responded to the suit by filing, among other

pleadings, motions for summary judgment asserting that, because there were no

genuine issues of material fact in the litigation, they were entitled, as a matter of law,

to a judgment finding the policy cancellation effective and dismissing the suit as to

them. These motions were supported by the affidavit of John Smith, president of

Winchester. This affidavit narrated the early 2002 chronology of events, declared

that Winchester was an authorized agent of Terra Nova, and asserted that

Metro/Williams was acting as Ms. Alexander’s agent in the procurement of the

homeowner’s policy at issue.

In opposition to these motions, Ms. Alexander offered her affidavit, stating in

essence that she had always timely paid her insurance premium, which was included

in her house note paid to Cendant Mortgage; that she depended on Mr. Williams and

Cendant Mortgage to timely forward the payments to Terra Nova; and that she

thought she was insured when her house was damaged in the October 2002 storm.

Ms. Alexander also introduced the deposition of Mr. Williams wherein he stated that

Metro/Williams was not an authorized agent for Terra Nova and that he had received

the premium check from Cendant Mortgage and deposited it in a Metro/Williams

account. Ms. Alexander then filed a cross-motion for partial summary judgment

seeking a declaration that the Terra Nova policy afforded coverage for her damages.

After a hearing, the trial court denied the defendants’ motions for summary

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judgment and granted Ms. Alexander’s cross-motion for summary judgment.

Specifically, the trial court found, as a matter of law, that Metro/Williams was Terra

Nova’s agent, and that Terra Nova did not have the right to cancel the policy at issue.

After the trial court rejected their motion to reconsider the ruling, Terra Nova and

Winchester perfected this appeal.

OPINION

Appellate courts review grants of summary judgment de novo, using the same

criteria that govern the trial court's consideration of whether summary judgment is

appropriate, that is, whether there is a genuine issue of material fact and whether the

mover is entitled to judgment as a matter of law. Ocean Energy, Inc. v. Plaquemines

Parish Gov't., 04-66 (La. 7/6/04), 880 So.2d 1. In the present case, because there are

no disputed factual issues, our review is simply whether, as a matter of law, the

cancellation was effective. Louisiana Code of Civil Procedure Article 966(C)(2)

states:

The burden of proof remains with the movant. However, if the
movant will not bear the burden of proof at trial on the matter that is
before the court on the motion for summary judgment, the movant's
burden on the motion does not require him to negate all essential
elements of the adverse party's claim, action, or defense, but rather to
point out to the court that there is an absence of factual support for one
or more elements essential to the adverse party's claim, action, or
defense. Thereafter, if the adverse party fails to produce factual support
sufficient to establish that he will be able to satisfy his evidentiary
burden of proof at trial, there is no genuine issue of material fact.

The burden of proving that an insurance policy has been cancelled for nonpayment

of premium prior to the date of a loss giving rise to the denied claim is on the insurer.

Chapman v. Leger, 405 So.2d 604 (La.App. 3 Cir. 1981).

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In rendering its decision, the trial court concluded that the issues were

controlled by the provisions of La.R.S. 22:1150, which reads in pertinent part as

follows:

A. (1) Any insurer which issues or delivers a policy or contract of
insurance pursuant to the application or request of a producer who is not
authorized to represent said insurer as a producer shall be deemed to
have authorized such producer as producer of record to act on the
insurer’s behalf. The payment to such a producer shall be payment to
the insurer with all resultant obligations and duties.

(2) This Subsection establishes an agency relationship only for the
matter of collection of premiums specifically referred to herein.

The trial court concluded that payment to Metro/Williams constituted payment to

Terra Nova and, therefore, the policy was not cancelled.

Terra Nova concedes that La.R.S. 22:1150 is pertinent to the issue of coverage

and tacitly concedes that it was error for Mr. Smith to assert in his affidavit that

neither Metro Insurance Agency, Inc. nor Mr. Williams was an agent of Terra Nova,

at least insofar as collection of premiums is concerned. Nevertheless, it asserts that

cancellation was effective through its April 17, 2002 notice of cancellation because

the premium had not yet been paid when the cancellation notice was sent.

We agree that the applicable substantive law is found in La.R.S. 22:1150. Our

application of that statute to the facts of this case causes us to reach the same result

as the trial court, but for different reasons. We first note that there is no dispute that

Terra Nova issued a renewal binder4 pursuant to the application or request of

Metro/Williams and followed that act by issuing the renewal policy a few days later.

By taking these steps, Terra Nova clearly authorized Metro/Williams to act on its

behalf and caused an agency relationship to come into existence for the collection of

4
The procedure for cancellation of a binder based on a policy is the same as that for
cancellation of the policy itself. La.R.S. 22:636(A).

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premiums as contemplated by La.R.S. 22:1150. Thus, Metro/Williams became an

agent authorized to act on Terra Nova’s behalf and became empowered to collect

premiums. An agent is vested with the implied authority to do all of those things

necessary or incidental to the agency assignment. Broadway v. All-Star Ins. Corp.,

285 So.2d 536 (La.1973).

At all times pertinent to this litigation, Cendant Mortgage maintained an

escrow account containing funds specifically earmarked for release or delivery to

Terra Nova or its agent upon the condition of the latter’s notification to Cendant

Mortgage of the amount due for the 2002-2003 premium period. Metro/Williams, as

Terra Nova’s agent, had the power and authority to trigger this escrow condition by

notifying Cendant Mortgage of the due date and the amount due for the premium.

Absent this notification, this premium remained in escrow. Within five days of

notification by Metro/Williams, Cendant Mortgage released the premium to it as

Terra Nova’s agent. In this case the only notice that Cendant Mortgage might have

received prior to the cancellation was the notice that a binder and policy were being

issued.5 The binder and policy reflected the amount of the premium but were not a

demand for payment. The only demands for payment were the reminders sent to

Metro/Williams. As Mr. Smith stated in his affidavit, by regarding Metro/Williams

as Ms. Alexander’s agent and not its own, Terra Nova believed these notices were

sufficient to inform Ms. Alexander of the premium and that it was due. However, as

recognized above, Metro/Williams was statutorily the agent of Terra Nova. Demands

5
There was no indication in the evidence that a copy of the binder or policy was sent to
Cendant Mortgage . Even if copies were sent they constituted only evidence of coverage; they were
not in the form of a notice of premiums due.

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for payments sent to an insurer’s own agent constitute nothing more than reminders

to the insurer itself.

The overriding problem in this matter is the delay by Metro/Williams in

notifying Cendant Mortgage that the premium was due. That inaction caused the

delay in payment to Winchester and Terra Nova. Thus, the failure of Terra Nova to

timely receive payment was caused solely by its own neglect or fault.

Terra Nova’s argument nevertheless has a certain merit. Specifically, it asserts

that, while it issued a policy through the application of its statutory agent and became

bound to the obligations and duties imposed by La.R.S. 22:1150(A), it also exercised

its right to cancel for nonpayment of premium in accordance with the procedure

outlined by La.R.S. 22:636. Terra Nova argues that by cancelling the binder and

policy before the premium was actually paid, it simultaneously cancelled the legal

relationship between itself and Metro/Williams statutorily imposed by La.R.S.

22:1150(A).

We recognize the facial cogency of this argument, especially if Ms. Alexander

were relying on the actual late payment of the premium as the factor undoing the

cancellation. But our analysis differs from the trial court’s in that we do not place

primary significance on the late payment as affecting the status of the policy. Our

analysis is that the cancellation was ineffective because it was based on Terra Nova’s

neglect, or failure to do what it should have done and what was expected of it under

the particular circumstances of this case. Non-receipt of the premium was caused not

by the failure of Ms. Alexander to pay the premium, but by the failure of Terra Nova

and its statutory agent, Metro/Williams, to perform the standard, mechanical and

simple procedure of notifying the escrow holder, Cendant Mortgage, of the amount

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due for that policy year. Terra Nova has only itself to blame and cannot use its own

mistake as a ground for cancellation of the policy. Thus, the trial court did not err in

concluding that the cancellation was ineffective.

The purpose of La.R.S. 22:1150(A) is to protect the insured. See DeSoto

Parish Sch. Bd. v. Ins. Co. of N. Am., 572 So.2d 310 (La.App. 2 Cir. 1990), writ

denied 575 So.2d 368 (La.1991). Considering the facts of the present case it would

be inconsistent with the purpose of the statute to allow the insurer to cancel the policy

to the detriment of the insured.

DISPOSITION

For the foregoing reasons, we affirm the trial court’s grant of the partial

summary judgment in favor of Rachel Alexander finding that the homeowner’s

insurance policy issued to her by Terra Nova Insurance Company, Ltd. provides

coverage for the damages sustained to her home on October 3, 2002. We assess all

costs of this appeal to Terra Nova Insurance Company, Ltd. and Winchester General

Agency, Inc.

AFFIRMED.

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