California Court of Appeal Upholds Cancellation of Car Insurance Policy Before Car Accident; Plaintiffs’ Claims for Breach of Contract and Breach of Implied Covenant of Good Faith and Fair Dealing Fail

The California Court of Appeal for the Third Appellate District recently affirmed summary judgment in favor of an automobile insurance company that denied uninsured motorist coverage to an individual, a third-party beneficiary, who was injured in a car accident. In this case, the insurer claimed that it canceled the liability policy before the accident. The third party alleged that the cancellation was invalid and unreasonable as a matter of law.

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The court stated that insurance companies can cancel their automobile insurance policies before they expire when there is a “substantial increase” in the hazard insured against. This increase takes place, for example, when an insured does not provide the insurance company with necessary information, after a reasonable request.  The written request by the insurance company must make clear that if the insured does not provide the information, their policy may be cancelled.

Jeff and Denise Fields had an auto insurance policy issued by Defendant AAA Northern California, Nevada, and Utah Insurance Exchange.  The annual period began on March 18, 2004.  Under the policy, Jeff Fields, Denise Fields, and their daughter Krystal Fields were insured drivers. The policy also gave AAA the right to cancel the policy for any reason by providing written notice 20 days before.

On February 5, 2005, Patrick Fields, Jeff and Denise’s son, struck a parked car while driving one of the cars insured under the AAA policy.  At the time of this accident, Patrick had not been listed as an insured.

On March 18, 2005, AAA renewed the policy for a year, but then, by a letter dated March 23, 2005, AAA wrote to Jeff and Denise Fields, stating they needed information in order to accurately underwrite their policy, specifically in order to assess whether Patrick would be excluded from the policy.  The letter stated that if the Fieldses did not respond by April 22, 2005, AAA would cancel the insurance policy.  AAA did not receive a response to the requested information and then wrote on April 28, 2005 that it was canceling the policy, effective May 28, 2005.

On July 6, 2005, plaintiff Krystal Fields and her passenger, plaintiff Trent Mills, suffered injuries in an automobile accident. Krystal had been driving a car the Fieldses had insured under the AAA policy.  The other car was driven by an uninsured motorist.  Mr. Mills was seriously injured and in a coma for six weeks.

AAA denied the claim that Krystal tendered under the policy, since it had cancelled the policy prior to the accident. Then, Mr. Mills filed a personal injury complaint against the driver and owner of the other uninsured vehicle, as well as Krystal and her parents.  The Fieldses then tendered the lawsuit to AAA, but AAA denied the tender because the policy had not been in effect at the time of the accident.

After Mr. Mills dismissed Jeff and Denise Fields from his action, the court found in favor of Krystal. Then, they granted Mr. Mills a default judgment for over $12.7 million against the driver and owner of the other vehicle.  AAA then denied Mr. Mills’ demand for uninsured motorist benefits and for AAA to arbitrate his claim against the Fieldses’ policy.

Both the Fieldses and Mr. Mills then sued AAA in a consolidated action. Mr. Mills and Krystal Fields claimed that AAA breached its insurance policy by denying their claims for uninsured motorist coverage.  Jeff, Denise, and Krystal Fields alleged that by refusing to defend them against Mr. Mills’ action, AAA breached its insurance policy. The plaintiffs all contended that AAA breached the implied covenant of good faith and fair dealing, and all of the plaintiffs sought punitive damages.

AAA moved for summary judgment on the ground that it had lawfully cancelled the Fieldses’ policy before the accident because the Fieldses had not provided necessary information in order to underwrite the policy accurately. The plaintiffs contended that they had not received the letters and that the policy had not been lawfully cancelled. The trial court granted the summary judgment motion in favor of AAA, finding that the company lawfully cancelled the insurance policy before the accident. Only Mr. Mills appealed, arguing that the written request for information had not been reasonable and that triable issues of material fact remained regarding the mailing of the cancellation and the breach of the implied covenant.

In their discussion,the court of appeals rejected Mr. Mills’ contention that the request for information was not reasonable. The court cited Proposition 103, which changed the regulation of automobile insurance, and also considered what is termed “reasonable.”  The court held that the request must be rational and necessary to the insurance company’s ability to evaluate the risk of offering the policy.  Here, the request was for more information to list a driver residing in the Fieldses’ household (Patrick). The court cited the language in the request, within the letter offered by AAA, and stated it was a reasonable written request for further information to underwrite or classify AAA’s risk. The company sought to determine whether Patrick would be a regular driver of a family vehicle or would be excluded from coverage.

Regarding the notice of cancellation, the court agreed with the trial court that there was not a disputed issue of material fact regarding whether AAA mailed the notice of cancellation to the Fieldses. Mr. Mills, the court stated, had not introduced evidence that disputed whether AAA mailed the notice of cancellation to the Fieldses.

The court also stated that since the written request for information was reasonable, and there were no triable issues of material fact regarding mailing the notice and the status of cancellation at the time of the accident, the court concluded that as of the date of the accident, the policy was cancelled. Mr. Mills could not recover compensation under his breach of contract claim. Furthermore, since Mr. Mills was not owed benefits under the policy, his claim for a breach of the implied covenant of good faith and fair dealing also failed.

The court affirmed the judgment, awarding costs on appeal to defendant AAA.

The car accident attorneys at Sharifi Firm provide guidance and representation to victims throughout Southern California in personal injury claims for compensation. Contact our office today for a free consultation at 866-422-7222 or complete our online form.

More Blog Posts:

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California Court of Appeal Finds in Favor of Plaintiff in Car Accident Lawsuit When Evidence Fails to Show Plaintiff’s Consent to Settlement Agreement, Southern California Injury Lawyer Blog, June 9, 2016

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