The U.S. Court of Appeals for the Ninth Circuit has reversed a district court's decision and ruled that a notice that an insurance company sent to its insureds to cancel their policy was ambiguous and, therefore, that their policy was in effect on the date one of the insureds was involved in an accident.
The Case
After Renee Holguin was involved in a five-car accident in Phoenix, Arizona, in January 2013, she and her husband at the time, Kevin Perry, contacted Peak Property and Casualty Insurance Corporation.
Peak denied coverage, citing a policy cancellation notice that it had mailed to the couple on January 19, 2013 – three days before the accident.
Ms. Holguin and Mr. Perry and other injured parties sued Peak, seeking a declaratory judgment that the insurance policy was in effect on the date of the accident, and alleging claims for breach of contract and bad faith.
The U.S. District Court for the District of Arizona granted Peak's motion for judgment on the pleadings, ruling that the policy had been cancelled on January 19, 2013.
The dispute reached the Ninth Circuit.
The Ninth Circuit's Decision
The circuit court reversed.
In its decision, the Ninth Circuit explained that, under applicable Arizona law, an insurer's notice of policy cancellation must “clearly and unequivocally” inform the insured “in no uncertain terms” of the company's intent to cancel. This express intent, the circuit court added, must be apparent to the ordinary person.
The circuit court pointed out that whether a cancellation notice met that standard was a “context-specific inquiry” that required focusing on the “language and the circumstances in which [the notice was] issued to determine whether any disqualifying ambiguity has been created.”
The Ninth Circuit then ruled that Peak's intent to cancel the policy had not been “clear and unequivocal.” The circuit court reasoned that the cancellation notice, written on January 18, declared that Ms. Holguin and Mr. Perry were “driving without insurance,” but also stated that coverage was conditional – a $286.37 payment had to be received by January 19.
According to the circuit court, the date that Peak mailed the notice “further confused the issue” because according to the notice, it was mailed on January 19, making it impossible for Ms. Holguin and Mr. Perry to accept the apparent invitation to pay the minimum balance by January 19. “The notice itself was therefore facially ambiguous,” the Ninth Circuit decided.
It added that, interpreting this notice as soliciting payment upon its receipt, Ms. Holguin and Mr. Perry phoned Peak on January 23, 2013, when they received the notice, and immediately paid $294.37. (The Ninth Circuit noted that this amount was $8.00 more than the minimum required payment and may have reflected what Ms. Holguin and Mr. Perry assumed was a late fee.)
The circuit court also pointed out that Peak “accepted this late payment.”
In the Ninth Circuit's opinion, Peak's conduct could have led an “ordinary person” in the shoes of Ms. Holguin and Mr. Perrys to believe that Peak had not cancelled the policy and that there was no lapse in coverage.
Accordingly, the circuit court concluded that, under Arizona law, neither Peak's cancellation notice nor any subsequent conduct, “clearly and unequivocally” advised Ms. Holguin and Mr. Perry that a payment on January 23, 2013 would not preserve coverage, and the district court had erred when it had concluded otherwise.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].