The Maine Supreme Judicial Court reversed the ruling of the Business and Consumer Court of Maine and held that an insurer failed to adequately inform a wood pellet mill operator that it was not renewing its coverage in connection with payment for a fire that caused $15 million in damages. The case is Corinth Pellets, LLC v. Arch Specialty Insurance Co. et al.
Arch Capital Group Ltd. unit Arch Specialty Insurance Co. issued a surplus lines policy to Corinth Pellets LLC. The policy covered property loss, business interruption, and extra expenses for an initial term of January 2017 to January 2018. Coverage was subsequently extended for three consecutive three-month terms, to September 18, 2018.
At the beginning of September 2018, an agent for broker Varner Agency Inc. informed Corinth that Arch would not renew the policy any longer after the termination date of September 18. The agent informed Corinth that he was in the process of finding a new insurance policy and that the company had no need to do anything else. The day before the policy terminated, though, the agent notified Corinth that it could not provide a firm quote from an insurer, and no substitute property coverage was found for Corinth before September 19th.
Although Corinth knew a day before the policy was terminated that their insurer did not intend to renew the policy, Arch failed to, at any point, give written notice of intent to Corinth or the broker agency.
The day after the policy's final expiration date, the wood pellet mill suffered a catastrophic fire that caused $15 million in damage, which met the definition of a covered loss under the Arch insurance policy. Arch maintained that its coverage had terminated on Sept. 18th, declined to participate in the fire cause and origin investigation and eventually denied coverage.
Corinth filed suit against Arch and the broker agency Varney. Varney filed a cross claim against Arch which moved to dismiss both claims. Both the Maine attorney general and the Maine Superintendent of Insurance opposed the motion to dismiss. In early 2020 the district court granted Arch's motion to dismiss.
Arch argued that under state law an insurer must provide prior notice to an insured when the policy is cancelled and when the policy is not renewed. All involved parties acknowledged that Arch had not cancelled the policy. The lower court found that because of this, the insurer had not violated state law and the case was dismissed.
The state high court disagreed with Arch's argument finding that State law requires insurers to give prior notice of their intent either to cancel or not to renew a policy. The ruling noted that the legislative history of the law provides that surplus lines insurers must give fourteen-days advance notice of nonrenewal as a measure to protect policyholders.
The case has been remanded for further proceedings.
Editor's note: This is just another reminder for insurers to make sure to send cancellation notices to their insureds. In this case, it would have greatly benefited the insurer to send a cancellation notice even if it thought the message had been delivered to the insured. For more information on state-by-state regulations of the cancellation and nonrenewal of insurance policies, check out the 2021 Cancellation and Nonrenewal book from National Underwriters, available in print and digital formats.