Supreme Court of Michigan; Docket #160578; Published
Judges McCormack, Zahra, Viviano, Bernstein, Clement, Cavanagh, and Welch
Official Michigan Reporter Citation: Forthcoming; Link to Opinion; Link to COA Opinion
Cancellation and Rescission of Insurance Policies
In this unanimous opinion by Justice Bernstein, the Supreme Court held that “under MCL 500.3020(1)(b), a cancellation notice is effective only if it is peremptory, explicit, and unconditional.” The Court then concluded that a cancellation letter by Everest National was ineffective “because Everest’s letter provided that cancellation was conditioned upon Yang’s failure to pay his insurance premiums.”
The plaintiffs in this case purchased a six-month no-fault insurance policy from defendant Everest National Insurance Company. The policy went into effect on September 26, 2017, at which time plaintiffs made their first premium payment. Approximately two weeks later, Everest mailed plaintiffs a letter entitled “PREMIUM BILLING AND CANCELLATION NOTICE FOR NON-PAYMENT.” The letter informed plaintiffs that their next insurance payment was due on October 26, 2017, and that Everest would cancel their policy if they failed to make that payment. Plaintiffs failed to make that payment, and Everest terminated the policy the next day “for non-payment of the premium.”
Approximately two and a half weeks later, on November 15, 2017, plaintiffs were struck by a car while walking down the street. They subsequently made a claim for no-fault benefits under the Everest policy, which Everest subsequently denied on the basis that plaintiffs “did not have a valid no-fault insurance policy when the accident occurred.” The Supreme Court held, however, that Everest’s cancellation letter was insufficient to cancel the policy, and that plaintiffs were therefore entitled to benefits under the Everest policy.
In so holding, the Court first recognized that whether the letter constituted a ”valid cancellation notice” was governed by statute. In this regard, the Court stated:
the pertinent question here is what constitutes a valid cancellation notice under MCL 500.3020(1), which states:
A policy of casualty insurance . . . , including all classes of motor vehicle coverage, shall not be issued or delivered in this state by an insurer . . . for which a premium or advance assessment is charged, unless the policy contains the following provisions:
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(b) . . . [T]hat the policy may be canceled at any time by the insurer by mailing to the insured at the insured’s address last known to the insurer or an authorized agent of the insurer, with postage fully prepaid, a not less than 10 days’ written notice of cancellation with or without tender of the excess of paid premium or assessment above the pro rata premium for the expired time. [Emphasis added.]
The Court then noted that “the outcome of this case depends on the meaning of the phrase ‘notice of cancellation,’ which is not defined by the relevant statute.” The Court then recognized that the phrase notice of cancellation has “acquired a peculiar and appropriate meaning in the law,” and therefore must be interpreted in accordance with that meaning. In accordance with that rule of statutory interpretation, the Supreme Court noted that under the cases of American Fidelity Co., 187 Mich 264 (1915) and Beaumont v Commercial Cisnis Co, 245 Mich 104 (1928), in order for a notice of cancellation to be effective, the notice must “peremptory, explicit, and unconditional.” The Supreme Court then concluded that Everest National’s cancellation notice in the case at bar was not. Specifically, the Court held:
We hold that under MCL 500.3020(1)(b), a cancellation notice is effective only if it is peremptory, explicit, and unconditional. In this case, because Everest’s letter provided that cancellation was conditioned on Yang’s failure to pay his insurance premiums, the letter was ineffective as a notice of cancellation. We affirm the judgment of the Court of Appeals and remand to the trial court for further proceedings consistent with this opinion.
On this basis, the Court of Appeals Opinion below was AFFIRMED for the plaintiffs.