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04/21/95 INSTITUTE LONDON COMPANIES v. VALLEY

April 21, 1995

INSTITUTE OF LONDON COMPANIES
v.
VALLEY EQUIPMENT, INC.



Appeal from Calhoun Circuit Court. (CV-93-568).

L. Charles Wright, Retired Appellate Judge. All the Judges concur.

The opinion of the court was delivered by: Wright

WRIGHT, Retired Appellate Judge

In September 1991 Valley Equipment, Inc., procured from the Institute of London Companies (The Companies) physical damage insurance for two trucks. The policy of insurance was issued through Ebco General Agency, The Companies' managing agent for the United States.

Valley Equipment financed the premium by entering into a "Premium Finance Agreement" with GULFinance. The agreement between Valley Equipment and GULFinance contained a power of attorney, enabling GULFinance to cancel the policy. The agreement provided the following:

"CANCELLATION: (1) I understand that if I fail to pay one of the installment payments to the company on time, the entire amount I then owe automatically becomes due and all my insurance policies may be cancelled. (2) If my insurance is cancelled, I understand that any money not needed to repay this amount will be refunded to me. (3) I give the company full authority to act for me and do all things necessary to collect, sue for, receive and receipt any premiums, dividends or other recoverable amounts due upon cancellation."

GULFinance sent notices of "Intent to Cancel" to Valley Equipment in November and December 1991. On both occasions the delinquencies were cured by payment, and the policy remained in full force and effect.

When the monthly premium for January 1992 was not paid, GULFinance wrote to Ebco and requested that the policy be cancelled due to nonpayment. The letter was dated January 31, 1992. GULFinance did not send a notice to Valley Equipment. On February 4, 1992, Ebco sent a notice of cancellation to Valley Equipment. The notice of cancellation was not received by Valley Equipment. The notice was not returned to Ebco as undelivered, and Ebco was not notified that the notice had not been delivered as addressed.

One of Valley Equipment's trucks was stolen on February 18, 1992. In May 1992 Valley Equipment filed a claim for the truck. The claim was denied, based upon the prior cancellation of the insurance policy. Valley Equipment filed suit to recover under the policy. GULFinance was subsequently dismissed from the case. The Companies and Valley Equipment filed cross-motions for summary judgment. The trial court granted the motion for summary judgment in favor of Valley Equipment. The Companies appealed.

The parties agree that the facts are undisputed. The dispositive issue is whether the insurance policy was validly cancelled at the time of the loss.

Section 27-40-11, Code 1975, provides the "Procedure for cancellation of insurance contract upon default." That section provides the following:

"(a) When a premium finance agreement contains a power of attorney enabling the premium finance company to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled by the premium finance company unless such cancellation is effectuated in accordance with this section.

"(b) Not less than 10-day written notice shall be mailed to the insured, at his last known address as shown on the records of the premium finance company, of the intent of the premium finance company to cancel the insurance contract unless the default is cured within such 10-day period.

"(c) After the notice in subsection (b) of this section has expired, the premium service company may thereafter request, in the name of the insured, cancellation of such insurance contract by mailing to the insurer a notice of cancellation, and the insurance contract shall be cancelled as if such notice of cancellation had been submitted by the insured himself, but without requiring the return of the insurance contract. The premium service company shall also mail a notice of cancellation to ...


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