Ted Antonopoulos v. Mid-Century Insurance Company

Insurance Coverage & Bad Faith Newsletter- Summer 2021

(Insurer is Entitled to Arbitrate Underinsured Motorist Claim, Irrespective of Pending Bad Faith Lawsuit)

(July 2021) - In Antonopoulos v. Mid-Century Ins. Co., 63 Cal.App.5th 580 (April 27, 2021), the California First District Court of Appeal affirmed in part, and reversed in part, the trial court’s entry of summary judgment in favor of plaintiffs, Ted and Susie Antonopoulos (the “plaintiffs”), and denial of Mid-Century’s motion for summary judgment relative to whether the plaintiffs’ homeowner’s policy was reinstated without lapse so as to cover a fire loss. The parties’ dispute arose out of the cancellation of the plaintiffs’ homeowner’s policy after failing to make a premium payment. The policy term was April 8, 2017 to April 8, 2018. The plaintiffs elected to pay the premium for the policy in two installments. The first installment was due on the day the policy incepted and the second installment was due four months later on August 8, 2017. The plaintiffs’ paid the first installment late on April 25, 2017. The plaintiffs then failed to pay the second installment on time. As such, on August 21, 2017, Mid-Century mailed the plaintiffs a “Notice of Cancellation of Insurance for Non-Payment of Premium.” The Notice identified October 3, 2017 as the date of cancellation unless payment was made before that date. The plaintiffs failed to pay the second premium installment on October 3 and the policy was cancelled.

Six days later, the plaintiffs’ home was destroyed in the Tubbs fire in Santa Rosa, California. The plaintiffs reported the loss to Mid-Century the next day. However, on October 12, 2017, Mid-Century denied the plaintiffs’ claim as their policy was cancelled and not in force on the day of the fire. That same day, the plaintiffs made a $569.51 electronic payment to Mid-Century. Mid-Century kept the payment and sent plaintiffs a “Home Insurance Reinstatement.” It listed the same policy number as the policy cancelled on October 3, 2017, but identified the policy’s effective date as October 12, 2017 and its expiration date as April 17, 2018. As such, according to Mid-Century, the policy was reinstated nine days after the fire, such that coverage was not afforded for the loss of the plaintiffs’ home. On the other hand, the plaintiffs contended that they understood the policy was reinstated without lapse such that it afforded coverage for their claim for the destruction of their home by the Tubbs fire.

On November 10, 2017, Mid-Century issued a “Home Insurance Policy Reprint.” It identified the effective date of the policy as November 9, 2017, and the expiration date as April 17, 2018. However, the reprint attached a declaration page for the policy showing a term of April 17, 2017 to April 17, 2018. The reprint did not state that coverage was suspended for the period of cancellation. As such, the plaintiffs’ thought the policy had been reinstated without lapse, such that it covered their fire loss.

Because Mid-Century continued to deny coverage of the plaintiffs’ fire loss claim, the plaintiffs filed a suit for breach of contract and bad faith against Mid-Century on October 4, 2018. Thereafter, the parties filed cross-motions for summary judgment. The plaintiffs argued that the policy reprint identifying a policy term of April 17, 2017 to April 17. 2018, without specifically advising that the policy was suspended during the period of cancellation entitled them to summary judgment. Mid-Century argued that coverage was not afforded to the plaintiffs because (1) the loss-in-progress rule barred coverage of the plaintiffs’ claim and (2) the policy was reinstated and afforded coverage to the plaintiffs’ after the fire. The trial court agreed with the plaintiffs and granted their motion and denied Mid-Century’s motion. Subsequently, the parties stipulated to the entry of judgment in favor of the plaintiffs, and Mid-Century appealed the trial court’s entry of judgment in favor of the plaintiffs.

The Court of Appeal rejected Mid-Century’s argument that the loss-in-progress rule barred coverage of the plaintiffs’ claim. Essentially, Mid-Century argued that since coverage was not in force under the plaintiffs’ policy on the date of the fire, coverage could not be reinstated under the policy for a loss that had already taken place. In rejecting Mid-Century’s argument, the Court of Appeal reasoned as follows:

. . . Mid-Century is incorrect both in its understanding of the doctrines of forfeiture and waiver and its claim that the loss-in-progress rule applied here.

Forfeiture in the insurance context occurs when a party to the insurance contract fails to perform an obligation under the policy and forfeits the benefits of the policy, such as when an insured fails to timely pay its premium, resulting in the lapse of the policy. (See 5 Couch on Insurance (3d ed. 2020) §76.6 [forfeiture or suspension for nonpayment of premium installment] (Couch); see also id., § 76:2 [“In the absence of a statutory requirement. . ., the contract may provide that, upon the failure to pay a premium or assessment on or before the time provided, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect. Under this type of provision, nonpayment works a forfeiture of the contract]; Bittinger v. New York Life Ins. Co. (1941) 17 Cal.2d 834, 840 [“by express provision and in the absence of statutory regulation to the contrary, a life insurance policy may be made immediately forfeitable upon the non-payment of premium”]; Knarston v. Manhattan Life Ins. Co. (1899) 124 Cal. 74, 75 [considering whether insurance policy was forfeited by insured’s failure to pay premium installment]; In re First Captial Life Ins. Co. (1995) 34 Cal.App.4th 1283, 1289 [“policy was forfeited for nonpayment of the premium”]; McCary v. John Hancock Mut. Life Ins. Co. (1965) 236 Cal.App.2d 201, 509 [sufficient evidence that insurer waived its right to declare a lapse or forfeiture based on late payment of premium.]) An insurer may, however, forgo its right to enforce a provision of an insurance policy providing that nonpayment of premium renders the policy void or causes it to lapse – in other words, it may waive forfeiture. (Wright v. Paul Revere Life Ins. Co. (C.D. Cal. 2003) 291 F.Supp.2d 1104, 1112; Monteleone, supra, 51 Cal.App.4th at p. 517.)

These same rules apply when a loss occurs while a policy was out of force due to nonpayment of premium. In such an instance, an insurer may, upon reinstatement of the policy, agree to cover the loss. . .

. . .

Despite the foregoing, Mid-Century repeatedly insists there could be no coverage because the loss-in-progress rule, not forfeiture or waiver, applied to these circumstances. But the loss-in-progress rule did not apply for a simple reason: plaintiffs' loss did not occur before the policy was issued, which occurred when the policy renewed on April 8, 2017- six months before the loss. What incurred on October 12 was reinstatement of the prior policy. Our Supreme Court explained this distinction in Kennedy v. Occidental Life Ins. Co. (1941) 18 Cal.2d 627, 630: "[R]einstatement under a policy such as is present in this case does not involve the formation of a new contract. By the terms of the policy the insured is given a right to reinstatement after lapse upon compliance with certain conditions. During the period in which reinstatement is possible the policy is not void but merely suspended." (Accord, Ryman v. American Nat'l. Ins. Co. (1971) 5 Cal.3d 620, 631.) Here, the cancellation notice stated plaintiffs could "void this cancellation" -not "obtain a new policy" - by paying the past due installment. The October 17, 2017 "Home Insurance Reinstatement" was consistent with this, as it maintained the same coverage for the dwelling, separate structures, and personal property on Vintage Circle. If this were a newly issued policy, surely the terms of coverage and the premium would have been adjusted to reflect that the Vintage Circle dwelling, separate structures, and personal property no longer existed.

The Court of Appeal also rejected Mid-Century’s arguments that the concepts of forfeiture and waiver applied to allow for the reinstatement of coverage for the fire. The Court of Appeal reasoned as follows:

According to Mid-Century, "there can be no waiver of contractual rights when there is no contract," as it claims was the case when the policy lapsed. This argument misses the point, as that is the very essence of the waiver doctrine in this context: it allows the insurer to forgive the lapse of the policy that occurred due to nonpayment of premium.

. . .

Mid-Century apparently extrapolates that forfeiture is only ever a penalty assessed against an insurer and "has nothing whatsoever to do with cancellation of a policy for nonpayment of premium." This is incorrect. As already detailed above, an insured may forfeit the benefits of an insurance policy by failing to perform an obligation under the contract, such as failing to pay the premium.

On the other hand, the Court of Appeal agreed with Mid-Century that a question of fact existed relative to whether the policy had been reinstated without lapse or nine days after the fire. In reaching this conclusion, the Court of Appeal reasoned as follows:

Plaintiffs' argument, and the trial court's conclusion, that Mid-Century waived forfeiture of the policy relied largely on the declaration page attached to the November 10, 2017 policy reprint. That page identified the policy effective and expiration dates as April 17, 2017, and April 17, 2018, with no mention of the nine-day lapse in coverage. And it identified the property insured as the Vintage Circle address and the property covered as the dwelling, separate structures, and personal property. Norton testified that the declaration page "provides the customer information about their policy" and "gives meaning to the policy [and] is what the policy contains .... " Although the court did not cite the integration clause in the policy, it noted the effect of such a clause - that the writing ''becomes the complete and final contract between the parties." Also supporting plaintiffs' position was the October 17, 2017 policy reinstatement, which, although it identified an effective date of October 12, 2017 and a prorated premium for October 12, 2017, to April 17, 2018, listed only a new renewal date of April 17, 2018, in the summary of changes. Like the November 10 policy reprint, the declaration page attached to the October 17 reinstatement indicated coverage was for structures and personal property that had been destroyed by fire.

Finally, with knowledge of the October 9 loss, Mid-Century accepted plaintiffs' payment, reinstated the policy, never advised that reinstatement was subject to a lapse, and never returned any or all of the premium. This evidence indeed supports an inference, as the trial court concluded, that Mid-Century had decided to reinstate the policy with retroactive coverage for the period the policy was out of force. But that is not the only reasonable inference, as there is also evidence suggesting otherwise. Most fundamentally, the October 17 reinstatement notice and its attached declaration page both identified the effective date as October 12, 2017, the date plaintiffs belatedly paid the second installment. The declaration page also listed a prorated premium for the period October 12, 2017 to April 17, 2018. The prorated premium was less (albeit nominally) than the second installment that was due prior to the cancellation. Nowhere on either document - or anywhere else for that matter - did Mid-Century communicate to plaintiffs that reinstatement was retroactive. As Mid-Century notes, "[N]othing in the documents that [plaintiffs] rely on states that coverage was applied retroactively or that coverage was reinstated without a lapse from the October 3, 2017, date of cancellation to the October 12, 2017, date of reinstatement. Indeed, at all relevant times, [Mid-Century's] position was that the policy was out of force and there was no coverage for the loss."