Wesley Zoo Yang v. Everest National Insurance Company

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
WESLEY ZOO YANG and VIENGKHAM FOR PUBLICATION
MOUALOR, August 27, 2019
9:00 a.m.
Plaintiffs-Appellees,
v No. 344987
Wayne Circuit Court
EVEREST NATIONAL INSURANCE LC No. 17-018062-NF
COMPANY,
Defendant-Appellant,
and
MOTORIST MUTUAL INSURANCE
COMPANY,
Defendant-Appellee.
Before: SHAPIRO, P.J., and GLEICHER and SWARTZLE, JJ.
SHAPIRO, P.J.
Defendant Everest National Insurance Company (Everest) sent plaintiff Wesley Yang
(Yang) a bill requesting a premium payment for his no-fault insurance policy and informing him
that the policy would be cancelled if payment was not received by the due date. Yang did not
make the payment and he and his wife, plaintiff Viengkham Moualor, were subsequently injured
in a pedestrian-automobile accident. Plaintiffs sought coverage under the policy, and Everest
argued that it effectively cancelled the policy. The trial court disagreed and denied Everest’s
motion for summary disposition.
Everest appeals by leave granted. At issue in this case is whether an insurer may cancel a
policy by sending the statutorily required “notice of cancellation” to the insured before the
grounds for cancellation have occurred. We hold that such notice does not satisfy the Insurance
Code, MCL 500.100 et seq., and is therefore ineffective to cancel the policy. Accordingly, we
affirm the trial court.
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I. BACKGROUND
On September 26, 2017, Yang made the first premium payment on a six-month policy
issued by Everest. The policy term was from September 26, 2017, to March 26, 2018, and the
subject accident occurred during that term. As required by MCL 500.3020, the policy included a
cancellation provision that stated in pertinent part:
This Policy may be canceled during the policy period as follows:
* * *
2. We may cancel by mailing you at the address last known by us or our
agent:
a. at least 10 days notice by first class mail, if cancellation is for non-
payment of premium[.] [Bolding removed.]
On October 9, 2017, Everest mailed Yang a bill for the second premium installment
payment that contained a notice of cancellation for nonpayment of the premium. The document
informed Yang that he must pay the premium by October 26, 2017. It stated that the failure to
pay that amount by the due date “will result in the cancellation of your policy with the indicated
Cancellation Effective Date,” October 27, 2017. (Italics removed). Thus, the document
provided that if the premium payment was not received by October 26 the policy would be
cancelled effective the next day. It also stated that the cancellation notice did not apply if the bill
was paid by the due date.
On October 30, 2017, Everest, having not received the premium payment, sent Yang an
offer to reinstate the policy. It informed Yang that his insurance was cancelled as of October 27,
2017, because it did not receive the premium payment by the due date. The letter informed Yang
that he could reinstate the “policy with a lapse in coverage” if it received payment by November
26, 2017.
Yang sent a payment for the premium on November 17, 2017, and Everest reinstated the
policy effective on that date. The notice of reinstatement informed Yang that there was a lapse
in coverage from October 27, 2017 to November 17, 2017.
The accident in which plaintiffs were injured occurred on November 15, 2017, two days
before Yang made the premium payment.1 Plaintiffs filed this action to recover benefits, and
Everest moved for summary disposition. It argued that plaintiffs are not entitled to benefits
under the policy because the policy was cancelled before the accident occurred. Everest asserted
that the policy’s cancellation provision was not inconsistent with MCL 500.3020. It argued that
the policy provided that it could cancel the policy upon 10 days’ notice for nonpayment of the
1
Plaintiffs were struck by a car while walking across a street.
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premium and asserted that it had complied with this by sending the notice of cancellation for
nonpayment of the premium even before the nonpayment occurred.
Defendant Motorist Mutual Insurance Company (Motorist) insured the driver of the
vehicle that struck plaintiffs. It filed an answer to the motion for summary disposition
challenging the notice of cancellation sent by Everest. Motorist argued that the 10-day notice of
cancellation cannot be triggered before the due date for payment of a premium passes without
such payment. Motorist contended that Everest was required to wait until Yang defaulted on his
premium payment before mailing the 10-day notice of cancellation and that because Everest
failed to wait, the policy was not effectively cancelled.
At the motion hearing, it was undisputed that plaintiffs failed to pay their insurance
premium on time. But the trial court relied on an unpublished case from this Court2 to hold that
that a notice of cancellation is not valid unless sent after nonpayment occurs. Accordingly, the
court entered an order denying Everest’s motion for summary disposition. In that order, the
court stated that Everest is the highest priority insurer for the payment of benefits to plaintiffs
and dismissed Motorist. The court denied Everest’s motion for reconsideration.
II. ANALYSIS
Everest’s primary argument on appeal is that neither MCL 500.3020 or its policy required
it to wait for nonpayment of premium before it could properly send a notice of cancellation. We
disagree. For the reasons discussed below, Everest’s preemptive cancellation notice to Yang did
not constitute a notice of cancellation under MCL 500.3020(b)(1).3
The primary goal of statutory interpretation is to give effect to the intent of the
Legislature. Gleason v Kincaid, 323 Mich. App. 308, 317-318; 917 NW2d 685 (2018). To do so,
we interpret the words, phrases, and clauses in a statute according to their ordinary meaning. See
State News v Mich State Univ, 481 Mich. 692, 699-700; 753 NW2d 20 (2008). “[W]here the
statutory language is clear and unambiguous, the statute must be applied as written.” Cruz v
State Farm Mut Auto Ins Co, 466 Mich. 588, 594; 648 NW2d 591 (2002). “Insurance laws and
policies are to be liberally construed in favor of policyholders, creditors, and the public.”
Depyper v Safeco Ins Co of America, 232 Mich. App. 433, 441; 591 NW2d 344 (1998).
MCL 500.3020 governs the cancellation of insurance policies. It provides in pertinent
part:
2
Wilson v Titan Ins Co, unpublished per curiam opinion of the Court of Appeals, issued April
28, 2016 (Docket No. 326295).
3
We review a trial court’s decision to deny summary disposition de novo. See Dressel v
Ameribank, 468 Mich. 557, 561, 664 NW2d 151 (2003). We also review de novo questions of
statutory interpretation. New Props, Inc v George D Newpower, Jr, Inc, 282 Mich. App. 120, 138;
762 NW2d 178 (2009).
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(1) A policy of casualty insurance, except worker’s compensation and
mortgage guaranty insurance, including all classes of motor vehicle coverage,
shall not be issued or delivered in this state by an insurer authorized to do
business in this state for which a premium or advance assessment is charged,
unless the policy contains the following provisions:
* * *
(b) Except as otherwise provided in subdivision (d), that 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.
We have interpreted MCL 500.3020 as imposing procedural requirements that the insurer
must follow to cancel a policy. See Murphy v Seed-Roberts Agency, Inc, 79 Mich. App. 1, 8-9;
261 NW2d 198 (1977) (concluding that MCL 500.3020 provides the “minimum procedural steps
for cancellation” of a policy). Consistent with that ruling, in Nowell v Titan Ins Co, 466 Mich.
478, 484; 648 NW2d 157 (2002), the Supreme Court looked to “the statute,” i.e., MCL
500.3020(1)(b), to determine what actions the insurer must take for a notice of cancellation to be
effective. The implication is clear: MCL 500.3020(b)(1) does not merely require that the insurer
include a cancellation provision in the policy, it also imposes an affirmative duty on the insurer
to comply with the notice requirements found in the statute. Thus, it is for the courts to decide
what constitutes a notice of cancellation for purposes of MCL 500.3020(b)(1).
The majority of appellate courts that have addressed this issue have held that a notice of
cancellation is ineffective when sent before the premium payment is due.4 Some cases hold that
4
See Vietzen v Victoria Auto Ins Co, 2014-Ohio-79, 9 NE3d 500, 504-506 (Ohio App, 2014);
Mackey v Bristol West Ins Servs of Cal, Inc, 105 Cal App 4th 1247, 1257-1266; 130 Cal Rptr 2d
536 (2003); Equity Ins Co v City of Jenks, 184 P3d 541, 544-545; 2008 OK 27 (2008); Blair By
Snider v Perry Count Mut Ins Co, 118 S.W.3d 605, 607 (Mo, 2003); Conn v Motorist Mut Ins Co,
190 W Va 553; 439 SE2d 418, 420-423 (1993); Auto Club Ins Co v Donovan, 550 A2d 622, 623-
624 (RI, 1988); Pennsylvania Nat Mut Cas Ins Co v Person, 164 Ga App 488; 297 SE2d 80, 82
(1982); Hart v MFA Ins Co, 268 Ark. 857; 597 S.W.2d 105, 107-109 (App, 1980); Travelers Ins
Co v Jenkins, 285 So2d 839, 844 (La App, 1973). See also 2 Couch, Insurance, 3d § 31:6, p 19
(“[E]ffective notice of cancellation for nonpayment of premiums cannot be given until the time
for making payment of the premium has expired.”). “Although not binding, authority from other
jurisdictions may be considered for its persuasive value.” Estate of Voutsara by Gaydos v
Bender, 326 Mich. App. 667, 676; 929 NW2d 809 (2019). We are aware of two appellate courts
reaching the opposite conclusion—holding that a notice of cancellation sent before the premium
due date is effective; there were dissents in both cases. See Yacko v Curtiz, 339 Ill App 3d 299;
789 NE2d 1274 (2003); Munoz v New Jersey Auto Full Ins Underwriting Ass’n, 145 NJ 377; 678
A2d 1051 (1996).
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such notice does not satisfy the state’s respective notice statute, while others hold that the notice
is ineffectual under the terms of the insurance policy. But the underlying rational for many of
the decisions is the same. “For cancellation to be ‘based’ upon nonpayment, nonpayment must
have occurred.” Blair By Snider v Perry Count Mut Ins Co, 118 S.W.3d 605, 607 (Mo, 2003).
Thus, when a notice of cancellation is sent before nonpayment of premium, it is not informing
the insured that the policy is cancelled, but rather that cancellation is contingent upon a “future
event.” Conn v Motorist Mut Ins Co, 190 W Va 553; 439 SE2d 418, 420-421 (1993). Put
differently, “a notice of cancellation which states that a policy will be cancelled on a specified
date unless premiums due are sooner paid, is not a notice of cancellation, but merely a demand
for payment.” Travelers Ins Co v Jenkins, 285 So2d 839, 843 (La App, 1973).
We find this reasoning persuasive. For a cancellation to take place, the event triggering
the right to cancel must have taken place first. In this case, the event that allowed for
cancellation occurred on the date of nonpayment. Therefore, it is only after the nonpayment that
the insurer may properly notify the insured of cancellation. In other words, it is not sufficient
that the insurer warn the insured that a future failure to pay the premium will result in
cancellation; rather, it must advise the insured that, because of an already-occurred failure to pay,
the policy will be cancelled in ten days. This reasoning is consistent with the Michigan Supreme
Court’s understanding of MCL 500.3020. The Court has explained that
[t]he obvious objective of [MCL 500.3020] is to make certain that all of those
who are insured under a policy are afforded a period of time, ten days, either to
satisfy whatever concerns have prompted cancellation and thus revive the policy
or to obtain other insurance, or simply to order their affairs so that the risks of
operating without insurance will not have to be run. [Lease Car of America, Inc v
Rahn, 419 Mich. 48, 54; 347 NW2d 444 (1984) (emphasis added).]
Significantly, the Court did not refer to “concerns that could or would prompt cancellation” at
some future date, but to concerns that “have prompted cancellation.” And in this case, the
concern that prompted cancellation was not the fact that the premium was shortly coming due,
but the actual failure to pay it when it was due. It was only at that point that the insured could be
afforded the required ten days’ notice to cure the reason for cancellation.
We must also construe statutes reasonably, “keeping in mind the purpose of the act, and
to avoid absurd results.” Rogers v Wcisel, 312 Mich. App. 79, 87; 877 NW2d 169 (2015). Taken
to its logical conclusion, Everest’s position would allow insurance companies to give a notice of
cancellation far in advance of premium payment dates. For instance, after the policy is issued
the insurance company could send a cancellation notice stating that failure to make timely
premium payments by the listed due dates will result in next-day cancellation of the policy. This
would be at odds with the statute’s purpose to allow a post-notice opportunity to address the
reason for cancellation, and could readily lead to absurd results. 5
5
As the Missouri Supreme Court aptly reasoned:
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Everest also argues that its offer to reinstate the policy functioned as a valid notice, and
therefore plaintiffs’ coverage was still properly cancelled. On October 30, 2017, Everest sent
Yang an offer to reinstate a policy. But this offer was not presented as a notice of cancellation,
nor does it contain the statutorily required warning that a person may not operate an uninsured
vehicle. See MCL 500.3020(6). And the lack of that warning renders a cancellation notice
ineffective. Depyper, 232 Mich. App. at 441. For those reasons, Everest’s offer to reinstate the
policy is insufficient to constitute a notice of cancellation.
In sum, issuance of a notice of cancellation necessarily requires that the grounds for
cancellation have occurred before the notice is issued. That is the most natural reading of that
phrase, as confirmed by the vast majority of appellate courts that have addressed this issue. We
see no basis to conclude that the Legislature intended to depart from that ordinary meaning and
to allow insurers to provide the statutorily required notice on the mere possibility that the insured
might not make a premium payment. For those reasons, we hold that a notice of cancellation
sent before the time for making the premium payment has passed does not satisfy MCL
500.3020(1)(b).
Affirmed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Douglas B. Shapiro
/s/ Elizabeth L. Gleicher
The insurance companies propose to give a conditional notice of cancellation at
any time, if at least 10 days before cancellation. The companies concede that
such anticipatory notice could be weeks, months, or even years before
nonpayment. Their interpretation would render the policy provision illusory,
absurd, and unreasonable. [Blair By Snider, 118 S.W.3d at 607.]
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