Northland Insurance v. Walls

Digges, J., delivered the opinion of the Court. This declaratory judgment case presents a question of when an insurance policy, purchased with funds borrowed from an insurance premium finance company, and thus controlled by the provisions of the Maryland Code regulating insurance premium finance agreements, Md. Code (1957, 1979 Repl. Vol. & 1981 Cum. Supp.), Art. 48A, §§ 486A-486G, is effectively cancelled under the provisions of that enactment.

Although both the facts and statute involved are somewhat vapid, their recitation is important to an understanding of the issues presented and our resolution of them. Respondent, H. David Walls, the owner of a trucking company bearing his name, purchased in November, 1976, insurance for his fleet of vehicles from petitioner Northland Insurance Company through its agent, Hardester Corporation. The full amount necessary to purchase yearly insurance coverage from Northland was advanced to the insurer on behalf of Walls by Tifco, Inc., an insurance premium finance company. The reimbursement agreement between Walls and Tifco, the terms of which the insurer was made aware, provided that respondent, after making a substantial ⁶⁰⁶ down payment to the finance company, would pay the balance due it in nine monthly installments. 1 The finance agreement provided further that in the event of a default in any of the payment obligations of the trucking company, Tifco was named as "attomey-in-fact” with authority to cancel the insurance policy.

There is no dispute that Walls fulfilled his first two installment obligations but failed to make the February, 1977, payment when it became due. The parties also agree that in response to this delinquency, Tifco notified Walls that "if payment is not received by March 5, 1977, we must request cancellation of your insurance coverage.” Although the message was subsequently repeated, the finance company heard nothing following these initial communications. Consequently, Tifco, having given the statutorily required ten days notice to the insured, § 486F (b), (c) of Art. 48A, mailed to Northland, with a copy to Walls, a "Notice of Cancellation” designating its effective date to be March 18,1977. There was no further communication between these principal actors until the following month when respondent forwarded to the finance company $493.03 representing one installment payment plus a $5.00 late charge.

Upon receipt of these funds, Tifco promptly informed Walls by letter that the payment had no effect on the previous cancellation of his insurance policy but that it would be applied to reduce the remaining balance owed on his account. Walls made no further payments to Tifco. The event which directly triggered this declaratory judgment action over insurance coverage occurred three months following the purported March 18 cancellation when one of respondent’s trucks collided with another vehicle on Route 50 in Talbot County in mid June. Walls was joined as a defendant in a personal injury suit arising out of that accident.

Insisting that the policy remained in effect, respondent notified Northland of the claim and requested that the insurance company defend the suit and pay any judgment within the bounds of the policy. In rejecting this asserted coverage, ⁶⁰⁷ the insurer stated that, since the policy involved had been effectively cancelled before the accident, Northland had no obligation either to defend him in the action or to pay any judgment arising out of it. Faced with this rebuff, Walls employed an attorney to represent him in the tort suit. After successfully defeating the action arising out of the accident, the respondent, claiming invalidity of the purported cancellation, seeks in this case, filed in the Circuit Court for Caroline County, reimbursement for those expenses which would normally be assumed by Northland under its policy.

Walls stated in the circuit court, as he has on appeal, that any one of several violations by Northland of various statutory or contractual provisions rendered ineffective the purported March 18 termination of his insurance coverage. The trial judge agreed, and entered a decree principally declaring "that ... Northland Insurance Company is obligated to reimburse ... H. David Walls for all of the expenses that he has incurred, including reasonable attorney’s fees, in furnishing his own defense in [the tort suit] and in bringing this action...”.

Petitioner appealed to the Court of Special Appeals where the judgment was affirmed. This Court granted certiorari, and, as we disagree with the holdings of both courts, we will reverse. Additional facts will be presented as needed when discussing each of respondent’s arguments. Moreover, while we quote later in the text relevant portions of section 486F of the premium finance agreement statute when addressing the various issues presented, we set forth in the margin its provisions in full so that the reader may appreciate the composite impact of the section. 2 ⁶⁰⁸ i While recognizing that Tifco gave the ten day cancellation notice to the insured required by part (b) of section 486F ** 3 , Walls contends that Northland is nevertheless bound by a separate, contractual obligation contained in its policy to provide the insured with an additional termination notice.

Because the insurance company itself did not provide Walls with such a direct notice of cancellation, the argument goes, the policy was not effectively terminated at the time of the accident. Respondent, in support of his claim, points to the language of his insurance policy which reads: ⁶⁰⁹ [I]f the named insured fails to discharge when due any of his obligations in connection with the payment of premium for this policy or any installment thereof, whether payable directly to the company or its agent or indirectly under any premium finance plan or extension of credit, this policy may be cancelled by the company by mailing to the named insured ... written notice stating when not less than ten days thereafter such cancellation shall be effective. Although Walls does not seek statutory aid in making this claim, in our view, reliance on part (e) of section 486F is essential to give minimal credence to his position. That statutory provision operates to ensure that any duty to issue an additional notice of cancellation is not eliminated merely because a premium finance company cancels the insurance policy.

Under the terms of that provision, "[a]ll statutory, regulatory, and contractual restrictions providing that the insured may not cancel his insurance contract unless notice is given to a governmental agency, mortgagee or other third party shall apply where cancellation is effected” by a premium finance company. The enactment goes on to provide that "[t]he insurer . . . where it is required to give such notice in behalf of itself or the insured, shall give notice to such governmental agency, mortgagee or other person . . We need not pass on the scope of the part (e) reaffirmation of pre-existing notice requirements contained in an insurance contract, however, because the very terms of the insurance agreement upon which respondent bases his claim to an additional notice of cancellation do not support his position. The contract provides that, if the insured fails to pay premiums when due the policy "may be cancelled by the company” with ten days notice to the insured.

The quoted language clearly limits application of this provision to those occasions where the insurance company independently acts to cancel the policy. 4 In this case, Tifco, acting under the ⁶¹⁰ power of attorney granted by Walls in the default clause of the premium finance agreement, cancelled respondent’s insurance policy. Parts (a) and (d) of section 486F provide that when an insurer receives a cancellation notice from a premium finance company, acting under a power of attorney to cancel insurance contracts on behalf of the insured, "the insurance contract shall be cancelled ... as if the aforesaid notice of cancellation had been submitted by the insured himself . . .”. Consequently, in legal effect, Walls — not Northland — cancelled the policy and the contract clause providing for notice by Northland when it cancels the policy has no bearing on this case. Lowe v. United States Fidelity and Guaranty Co., 171 Colo. 215 , 466 P.2d 73, 77 (Colo. 1970); Chamberlain v. Employer’s Liability Assur.

Corp., 289 Mass. 412, 194 N.E. 310 , 312 (1935); Davis v. Roddie, 113 N.J. Super. 457 , 274 A.2d 297 , 300-01 (1971); Hayes v. Hartford Accident and Indemnity Co., 274 N.C. 73 , 161 S.E.2d 552, 559 (1968); Liquori v. Aetna Cas. & Sur. Co., 384 A.2d 308, 313-14 (R.I. 1978). See generally, Annot. 115 A.L.R. 1212 -1213 and later case service. Respondent’s initial contention is thus without merit. ii Respondent next asserts that, because Northland failed to remit to Tifco the unearned premium within the sixty day period as required by § 486F (f), cancellation of his policy was not effective at the time the accident occurred on June 13.

That part reads: Whenever an insurance contract is cancelled [by a premium finance company acting under a power of attorney from the insured], the insurer shall return whatever gross unearned premiums are due under ⁶¹¹ the contract to the premium finance company for the account of the insured or insureds within a reasonable time not to exceed 60 days after the receipt by the insurer of the notice of cancellation.... It is undisputed that Northland failed to remit the unearned premium to Tifco until June 28,1977, about two weeks after the accident had occurred and more than sixty days after the insurer had received from the finance company the March 18 cancellation notice. Thus, the only question we must resolve at this point is whether compliance with the sixty day remittance requirement is, in the language of respondent, a "condition subsequent,” the violation of which nullifies an otherwise valid cancellation. When examining legislative enactments, the ultimate goal of the Court is to discern and effectuate the actual purpose of the legislature in enacting the statute.

See e.g., Mazor v. State Department of Correction, 279 Md. 355, 360-61 , 369 A.2d 82, 86-87 (1977). Of course, the primary source of ascertaining the legislative intent is the language of the statute itself. E.g., Schweitzer v. Brewer, 280 Md. 430, 438 , 374 A.2d 347, 352 (1977). If ambiguity or uncertainty exists, however, the Court may consider the background of the statute’s adoption, Frank v. Baltimore County, 284 Md. 655, 658-69 , 399 A.2d 250, 253 (1979), and the legislative history, North Charles General Hospital Inc. v. Employment Security Administration, 286 Md. 115, 118 , 405 A.2d 751, 753 (1979), as well as any judicial decisions pertaining to the enactment.

E.g., Sonnenburg v. Monumental Motor Tours, 198 Md. 227, 233 , 81 A.2d 617, 620 (1951). Walls contends that the sixty day remittance requirement of § 486F (f) imposes a condition subsequent which must