Northland Insurance v. Walls

Thompson, J., delivered the opinion of the Court. In this case we are concerned with the responsibility of an insurance company to provide a defense to its insured in a tort action arising out of an automobile accident. Northland Insurance Company (Insurer), the appellant, issued to H. David Walls (Insured), the appellee, a policy of automobile liability insurance. Insured financed the annual premium of $5,984.00 through Tifco, Inc., a premium finance company.

A down payment of $1,795.00 was made, leaving an unpaid balance of $4,189.00. This amount, plus a finance charge of $194.27, a total of $4,383.27, was to be paid in nine installments of $487.03 each, due on the 11th of each month, the first such payment to be made on December 11, 1976. The insured duly remitted the installments due on December 11,1976 and January 11,1977, but failed to remit the installment due on February 11, 1977. On March 18, 1977, Tifco, Inc., after giving the insured the notice required by statute, 1 sent a "Notice of Cancellation” to Insurer to be effective as of 12:01 a.m., March 18, 1977.

At the time the subject insurance policy was issued, it was filed on behalf of the insured in the states of Connecticut, North Carolina, and South Carolina. Insurer neglected to notify the proper authorities in those states of the cancellation of the policy on March 18, 1977. The insurer claims that, for that reason, a cancellation notice was issued on July 18, 1977, notifying those authorities of cancellation of the policy, effective August 22, 1977. Under date of August 5, 1977, the insurer’s agent sent a letter to the insured informing him that the cancellation notice, dated ³⁴⁸ July 18, 1977, did not supersede or replace the finance company’s cancellation of March 18, 1977.

On June 13, 1977, a truck owned by insured became involved in an accident. In November, 1978, a suit arising out of the accident was filed in the Circuit Court for Caroline County which terminated on March 13,1980, with judgment in favor of the insured. The insurer declined to furnish a defense to insured in the tort action; so the insured filed this declaratory judgment action, which resulted in a decree holding that the subject policy was still in force on June 13, 1977. The chancellor, Clayton C. Carter, found that the policy had not been effectively terminated for three reasons: (1) The insurer failed to give the insured the notice of cancellation which the policy required; (2) The insurer failed to notify the Connecticut, North Carolina, and South Carolina authorities of the policy cancellation on March 18, 1977; and (3) The insurer failed to return the unearned policy premium to Tifco within 60 days. 2 We affirm on the basis of the first of the reasons listed.

The policy contained the following provision: "This policy may be cancelled by the company by mailing to the named insured at the address shown in this policy, written notice stating when not less than forty-five days thereafter such cancellation shall be effective; except that if the named insured fails to discharge when due any of his obligations in connection with the payment of premium for this policy or