After a fire broke out at an Oklahoma motel in June 2020, the property owner submitted a loss claim to its surplus lines insurer – only to find the insurer denied the claim on the assertion that a commercial lines policy insuring the motel expired weeks before the fire.
The policy lapse was news to motel owner Jai Hospitality. The company said it hadn’t received by mail any direct notice that its policy was set to expire on the first of the month. Unbeknownst to Jai at the time of the fire, Western World Insurance Company had sent a renewal offer with a premium increase to Jai’s insurance agent weeks before the policy expired. The offer was never transmitted to Jai.
Western World, an AIG company, argued it was not required to send its offer directly to Jai, the first named insured, pursuant to the insurance contract and Oklahoma law. The insurer said that because Jai failed to accept its offer to renew, no insurance contract existed at the time of the fire loss.
A trial court agreed with Western World’s position, which was later affirmed by the Oklahoma Court of Civil Appeals. Jai appealed the case up to the Oklahoma Supreme Court, which took up the question of whether the insurer had a duty to give Jai, as the named insured, written notice of a renewal offer with a premium increase or nonrenewal.
The court ruled that Western World’s renewal notice to Jai’s insurance agent was insufficient; the insurer was required to provide written notice directly to Jai, in accordance with the contract and state law. The court vacated the Court of Civil Appeals’ opinion and remanded the matter for further proceedings.
Lapse of Communication
Jai owned the Relax Inn in Palls Valley where a fire broke out on June 26, 2020. The company had a commercial lines policy that insured the motel from June 1, 2019, to June 1, 2020.
J. Charles Insurance, a Norman-based agency, procured the policy through All Risks, a surplus lines broker. Weeks before the policy was set to expire, All Risks at the direction of Western World prepared a renewal offer with a premium increase of more than $3,000. All Risks transmitted the offer solely to J. Charles on May 20, 2020. J. Charles never forwarded the offer to Jai.
Western World knew the offer was never communicated to Jai but nevertheless characterized the lack of an acceptance as Jai opting out of the policy, according to court proceedings. Jai argued that because direct notice was not provided, the policy extended past June 1, per the terms of the contract and Oklahoma law.
In reviewing the case, the Oklahoma Supreme Court homed in on policy language that said Western World would give Jai at least a 45 day notice prior to its policy not being renewed and its coverage ending. “If notice of nonrenewal is not mailed or delivered at least 45 days before the expiration date or an anniversary date of this policy, coverage will remain in effect until 45 days after notice is given,” the policy states.
The court ruled that because notice of renewal sent to All Risks and J. Charles is not treated as notice to Jai, coverage would have extended under the policy terms as written until the date of replacement coverage. Jai purchased replacement coverage on July 9, 2020.
Western World acknowledged it did have a duty to provide direct notice to any “first named insured” such as Jai where there was a renewal offer with a premium increase. Western World argued that J. Charles and/or All Risks were the legal agents of Jai under an Oklahoma statute that establishes a principal-agency relationship.
Whereas the trial court accepted this argument, the Oklahoma Supreme Court ruled that a plain and ordinary reading of the statute “contains no language that authorizes All Risks or J. Charles to receive a policy renewal offer on behalf of Jai or any insured.”
Such an interpretation would conflict with a more specific statute which requires notice to be given to the first named insured, the court ruled.
Topics
Carriers
Oklahoma
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