Connecticut Court Finds Reinstatement of Cancelled Insurance Policy Does Not Cover Losses Suffered During Lapsed Period
In a case of first impression, the Appellate Court of Connecticut recently held that the late payment on a lapsed insurance policy will reinstate coverage only for future losses. Brown v. State Farm and Cas. Co., 150 Conn. App. 405 (2014).
In September of 2004, Plaintiff Ralston Brown (“Brown”) purchased a homeowner’s insurance policy from the Defendant State Farm Fire and Casualty Company (“State Farm”). The premium on the policy was to be paid quarterly. In 2005, Brown failed to pay the full amount owed for the September and March quarters. On March 22, 2006, State Farm sent Brown a cancellation notice, stating that his policy would be cancelled on April 6, 2006 unless he paid the amount owed by that date. Brown did not tender payment.
On April 21, 2006, Brown’s home was lost due to a fire. The following day, and after discovering the cancellation notice from State Farm, Brown mailed the appropriate payment to State Farm. The policy was reinstated, effective that day, April 22, 2006. Brown then filed an insurance claim with State Farm for the loss of his home due to the fire, which was denied. Thereafter, Brown filed suit for breach of contract. The trial court judge found for State Farm, and Brown appealed.
On appeal, Brown argued that State Farm had “waived its right to deny coverage for the loss when it accepted payment.” The Appellate Court rejected that argument, emphasizing that “[a] loss that has already occurred is not fortuitous – and is thus not insurable.” Noting that individuals are not permitted to “suffer a loss and then subsequently purchase insurance to cover that loss,” the Court explained that applying late payments retroactively would allow insureds to avoid paying timely premiums until suffering a loss. The insured would then “consciously shift the burden of his known loss from himself onto his insurer, and ultimately, onto those policy holders who have dutifully paid their premiums on time and maintained continuous insurance coverage.” Because the fire occurred after the policy had lapsed and before the late payments were made, the Appellate Court affirmed the trial court’s conclusion that the policy was not in effect on the day of the fire.
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