Automatic payments have become a norm, including automatic payments for insurance premiums. But what happens when the automatic or scheduled payment amount is insufficient to cover an increased premium charge? That is the situation which occurred in Owners Insurance Company v. Sikanovski.1
The insured elected to finance the yearly premium with Owners and make scheduled monthly payments. Following the policy’s inception, repeated cancellation notice and reinstatements were issued due to an insufficient amount of time between receipt of the premium bill and its due date. Following reinstatement, the insured “padded” her payment to cover any future premium increases. Knowing at some point that the “padding” would run out, the insured periodically spot checked her invoices to make sure that the payment amount was sufficient. For three years the automatic payments were sufficient to cover the premium owed.
Eventually, the automatic payments were no longer sufficient to cover the monthly premium payment. The insured continued to make the scheduled automatic payments (in the same padded amount) after which Owners would issue a notice of cancellation. The notice of cancellation advised the insured that the policy would cancel if the remaining balance was not received within a certain timeframe. The automatic scheduled payment would then be issued, it would cover the outstanding amounts due and owing and Owners would either reinstate the policy, or start the process over again and issue a new cancellation notice for a future date. This process continued and repeated for more than nine months.
Unbeknownst to the insured, Owners placed a “Do Not Reinstate” hold on the account which would result in the system not reinstating the policy even if sufficient funds were provided within ten days of cancellation. The billing system had previously accepted and automatically reinstated a policy if payment was received within ten days of the cancellation. After the “Do Not Reinstate” hold was placed on the account, the insured suffered a fire loss which Owners denied.
Owners brought a declaratory judgment action that the policy was not in force on the date of the fire, to which the insured counterclaimed for breach of contract and estoppel, among other claims. The Court of Appeals of Wisconsin affirmed the trial court’s finding that Owners was equitably estopped from denying coverage for the loss based upon Owners’ pattern of accepting short payments, issuing cancellation notices, acceptance of automatic payments and reinstatement of the policy. Specifically, the court held that “[b]y routinely accepting Sikanovski’s late, partial payments without exercising its right to cancel the policy, despite repeated threats to do so, Owners established a practice or custom such that it is now estopped from denying coverage.”