If you read the Merlin blog every day, and you should, you will find we provide general helpful tips regarding insurance policies and property damage and references to specific cases handed down nationwide. You will also find we continually suggest that you read your individual policy language because while some policies are very similar, there may be one provision that sets yours apart and provides coverage for your loss. Take the case of Zeller v. AAA Insurance Company1 out of Indiana.

Plaintiff purchased a homeowners policy from AAA Insurance Company. It contained a very interesting provision, as follows:

Conditional Reinstatement – if you make adequate payment after the due date and we reinstate the policy, there will be no coverage during the period of time between the date the policy cancelled and the date and time we received the payment. However, reinstatement of the policy is conditioned upon the following any any Notice of Reinstatement is void if:

(1) any form of premium payment is not honored for any reason; or
(2) there is a claim under the policy arising from an event that occurred between the policy cancellation date and the date and time we received your payment to reinstate the policy.

If the reinstatement is void for either of these reasons, the policy remains cancelled as of the date and time indicated on the Notice of Cancellation, and we will not be liable for any claims or damages after that date and time.

After reading the above, you can see this is where it gets tricky. A thorough factual analysis must be done of each individual situation.

Here, plaintiff received a notice that his policy expired on November 10, 2011 for failure to pay the premium. His notice said, “You may still renew your policy effective November 10, 2011 with no loss of coverage if we receive your payment of $231.68 by the close of business on November 30, 2011. If we do not receive your payment by that date, the expiration of your policy will remain in effect and no further coverage will be provided.” On November 25, plaintiff mailed a payment stub with his credit card information and it posted to his credit card account on December 7.

On December 9, 2011, plaintiff’s garage caught fire and he submitted a claim, which was denied for being outside of the policy period. AAA sent plaintiff a check, returning the premium amount, and he did not cash it. He filed suit for breach of contract and bad faith. In January 2015, there was a trial to a judge. The court found that the issue was when the premium payment was “received” by AAA after cancellation of the policy. Since AAA had stated a November 30 deadline in its notice of cancellation and payment posted to plaintiff’s credit card account on December 7, the court found that the policy was not in effect on the date of loss. Plaintiff appealed.

Plaintiff argued that the court erred because AAA accepted his premium payment and his claim arose from an event after the same. The court of appeals agreed. Two conditions precedent were mentioned in the policy wherein the reinstatement of the policy may be voided and neither was applicable here. Plaintiff offered his payment for reinstatement of the policy and AAA accepted that offer by accepting the payment. Once an offer is accepted, a contract is formed.2 While it is true that the language used in the cancellation letter stated that payment must be received by November 30, no such language appears in or is incorporated into the insurance contract. Plus, there is no deadline in the contract for payments for reinstatement.

Insurance policies are drafted by the insurance companies. Shop around for one containing the specific language you desire and hold to the exact words they choose to use in drafting their policies – they can be a sword and a shield. Remember the lesson from the case here – the language of the policy controls, not necessarily the language the company or the adjuster chooses to use in a denial letter.

1 Zeller v. AAA Insurance Company, 2015 WL 4626757 (Indiana Ct. App. Aug. 4, 2015).
2 Bain v. Bd. of Trs. of Starke Mem. Hosp., 550 N.E.2d 106,110 (Ind.Ct.App. 1990).