US District Court discusses New York law on policy cancellation by premium finance agency

Troy Sutler was injured when he was hit by a forklift.  The forklift was driven by an employee of NYCP.  Sutler sued NYCP and obtained a judgment against it.  He then sued Redland Insurance for payment.

A few months before the accident NYCP had purchased a general liability policy from Redland.  It paid for the policy with a loan from BIC.  The loan agreement specified that as long as NYCP owed BIC any money, BIC would have a power of attorney to cancel the Redland insurance policy on NYCP's behalf, and thereby obtain a partial refund. 

Two months after the companies entered into the loan agreement, and before the forklift accident, NYCP failed to make its monthly payment to BIC.  BIC cancelled the policy.

Redland sent NYCP a notice that its insurance had been cancelled, and that it could avoid the cancellation by paying the total premium due within fifteen days.  NYCP did not do so. 

After the accident, BIC informed Redland that it had received payment from NYCP and asked Redland to retroactively reinstate NYCP's policy. Redland did not do so.

Sutler sued Redland on the ground that it is liable as NYCP's insurer for the judgment he obtained.

In Sutler v. Redland Ins. Co., 2013 WL 3732873 (D. Mass. 2013), Sutler argued that the cancellation of the policy was invalid because NYCP did not receive notice at least ten days (or fifteen; the decision is inconsistent) before its policy was cancelled as required by the terms of the policy.

The court rejected the argument, because Redland did not cancel the policy; BIC cancelled the policy under its power of attorney from NYCP.  The insurance policy allows NYCP to cancel upon advance written notice. 

The court also held that the cancellation complied with governing New York statute.  That statute allows a premium finance agency such as BIC to cancel an insurance contract if it first gives the insured party ten days' written notice. 

Sutler argued that BIC's cancellation was ineffective because BIC sent the notice of cancellation on May 22, 2007, with an effective date of May 29, 2007, only seven days.  But, the court held, Sutler was confusing a notice of intent to cancel with the notice of cancellation.  BIC sent its notice of intent to cancel on May 8, 2007, fourteen days before it sent the notice of cancellation.  That fourteen-day period was sufficient under New York statute.