Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Kan. Sup. Ct.: Compliance with procedural requirements for notice of nonrenewal is sufficient to force lapse of coverage, (Feb 10, 2014)

By Sandra J. Stoll, J.D.

Notice to nonrenew an automobile insurance policy that complies with the procedure set out in K.S.A. 2012 Supp. 40-3118(b) and the policy is sufficient to force a lapse of coverage, regardless of whether a proper substantive basis for nonrenewal exists under K.S.A. 2012 Supp. 40-276a(a) and the policy, the Kansas Supreme Court has held, responding to a question certified from the Tenth Circuit. However, if the insurer violates the substantive provisions of the statute and/or the policy, the insured may pursue a remedy for breach of contract and the insurer may be subject to administrative penalties under the state’s Unfair Trade Practices Act (Nationwide Mutual Insurance Co. v. Briggs, February 7, 2014, Beier, C.).

Background. Melvin L. Briggs died as a result of injuries he sustained in an automobile collision. The vehicle involved had been insured under a policy issued by Nationwide Mutual Insurance Company in 2007. However, several months before the accident Nationwide had sent Briggs a notice of nonrenewal of the policy. The nonrenewal became effective eight days before the collision. Thus, Nationwide denied the claim filed by the Briggs children.

Nationwide then filed a declaratory judgment action in federal court against the Briggses, seeking a declaration that it had effectively nonrenewed the policy before the accident. Nationwide was granted summary judgment. The Briggses appealed from that judgment to the Tenth Circuit, arguing that Nationwide also had to comply with K.S.A. 2012 Supp. 40-276a(a), which sets out permissible reasons for coverage termination. The Tenth Circuit certified the question to the state supreme court.

Sufficient notice for nonrenewal. To clarify the precise legal issue presented, the court stated the question before it as follows:

Is notice to nonrenew an insurance policy that complies with the procedure set out in K.S.A. 2012 Supp. 40-3118(b) and the policy sufficient to force a lapse of coverage, regardless of whether a proper substantive basis for nonrenewal exists under K.S.A. 2012 Supp. 40-276a(a) and the policy?

The court answered this question in the affirmative.

Both the substantive and procedural statutory requirements were mirrored in the policy at issue. The Briggses argued that the substantive statutory provision and its policy equivalent equated to a procedural requirement that must be satisfied before a policy could be effectively nonrenewed. Nationwide argued that the substantive statutory provision and its policy equivalent were unrelated to any procedural requirement. In Nationwide’s view, if the notice requirements of the statute’s procedural provision were satisfied, then the policy lapsed on the effective date. If no permissible substantive reason for nonrenewal existed, then a violation of K.S.A. 2012 Supp. 40-276a(a) and a breach of contract occurred. Remedies for either or both could be pursued, but the notice was still effective to prevent coverage from continuing.

The court agreed with Nationwide’s argument. Neither Kansas statutes nor the language in the policy at issue required a statement of a permissible substantive reason for nonrenewal in the notice to make the notice procedurally effective. The court found that Nationwide strictly complied with the statutory and policy procedural notice requirements, and coverage lapsed on eight days prior to the collision.

This did not leave the Briggses without a remedy. The court concluded that if Nationwide lacked a permissible substantive reason to refuse to renew the policy, then it violated 40-276a(a) and breached the contract of insurance. The violation and breach occurred at the moment of the wrongful nonrenewal—i.e., while the policy was still in force. Nationwide would be liable for any damages caused by its breach. In addition, if Nationwide violated the substantive provisions of 40-276a(a), it may be subject to administrative penalties under the Unfair Trade Practices Act, K.S.A. 40-2401 et seq.

The case number is 109,015.

Attorneys: Christopher P. Sweeny (Turner & Sweeney) for Leann Briggs. Theresa Shean Hall (Manz Swanson & Mulhern PC) for Nationwide Mutual Insurance Co.

Companies: Nationwide Mutual Insurance Co.

Cases: StateUnfairTradePractices KansasNews