Madison - St. Clair Record

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Ruth affirmed in part and reversed in part by Fifth District

By Heather Isringhausen Gvillo | Oct 21, 2015


The Fifth District Court of Appeals affirmed Madison County Circuit Judge Dennis Ruth’s ruling that an insurance policy had been properly cancelled prior to a fire and that USF Insurance had no duty to cover damages.

Justice Richard Goldenhersh delivered the Oct. 15 Rule 23 decision affirming in part and reversing in part Ruth’s order granting summary judgment to both USF Insurance and counter-defendant Premium Financing.

Goldenhersh wrote that USF had properly cancelled the insurance policy but Premium Financing had requested the cancellation through an invalid power of attorney

According to the appellate decision, plaintiff Teresa Stephens procured an insurance policy on a building she owned on Feb. 3, 2004. The policy was issued from USF and covered commercial property damage or loss of the covered property and commercial general liability. The policy was expected to run from February 2004 through February 2005.

Stephens financed the policy through a premium finance agreement with Premium Financing.

The agreement provided Premium Financing with a power of attorney granting it authority to request cancellation of the policy if Stephens failed to make the required payments.

Then on July 8, 2014, Stephens failed to make a payment. Premium Financing sent a notice of intent to cancel the policy.

On Aug. 2, 2004, Premium Financing advised USF to cancel Stephens’ policy. USF complied with the request and cancelled the policy on Aug. 5, 2004.

On Aug. 17, 2004, Stephens’ property was damaged by a fire. Counter-defendant Douglas Kibby, a tenant on Stephens’ property, died as a result of the fire. The fire also damaged an adjacent property owned by counter-defendant The Surinder Kumar Trust.

On Aug. 18, 2004, Stephens filed a fire claim to USF, which was denied. USF informed Stephens that the policy have been cancelled prior to the fire.

On Nov. 30, 2004, Stephens filed a declaratory action in the Madison County Circuit Court against USF for coverage for the property damage caused by the fire. USF filed a counterclaim for declaratory judgment. It asked the court to file an order stating that the policy had been cancelled and no coverage was provided.

On Dec. 15, 2004, Carolle Kibby, individually and as special administrator of the estate of Douglas Kibby, filed a separate lawsuit against Stephens for damages resulting from the fire, which she then turned to USF for commercial liability coverage.

USF against sought declaratory judgment stating that it was not liability and did not owe a duty to defend or indemnify Stephens because the policy had been cancelled.

On March 29, 2005, Kumar also filed a separate lawsuit against Stephens seeking recovery for damages resulting from the fire. Again Stephens turned to USF for coverage and USF asked the court to declare that the policy was cancelled.

Kumar argued that USF had a duty to defend and indemnify Stephens because the alleged cancellation of the insurance policy before the fire loss was invalid.

After years of arguing over the matter, the court entered an order granting summary judgment in favor of USF and Premium Financing on May 28, 2013.

The court found that Premium Financing did not have a valid power of attorney to request cancellation of the policy because the agreement was not dated, but it still found USF validly cancelled Stephens’ insurance policy prior to the fire.

Kumar appealed the matter and Kibby joined. They argue that USF did not have the right to cancel the insurance policy at the request of Premium Financing because Premium Financing did not have proper power of attorney.

The appellate court affirmed the lower court’s decision, holding that USF’s cancellation of Stephens’ policy was effective despite the fact it was made at the request of Premium Financing’s invalid power of attorney.

“USF had no duty under the Insurance Code to independently verify whether Premium Financing had fulfilled its statutory obligations by having in its possession a valid power of attorney,” the decision states.

However, the appellate court held that the trial court erred in granting summary judgment in favor of Premium Financing.

“While we find USF is not responsible for the faulty premium finance agreement between Premium Financing and Stephens, we find no reason why Premium Financing should not be held responsible,” the court wrote.

The appellate court reversed the trial court’s judgment in favor of Premium Financing and remanded the case for further proceedings.

Justices Judy Cates and Melissa Chapman concurred in the judgment.

Madison County Circuit Court case number 04-L-1318

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