In a case of first impression in the Nutmeg State, an intermediate level court in Connecticut recently held that reinstatement of coverage after a lapse for non-payment of premiums does not operate to restore coverage retroactively. In Brown v. State Farm Fire & Casualty Co., 150 Conn.App. 405 (May 27, 2014), the court held that coverage is only restored on a prospective basis, and it barred the insured from recovering for a fire loss that took place between the time of the lapse and the reinstatement.
The insured, Ralston Brown, owned a home in Bridgeport, and he purchased a homeowner’s insurance policy from State Farm on September 16, 2004. One year later, the policyholder secured a business policy from the same insurer, and he arranged for both contracts of insurance to be billed quarterly on the same date.
On February 16, 2006, State Farm submitted a quarterly bill for the two policies, payable on or before April 6th. No payment was forthcoming. On March 22nd, the insurer sent a notice of cancellation, reciting that the two contracts of insurance would be cancelled on April 6th if Brown failed to pay the full amount due by that date. It was uncontested that no payment was made.
On April 21st, the home was totally destroyed by fire. After the blaze, the insured mailed the missing payment, and State Farm accepted it, credited Brown’s account, and reinstated the homeowner’s policy on April 22nd, the day after the fire. Brown then filed an insurance claim for the dwelling, and he brought a breach of contract action against the insurance company in state court after it was denied. The trial court granted summary judgment to State Farm, and an appeal followed.
The policyholder’s argument was that State Farm had waived its right to deny coverage when it accepted the premium payment on April 22nd. Last month, a unanimous panel of the Connecticut Appellate Court rejected that contention, and it affirmed. The decision by Judge Joseph P. Flynn observed that the case was one of first impression in Connecticut but that the majority rule in other jurisdictions was that when a lapsed insurance policy is reinstated, a loss suffered between the time of the lapse and the reinstatement are not covered.
Judge Flynn noted that the notice of cancellation recited that “[t]here is no coverage between the date and time of cancellation and the date and time of reinstatement.” The court also explained that a contrary holding would violate the principal of fortuity. In the words of the opinion:
Any loss that has already occurred is not fortuitous – and is thus not insurable. Without such a rule, one could allow his coverage to lapse by not paying his premiums timely and then, upon suffering a loss, force his insurer to “buy a claim” by quickly making the missed premium payments to reinstate his lapsed coverage retroactively.
As a result, the court held that the post-loss premium payment reinstated the coverage on a prospective basis only.