MERCURY CASUALTY COMPANY v. KAMAE (1978)

OPINION

The sole question presented in this appeal from a judgment granting declaratory relief is whether a policy of automobile liability insurance issued to Edwin B. Kamae by respondent Mercury Casualty Company which expired by its own terms on April 25, 1975, must be deemed still in effect on May 4, 1975, the date Kamae's automobile was involved in an accident.

The resolution of this question depends upon whether respondent complied with the requirements of Insurance Code section 663.¹

Section 663 provides, in pertinent part, as follows:

“An insurer shall offer renewal of a policy, contingent upon payment of premium as stated in the offer, to an insured unless the insurer mails or delivers to the named insured, at the address shown in the policy, at least 20 days advance notice of nonrenewal. . . . The insurer shall not be required to notify the named insured, or any other insured, of nonrenewal of the policy if the insurer has mailed or delivered a notice of expiration or cancellation, on or prior to the 20th day preceding expiration of the policy period.”

Although there had been a previous policy renewal, we are here concerned with the actions of the parties with respect to the renewal, nonrenewal, or expiration of a policy having an expiration date of April 25, 1975.

In anticipation of the next renewal of Kamae's policy of insurance, Mercury Casualty Company sent to Auto Mate² insurance agency a renewal quotation, received by Auto Mate on or about April 2, 1975, covering the next six-month period beginning April 25, 1975 through October 25, 1975, and stating that Mercury Casualty was willing to renew the policy for an additional six month period for the rate of $157. There is evidence from which the court could find that prior to April 5, 1975, Kamae received from Auto Mate a written statement containing the following information:

“Invoice Date 4/2/75, Company Merc Cas Co., Policy Number A298967, Effective Date 4/25/75, Expiration Date 10/25/75, Coverage ‘74 Chev $1342, Premium $157.00, Renewal of Auto Ins., Please Remit by 4/21/75.”

There is evidence that, after receiving this renewal notice, Kamae called Auto Mate to inform Cooper that he did not have, but would try to obtain, sufficient money to pay the premium. Cooper at that time advised Kamae that his policy would expire on April 25, 1975 and that Mercury was willing to renew, but that the offer to renew was contingent upon payment of the premium stated in the renewal notice. Approximately 10 days after the first notice of renewal, a second identical notice was sent, and on April 24, 1975, Cooper again advised Kamae that if he did not pay the premium by April 25 his policy would expire. The trial court rendered findings in accordance with this evidence. On April 29, 1975, Auto Mate mailed to Kamae a document showing cancellation of his insurance effective April 25, 1975.

Based upon the above facts, the trial court concluded that the first written notice, dated April 2, 1975, constituted a valid offer to Kamae to renew, that the written notice and the subsequent telephone conversation constituted a valid delivery of an offer to renew and notice of expiration to Kamae more than 20 days prior to the date of expiration of the policy, that the policy expired on April 25, 1975, and that on May 4, 1975, there was no coverage afforded Kamae or any other person in connection with the automobile accident occurring on that date. Declaratory judgment was entered accordingly and this appeal ensued.

The appellants contend (1) that section 663 requires an insurer, in order to avoid a continuation of coverage beyond the policy expiration date, to make an offer of renewal and also to give written notice of expiration, but that respondent failed to give written notice of expiration, and (2) that the offer of renewal made by respondent was insufficient to satisfy the requirement of section 663.

Respondent argues that Mercury's offer to renew was in full compliance with section 663 and that having made that offer Mercury was not required to give notice of expiration. We agree.

Insurance Code section 660 provides helpful definitions of some of the terms used in section 663 as follows:

“(e) ‘Renewal’ or ‘to renew’ means to continue coverage for an additional policy period upon expiration of the current policy period of a policy. . . .

“(g) ‘Cancellation’ means termination of coverage by an insurer . . . during a policy period.

“(h) ‘Nonrenewal’ means a notice by the insurer to the named insured that the insurer is unwilling to renew a policy.

“(i) ‘Expiration’ means termination of coverage by reason of the policy having reached the end of the term for which it was issued or the end of the period for which a premium has been paid.”

It is clear from the actions taken by respondent Mercury Casualty and its agent Auto Mate that an attempt was made to comply with the first sentence of section 663, i. e., to offer renewal of the policy for an additional six months of coverage contingent upon payment of a premium of $157.

Since respondent intended to offer renewal of the policy, no notice of nonrenewal was given or required. Neither was notice of expiration appropriate or necessary. The final sentence of section 663 merely relieves the carrier intending not to renew of the burden of notifying the insured of nonrenewal if it has mailed or delivered notice of expiration or cancellation as provided therein.

Having elected to offer renewal of the policy, it was unnecessary for respondent to serve Kamae with any notice except the offer to renew.

In support of the argument that the law requires that a written notice of expiration be given even where renewal is offered, the appellants cite State Farm Mut. Auto Ins. Co. v. Brown (1974), 40 Cal.App.3d 385, 115 Cal.Rptr. 213.

At the time of the State Farm v. Brown decision, Insurance Code section 663 read in pertinent part as follows: “No insurer shall fail to renew a policy unless it shall mail or deliver to the named insured . . . at least 20 days' advance notice of its intention not to renew . . .” (Stats.1968, ch. 137, § 2, p. 354, amended by Stats.1968, ch. 595, § 1, p. 1266), and Insurance Code section 651 read in pertinent part as follows: “Notwithstanding any other provision of this code, no cancellation by an insurer of an auto liability insurance policy . . . shall be effective prior to mailing or delivery to the named insured . . . of a written notice of the cancellation stating when, not less than ten (10) days after the date of such mailing or delivery, the date the cancellation shall become effective.” (Stats.1957, ch. 723, § 1, p. 1931, amended by Stats.1970, ch. 576, § 1, p. 1152.)

In State Farm v. Brown, the court held that under section 663, as it then read, an insurer's failure to give a 20-day notice of intention not to renew a policy of automobile liability insurance resulted in an automatic renewal of the policy beyond its expiration date, even though the insurer had offered renewal of the policy and the insured had failed to pay the renewal premium.³ The court reasoned that the very purpose of section 663, as it then read, was to effect an automatic renewal unless the 20-day advance notice of intent not to renew was mailed or delivered, and that it thus became necessary for the insurer to send notice of cancellation pursuant to section 651 in order to terminate coverage.

The Legislature quickly reacted to the State Farm v. Brown decision by repealing sections 651 and 663 and reenacting them in their present form.⁴ Construing the present language of section 663 in light of this history, it is readily apparent that the Legislature intended to relieve the insurance carrier of liability beyond the expiration date when the insured does not pay the renewal premium. Both the clear language of the statute and the legislative history compels us to the conclusion that section 663 simply provides that unless the insurance carrier has mailed or delivered written notice of either expiration, cancellation, or nonrenewal at least 20 days preceding the expiration of the policy, then the insurer is required to offer renewal of the policy, contingent upon payment of the premium as stated in the offer.

The crucial question in this case is whether respondent's offer to renew, i. e., the notice of April 2, 1975, either with or without the telephone communication, satisfied the requirements of section 663 for a valid offer to renew. We believe it did. Section 663 does not specify that the offer to renew be made in any particular form or at any particular time. It is significant that in the event the insurer elects to terminate the policy either by nonrenewal, cancellation, or expiration, a notice⁵ must be mailed or delivered at least 20 days in advance. The absence of such requirement with respect to the offer to renew suggests that no formalities are required with respect to the offer to renew.

Nevertheless, if the insurer is to escape the automatic renewal of the policy resulting from a failure to send a notice of nonrenewal, cancellation, or expiration, it is incumbent upon the insurer to communicate that the offer to renew is contingent upon payment of the premium stated in the offer. This the respondent did. The offer was in writing; it included a description of the subject matter of the policy, policy number, the effective date (commencing on the expiration of the existing policy), a statement of the amount of the premium, and a request for payment. It seems unlikely that Kamae could understand this written offer to mean other than that renewal of his policy was contingent upon payment of the premium. Nevertheless the court found, and those findings are supported by substantial evidence, that following receipt by Kamae of the written offer, and prior to April 5, 1975, there was a telephone conversation in which Cooper told Kamae that his insurance would expire on April 25, 1975, that Mercury Casualty Company was offering to renew the policy, and that in order to renew and have coverage after April 25, 1975, Kamae would have to pay the premium stated in the offer.

The respondent, having complied with Insurance Code section 663 by offering renewal of the policy contingent upon payment of premium, was under no obligation to renew in the absence of payment of the premium. The policy expired by its own terms on April 25, 1975.

The judgment is affirmed.

FOOTNOTES

1.  All references are to the Insurance Code unless otherwise indicated.

2.  Auto Mate and its employee Harry G. Cooper are defendants in a negligence action brought by Mercury Casualty Company alleging professional errors and omissions against Cooper individually and doing business as Auto Mate.

3.  The insurer had sent its insured a semi-annual premium notice approximately 30 days prior to the policy expiration date. The insurer sent an expiration notice after the expiration date offering reinstatement upon payment of the premium, and finally after no payment was forthcoming the insurer sent a final lapse notice. Thereafter the “insured” was sued as a result of an accident occurring subsequent to the policy expiration date, and after the “final lapse notice” had been sent. The insurance company denied coverage and sued for declaratory relief.

4.  (Stats.1974, ch. 982, §§ 1-2, 6-7, pp. 2034-2035.)The decision in State Farm Mut. Auto Ins. Co. v. Brown, supra, was filed on July 1, 1974; on August 15, 1974, Assembly Bill 318, previously introduced to accomplish a different purpose, was amended in the Senate to, inter alia, effect the repeal and reenactment of sections 651 and 663.The bill's author, Assemblyman Leon Ralph, included the following statement in a letter urging the Governor to sign the bill:“You have before you, for your signature, my legislation on AB 318, which clarifies the application of the law in situations where the insured fails to pay a premium. Under current law, there is some confusion because of an apparent error made in the insurance code.“When legislature with identical information passed the legislature, the provisions relative to cancellation of insurance for nonpayment of premium went in both the recession (sic) and cancellation sections of the insurance codes in duplicate and because of this confusion, a recent District Court of Appeals Case, State Farm vs. Brown, ruled that even though the insured had not paid his premium and had received a notice of cancellation for nonpayment of the premium and had become involved in an accident 40 days after nonpayment of his premium, the court ruled that the insurance company was still liable.“I believe that AB 318 will clarify the insurance code and clearly state the original legislative intent, which was not to require insurance companies to be liable when any insured had not paid the premium. There is no opposition to this bill.”See also Legislative Counsel's Digest of AB 318 (1973-74 Reg.Sess.); and Analysis (of AB 318), Senate Committee on Insurance and Financial Institutions (1973-74 Reg.Sess.).Certified copies of the above documents were admitted into evidence in the trial court.

5.  Under Insurance Code section 8 a “notice” is required to be in writing, unless otherwise specified. There is no such requirement for an “offer.”

MORRIS, Associate Justice.

KAUFMAN, Acting P. J., and McDANIEL, J., concur.