James H. BAYSDON
v.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Great American Insurance Company, and Home Insurance Company.
No. 175.
Supreme Court of North Carolina.
April 10, 1963.*314 Summersill & Browning, Jacksonville, for defendant Nationwide Mut. Fire Ins. Co., appellant.
Ellis, Hooper & Warlick, Jacksonville, for plaintiff-appellee.
Poisson, Marshall, Barnhill & Williams, Wilmington, for defendants Great American Ins. Co. and Home Ins. Co., appellees.
MOORE, Justice.
Appellant Nationwide's assignments of error require us to decide whether the findings of fact support and justify the conclusion of the trial court that the Great American and Home policies "were not in force at the time of the loss."
Nationwide admits that its policy was in force. The Great American and Home policies were issued for five year terms which had not expired at the time of the loss. The premium installments on the Great American policy was thirty-two days past due, and on the Home policy fifty-eight days past due. But there is no automatic suspension or forfeiture of insurance for nonpayment of premiums or assessments, where insurer remains liable following such nonpayment unless it takes the necessary steps to avoid the policy. 45 C.J.S. Insurance § 542, p. 280; Farmers Mut. Fire Ins. Co. of Greene County v. Maloney, 22 Tenn. App. 29, 117 S.W.2d 757 (1938); Federal Land Bank of Omaha v. Farmers' Mut. Ins. Ass'n, 217 Iowa 1098, 253 N.W. 52 (1934); Lobdell v. Broome County Farmers' Fire Relief Ass'n, 151 Misc. 911, 271 N.Y.S. 272 (1934). All of the policies in the instant case are standard policies containing the provisions required by G.S. § 58-176(c). They do not provide for automatic termination of the insurance upon default in the payment of premium installments. Indeed, they provide to the contrarythat "If the insured is in default of any payment shown in this policy and the Company elects to cancel the policy, notice of cancellation shall be in accordance with the policy provisions." The policy provisions with respect to cancellation are that the policy may be cancelled at any time at the request of insured or by the insurer giving the insured a five days' written notice of intention to cancel.
Appellees suggest that on each premium installment date there is in substance a renewal or extension of insurance coverage upon payment of the installment, and default *315 automatically prevents further coverage. The rules applicable to renewals are inapposite here, for the Great American and Home policies were for five year terms, and the terms were current at the time of the loss. Appellees also urge that payment of premium installments was a condition precedent to continued coverage, and failure to pay terminated coverage. We find nothing in the insurance contracts to support this view. As we have already noted, the contracts provide that to cancel upon default of installment payments insurer is required to give five days' written notice.
There is no finding, or even suggestion, that insured requested cancellation or that Great American or Home gave any written notice of cancellation. Insured intended to cancel these policies when he acquired the Nationwide policy, but did not so advise Great American or Home until after the loss. To effect a cancellation by insured there must be communicated to the insurer a definite and unconditional request therefor by insured or his authorized agent. A mere intention to cancel, not communicated to insurer, is not sufficient to effect a cancellation by the insured. Roberta Manufacturing Co. v. Royal Exch. Assurance Co., 161 N.C. 88, 76 S.E. 865; Dyche v. Bostian, 229 S.W.2d 25, aff'd 233 S.W. 721 (Mo.1950); 6 Appleman, Insurance Law and Practice (1942), § 4226, p. 793; 3 Richards, Insurance (5th Ed.), § 532, p. 1765. To effect a cancellation by insurer the five days' notice provision must be strictly complied with. Unless the requirement is waived by insured, an insurer must comply with the terms of the policy or statute that it give notice of its intention to cancel. Dawson v. Concordia Fire Insurance Co., 192 N.C. 312, 135 S.E. 34; 45 C.J.S. Insurance § 450, p. 84.
To sustain the court's conclusion that the Great American and Home policies were not in force at the time of the loss, appellees rely mainly upon the finding that insured did not intend to continue these policies in force, but intended to replace them with the Nationwide policy.
Some writers on the subject have pronounced a rule that generally the procurement of new insurance on property for a term commencing before the expiration of existing insurance thereon, and with intent to have the new insurance replace the existing insurance and without intent to acquire additional insurance, constitutes an effective voluntary cancellation of the existing insurance, despite the physical possession by insured of the original policy. 45 C.J.S. Insurance § 458, p. 118; 6 Appleman, Insurance Law and Practice (1942), §§ 4196 and 4225; 27 California Jurisprudence 2d, Insurance, § 293. We hereinafter refer to this as the "substitution rule."
The case most often cited in support of the rule is Bache v. Great Lakes Ins. Co., 151 Wash. 494, 276 P. 549 (1929). In our opinion this case is not directly in point. The property there in question was mortgaged and the mortgage contained an insurance clause requiring the insurance policy to remain in possession of the mortgagee and authorizing mortgagee to procure and maintain insurance if the owners failed to do so. The original insurer, desiring to be relieved of the risk, gave mortgagee, but not the owners, a five days' written notice of its intention to cancel. Mortgagee, on the day it received the notice, procured a substitute policy from another company. A fire loss occurred before the expiration of the five days. The owners knew nothing of the cancellation notice or the substitute insurance until after the loss. It was held that the original policy, and not the substitute policy, was in force, as to the owners, for the reason that the mortgagee had no authority to agree to a cancellation of the original insurance or to procure substitute insurance. The case turned on the question of agency. The court proceeded on a stipulation by counsel that the acquisition of substitute insurance by the owners or their agent would effect a cancellation. The court did not reach the point of applying *316 the substitution rule to the facts, and did not concern itself with any discussion of the rationale or essential elements of the rule.
Glens Falls Insurance Co. v. Founders' Insurance Co., Cal.App., 25 Cal. Rptr. 753 (1962), is in all material aspects analogous to the case at bar. Insured had a Glens Falls policythe cancellation provisions were the same as in standard North Carolina policies. She had a disagreement with Glens Falls concerning a loss on other property covered by another Glens Falls policy. She called the insurance broker having the Glens Falls business in that locality and told him she would cancel all her policies and place her business with another broker if her claim was not settled. She later had another broker intervene in her behalf, but he was unable to bring about a settlement. She then told him to see that her Glens Falls policies were cancelled and to obtain replacement policies with some other company. He talked with the original broker but did not cancel the Glens Falls policies; he procured insurance from Founders' in the same amount as the Glens Falls policies. Glens Falls continued to carry the insurance as in force and gave no notice of cancellation. Insured intended the Founders' policy as a replacement of the Glens Falls insurance, and did not intend to carry the former as additional insurance; she did not so notify Glens Falls and did not request cancellation. Five months after Founders' policy was acquired she suffered a fire loss. It was adjudged that Glens Falls and Founders' share the loss pro rata. The court observed that neither insured nor Glens Falls complied with policy provisions for cancellation, and stated: "An intention to cancel a policy does not ex proprio vigore cancel it." It then discussed the substitution rule and reviewed in considerable detail the leading cases from other jurisdictions involving this principle, and concluded that in all cases in which the substitution rule was applied there was what amounted to a cancellation by mutual consent and that cancellation by substitution of a policy may not be unilaterally effected. The following excerpt from the opinion seems to us to be sound statements of pertinent legal principles:
"It would appear, therefore, that unless another method of cancellation has been evolved by decisional law as contended by respondent, i. e., cancellation by substituted insurance arising out of the unilateral intent of the insured uncommunicated to the company, an insurance contract cannot be terminated or extinguished except as provided by its terms or pursuant to the provisions of law which govern contracts generally and as implemented by other provisions of law.
"In our opinion, except for the remedial rights of rescission afforded one of the parties to a contract such as in the instances of fraud, deceit, mistake, etc. * * * an insurance contract can only be cancelled pursuant to its terms or by mutual consent. * * * (T)he mere procuring of substituted insurance with the intent to replace existing insurance and without the intent to thereby acquire additional insurance does not per se work a cancelling of the existing insurance. * * * (I)n order for cancellation to take place by the substitution of one policy for another it must be done by mutual consent or agreement."
The opinion in the Glens Falls case either reviews or cites the leading cases throughout the country and no useful purpose can be served by listing them here.
It comes to thisan insurance policy is a contract; a contract may be rescinded for fraud or mutual mistake, it may be terminated in accordance with the provisions thereof or by mutual consent, a meeting of the minds, but one of the parties may not terminate it without the assent of the other unless the contract so provides.
Great American and Home carried the insurance as in force. They had no knowledge of the existence of the Nationwide policy until after the loss, and they *317 did not assent to the substitution of this policy for theirs until after the loss. Procuring additional insurance without requesting the original insurer to cancel its policy does not terminate the policy. 6 Appleman, § 4226, p. 797; Scheel v. German-American Ins. Co., 228 Pa. 44, 76 A. 507 (1910); Glens Falls Insurance Co. v. Founders' Insurance Co., supra.
A party may waive a provision of a contract. A provision in a policy that insurer must give notice to insured as a condition precedent to cancellation is for insured's benefit and may be waived by him. Wilson v. National Union Fire Insurance Co., 206 N.C. 635, 174 S.E. 745; Dawson v. Concordia Fire Insurance Co., supra. The burden is on insurer to show a waiver by the insured, and it must appear clearly that the insured expressly or impliedly waived notice if he is to be held bound by such waiver. 29 Am.Jur., Insurance § 392, p. 744. There appears on the present record no facts from which a waiver of notice may be inferred, and the court made no finding that notice was waived. There can be no waiver unless so intended by one party, and so understood by the other, or one party has so acted as to mislead the other. N. M. Wade Manufacturing Co. v. Lefkowitz, 204 N.C. 449, 453, 168 S.E. 517. In a sense, waiver and mutual consent are one and the same thing.
Appellees contend that Nationwide has no standing to assert lack of notice to insured by Great American and Home since the five days' written notice provision is for the benefit of insured. And it has been stated that "none except the insured can take advantage of the want of notice." 29 Am.Jur., Insurance, § 382, p. 733. But this rule has no application in the situation presently presented; Nationwide may certainly assert its rights under its contract. When a loss occurs the rights of the parties to a fire insurance policy become fixed. 45 C.J.S. Insurance § 444(b), p. 72. Nationwide's contract with insured provides that Nationwide "shall not be liable for a greater portion of any loss than the amount hereby insured shall bear to the whole insurance covering the property against the peril involved." This gives it the right to have determined in this action whether there was at the time of the loss other coverage, what its liability is, and to insist that other coverage be not extinguished after the loss by acts of the insured which will cast the entire loss on it. Insured may, of course, release any of his debtors at any time if he desires, but if he releases, waives or otherwise terminates insurance coverage after loss, the loss falls upon him pro tanto.
Great American and Home allege in their answers that plaintiff financed the policies issued by them under a "Premium Budget Plan" through the Chase Manhattan Bank, which plan provides that failure to pay an installment when due constitutes an election on the part of insured to cancel the insurance. These allegations are deemed denied, and the court made no findings with respect thereto. These provisions standing alone would not work an automatic cancellation of the policy upon failure to pay. It would seem that at the trial below some of the facts were not fully developed. The questions, whether Chase Manhattan bank had authority to request cancellation upon default, and what action, if any, the Bank took when plaintiff failed to pay, remain unanswered. See Daniels v. Nationwide Insurance Co., 258 N.C. 660, 129 S.E.2d 314. It may be there are other facts which should be brought to light in order that the correct determination may be made.
The purported finding of fact by the court that the Great American and Home policies were not in force at the time of the loss is but a conclusion of law. It is not supported by the actual findings of fact. The case is remanded for rehearing.
Error and remanded.