Appeal from the Circuit Court of Rock Island County; the Hon.
CHARLES J. CARLSTROM, Judge, presiding. Reversed and remanded
Rehearing denied November 19, 1968.
This action originated as a declaratory judgment action to determine whether the insurance policy which Joseph Lax had in State Farm Mutual Automobile Insurance Company was in force on January 22, 1965, when his wife, Barbara Lax, was involved in an automobile accident which caused her death.
Mrs. Lax was driving a 1959 Oldsmobile when she attempted to pass another automobile and collided with the plaintiffs head-on. As a result, Mrs. Lax was killed and plaintiffs were both injured. Joseph Lax had been insured with State Farm Mutual Automobile Insurance Company for many years. His record of payment of premiums, however, was somewhat erratic. The premium on the particular policy involved in the cause before us was due on November 21, 1964. The premium notice and a check signed by Mrs. Lax dated January 13, 1965 (nine days prior to the accident) was found in the wreckage of the automobile. Mr. Lax, upon seeing the envelope with the check payable to State Farm, asked two of his friends to take the check and notice to the State Farm agent in Moline, a George Schermerhorn. These friends did so and first talked with Mr. Schermerhorn's secretary and she refused to accept the check. They then talked to Mr. Schermerhorn, the State Farm Mutual Automobile Insurance agent, and he told them that he knew of the accident and could not accept the check. He then told them that they could mail the check directly to the State Farm home office in Bloomington and let such company decide if they would accept the check. The check was mailed the day of the accident, January 22, 1965, along with the premium notice but with no other letter of explanation.
The day after the accident, on January 23, the State Farm Automobile Insurance Company agent, Mr. Schermerhorn, called the home office of State Farm in Bloomington and explained the situation and told the home office representatives that they would be receiving a check for the premium. Schermerhorn indicated that he had not directly or indirectly given any indication that Mr. Lax had coverage under his policy and, in fact, told Mr. Lax that he doubted if he had coverage. There was evidence of a conversation between Mr. Schermerhorn and Mr. Lax where Mr. Lax stated that he wanted his check or money back if State Farm would not accept coverage as the Oldsmobile was demolished and he didn't need any future coverage. He stated that he told Mr. Schermerhorn that if State Farm didn't accept his claim they should not cash his check. This was confirmed in a letter which Mr. Schermerhorn wrote to State Farm home office on February 11 in which he again reviewed the chain of events and concluded with the following paragraph:
"Since the car to be reinstated on this policy has been demolished beyond repair, if there is to be no coverage, then Insured's $48.30 remittance should be returned to him with a letter of explanation that there will be no coverage & why. I feel a letter from the Company in this case would be advisable. Please give me your thoughts on this & advise me if you desire further information.
About February 15, 1965, State Farm cashed the check which Mrs. Lax had made out before her death and that check cleared the Lax account on February 17, 1965. On February 18, State Farm mailed Mr. Lax a refund check which was dated February 15, 1965, for $48.30, being the same amount as the check signed by Mrs. Lax. This letter explained that the Lax policy could not be reinstated to cover the accident. Lax refused to cash such refund check.
The two occupants of the automobile which was struck by the car being driven by Mrs. Lax brought the declaratory judgment action seeking to have the State Farm policy declared to be in force with liability limits of $30,000 per person and $60,000 per accident. Without this policy they would be limited to a total of $10,000 of uninsured motorist's coverage. The trial judge found that the State Farm policy was not in force at the time of the accident. Joseph Lax has also appealed in this cause contending that the State Farm policy was in force and he sought $5,000 in death benefits under the State Farm policy.
It was disclosed in the record that State Farm sent a premium notice to Lax 30 days prior to November 21, 1964, and another notice was sent to him three days after November 21, 1964, informing him that if he paid the premium within 10 days of when it was due he would have continuous coverage. 23 days after November 21, 1964, State Farm sent a notice to Lax advising that his insurance had expired since the premium was not received, and "you may reinstate your insurance for six months by sending us a remittance for the amount due. Please return this form with your payment." There was also evidence in the record presented by State Farm as to how late premium payments were handled. It was shown that if they came within 10 days, there was no lapse in coverage. If the premium payments came in after 10 and before 23 days, the policy went in force on the date payment was received and a refund was made to the policyholder for the days during which he had no coverage. If payment came in after 23 days, but before 39 days, a new policy was issued with the coverage beginning the day the premium was received. If a premium was received after 39 days, a new application had to be completed.
Payment record of Joseph Lax to State Farm over the past years showed that Lax nearly always paid late. In 1962 he paid 44 days late and a new application was taken and his new policy did not begin until 44 days after the premium was due on the former policy. In 1963, Lax was 12 days late and refund was made to him for the 12 days in which he did not have coverage because he failed to pay within the 10 days after the premium was due. When his policy became due on April 13, 1964, he failed to pay until May 21, 1964 (38 days late), a new policy was written beginning May 21, 1964, so that Mr. Lax was advised that he did not have coverage between April 13, 1964, and May 21, 1964. In the instant case the premium which was in dispute was due November 21, 1964, and was not paid prior to the accident on January 22, 1965, which was a total of 62 days after the due date. As we have indicated, the trial judge concluded that the State Farm policy was not in force at the time of the accident on January 22, 1965.
We are confronted with an unusual case in many respects. No exact precedent has been directed to our attention nor have we been able to discover one which deals with the situation involving a tender of a premium to a company for the purpose of affording coverage where such insurance company has knowledge of the accident and loss and where the tender is made for the purpose of obtaining coverage for such loss. The closest precedent seems to be the case of Perry v. Campbell, 45 Ill. App.2d 271, 195 N.E.2d 844.
In Perry v. Campbell, supra, an auto insurance premium was due September 21, 1958, and on November 16, 1958, the insured had an accident. The premium was paid to the company on November 22, 1958, and the company, with knowledge by its local agent only of the accident, cashed the check, but later attempted a refund in cancellation of the policy. The insured in that case called his agent on November 21, 1958, and told him of the accident and that he hadn't paid the premium. The insured testified that the agent said, "Send the premium in and we'll take care of your accident." The court in the Perry v. Campbell case specifically stated that the payment, at the instruction of Allstate's agent, though subsequent to the accident, is the very payment called for in the extension certificate in that form of policy (annual extensions) and, therefore, the period of insurance coverage was in fact extended from September 21, 1958, to September 21, 1959. While there was no evidence of a provision for lapse of coverage during the period of default, the court in Perry v. Campbell, supra, apparently relied solely upon the acceptance of the late premium by the insurer coupled with knowledge only of the local agent of the company.
It is apparent that if the premium in the instant case had simply been sent into the company and cashed by the company without knowledge of the accident, there would be no coverage under the policy. Forfeiture of an insurance policy for nonpayment of premium, however, may be waived after a loss by acceptance of the past-due premium with the notice of the loss, particularly if the premium is tendered with the understanding that acceptance thereof would operate as a ...