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Butt v. State Farm Mutual Auto. Ins.





APPEAL from the Circuit Court of Fulton County; the Hon. KENNETH L. BATH, Judge, presiding. PRESIDING JUSTICE BARRY DELIVERED THE OPINION OF THE COURT:

Plaintiffs Stanley and Mildred Butt appeal from a declaratory judgment entered by the circuit court of Fulton County. The court ruled that the defendant, State Farm Mutual Insurance Company (State Farm), has no liabilities under an insurance policy issued by it to plaintiffs for the period from December 7, 1977, until December 25, 1977, during which time Stanley Butt was involved in a collision with a vehicle operated by defendant Teresa Kelly. On appeal, plaintiffs contend (1) that State Farm's acceptance of plaintiffs' policy renewal check constitutes a waiver of State Farm's right to declare a lapse and requires the company to insure them retroactively, including the date of the accident, and (2) that traditional contract principles apply so as to require State Farm to provide such retroactive coverage.

The facts relevant to the issues on appeal may be briefly stated. The plaintiffs have been automobile insurance customers of State Farm since 1957. The policy on the automobile here in dispute provided an initial coverage period from August 19, 1976, to December 7, 1976. It was thereafter renewed on two occasions for continuous coverage from December 7, 1976, to June 7, 1977, and again from June 7, 1977, to December 7, 1977. A little over a month prior to the next renewal date, State Farm sent the insureds notice that their six-month premium of $119.80 was due on December 7, 1977. Although the notice was admittedly received by the Butts prior to the due date, their check for the premium amount was not written until December 15, 1977. Family matters intervened and occupied their attention immediately after the check was written, and, as a result, the check lay forgotten in a basket at their home until December 24, 1977, when it was finally mailed to State Farm.

Meanwhile, on December 22, 1977, while driving the automobile insured under this policy, Stanley Butt was involved in an accident which resulted in damage to the Butt vehicle and personal injuries and property damage to Teresa Kelly. Mr. Butt reported the accident to his local State Farm agent, Gene Zook, in a letter dated December 23, 1977. Upon discovering that the policy renewal check had not been mailed promptly, Mr. Butt visited Zook personally on December 26, 1977, explained the situation, and asked if the policy was still in force despite the lateness in mailing the check. Zook checked his microfiche file and ascertained that no indication of a lapse in coverage appeared thereon.

State Farm received plaintiffs' check on December 27, 1977. Because the payment was made more than 10 days after the due date and less than 40 days thereafter, company policy was to reinstate insurance coverage effective with the date after the postmark on the remittance envelope and to refund the excess premiums paid for the period of noncoverage. In this case, plaintiffs' policy was renewed for the period December 25, 1977, to June 7, 1978, and plaintiffs were sent a refund check for $12.52.

Teresa Kelly filed suit against Stanley Butt, claiming damages in the amount of $185,000. State Farm denied liability since the accident occurred during the period of lapsed coverage. Plaintiffs thereafter instituted the instant suit seeking a declaratory judgment to determine State Farm's liabilities under the policy and to obligate State Farm to defend them in the suit filed by Kelly. A bench trial ensued. After hearing the evidence and arguments of the parties, the trial court entered its order against plaintiffs, finding that the insurance policy in question was not in effect on December 22, 1977, the date of the accident. It is from this order that plaintiffs appeal. We affirm.

Plaintiffs initially contend that their own good-faith efforts to get the premium check in the mail promptly upon their discovery that it had not been so mailed when originally written, plus their prompt report of the December 22 accident and their specific inquiry of agent Zook about coverage, combine to create in plaintiffs an expectation of continuous coverage. Add to this scenario the fact that State Farm cashed plaintiffs' late check, the argument continues, and the conclusion is that State Farm waived its right to declare a lapse in coverage. We disagree.

The insurance policy in question contained conditions and terms specifically referring to plaintiffs' duty to pay premiums when due. Page 3 of the policy contains a section entitled "When and Where Coverage Applies." It provides in pertinent part:

"The policy period is * * * for successive periods of six months each for which you pay the renewal premiums. Payments must be made on or before the end of the current policy period."

On page 13, the following condition is recited:

"Renewal * * * we agree: * * * to renew the policy for the next policy period * * * unless we mail to you written notice of our intention not to renew * * *. These agreements to continue and to renew are void if: you fail to pay the premium when due * * *."

In addition to these unequivocal provisions giving notice to plaintiffs of their duty to pay premiums on a timely basis for continuous coverage and plaintiffs' acknowledged receipt of the renewal notice prior to December 7, 1977, testimony at trial established that State Farm ordered an expiration notice sent to plaintiffs on December 11, 1977, which read as follows:


Payment within 10 days after Expiration Date will provide coverage for 6 months from the Expiration Date.

If paid after 10 days from the Expiration Date you will be informed if we accept your payment and if so, the exact date and time coverage is again effective. There is no coverage for accidents occurring between the date and time of ...

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