Appeal from the Circuit Court of Cook County. Honorable Albert Green, Judge Presiding.
Released for Publication May 26, 1995.
Justice McNulty delivered the opinion of the court: Cousins, P.j. and Gordon, J., concur.
The opinion of the court was delivered by: Mcnulty
Justice McNulty delivered the opinion of the court:
This case concerns the consequences of a premium finance company's cancellation of insurance allegedly in violation of the finance company's statutory duties. We hold that if the insured grants the finance company the power to cancel the insurance contract, the insurer may cancel the contract at the finance company's behest. If the finance company has violated its statutory duties by requesting cancellation of the insurance, the insured must seek reparation from the finance company and not the insurer, who has no continuing duty to insure under the cancelled contract.
On December 15, 1983, Mission National Insurance Company (Mission) issued a policy insuring Evanston Paper & Paper Shredding Company (Evanston) for three years against many risks, including the risk of loss of a building Evanston owned. Evanston obtained a loan from Afco Credit Corporation (Afco), a premium finance company, to pay the premium for the period from December 15, 1984, until December 15, 1985. The loan agreement states that Evanston "irrevocably appoints Afco its Attorney-In-Fact with full authority to cancel the insurance policies ***."
On September 19, 1985, Afco mailed to Evanston a "Notice of Cancellation" which said that because the bank did not honor Evanston's last loan repayment check, Evanston had defaulted on the loan, and therefore Afco would cancel the insurance on September 24, 1985. When he received the notice of cancellation, the president of Evanston immediately called Afco, and Afco told him they would not cancel the policy for another ten days. Within that time Evanston mailed payment to Afco; however, on September 30, 1985, Mission received a notice of cancellation from Afco.
When Afco received Evanston's check, it sent Mission a request for reinstatement of Evanston's insurance, and it sent a copy to Evanston. The request states:
The policies listed above are cancelled and are not in force until the insurance company advises you to the contrary. If you are not advised promptly, contact your insurance agent. If your insurance coverage is not reinstated, all payments made following cancellation will be credited to your account. The fact that you continue to make payments to Afco does not mean your insurance is in force. Only the insurance companies or your agent can advise you as to the status of your insurance coverage." (Emphasis omitted.)
Mission did not respond to the request for reinstatement.
On October 16, 1985, a fire destroyed Evanston's building. Evanston filed a proof of loss with Mission, and Mission sued for a judgment declaring that it had no liability because it cancelled the policy before the fire. While the suit was pending, California courts ordered Mission liquidated, and the trial court here permitted the Illinois Insurance Guaranty Fund (the Fund) to substitute for the defunct Mission as plaintiff in this suit. The trial court granted the Fund's motion for summary judgment and Evanston appeals.
Evanston contends that Mission could not effectively cancel the policy because Afco failed to give Evanston the notice required by the statutes then in effect. Section 521 of the Illinois Insurance Code provided:
"When a premium finance agreement contains a power of attorney enabling the premium finance company to cancel any insurance contract or contracts listed in the agreement, the insurance contract or contracts shall not be cancelled by the premium finance company ...