United States: Mills V. AAA Northern California, Nevada And Utah Insurance Exchange

In Mills v. AAA Northern California, Nevada and Utah Insurance Exchange, 3 Cal.App.5th 528 (September 20, 2016), the California Third District Court of Appeal affirmed the trial court's entry of summary judgment in favor of AAA Northern California, Nevada and Utah Insurance Exchange ("AAA") based on the cancellation of an automobile policy prior to an accident involving an uninsured motorist. The parties' dispute arose out of an automobile accident, wherein the insureds, Jeff Fields' and Denise Fields' daughter, Krystal Fields ("Krystal") was injured along with her passenger, plaintiff, Trent Mills. Krystal was driving a car her parents had insured under their AAA policy. An uninsured motorist drove the other car. Passenger Mills suffered severe injuries, including traumatic brain injury and multiple fractures. He was in a coma for six weeks and suffered permanent cognitive impairments.

Underlying Claims

Krystal tendered an uninsured motorist claim to AAA under her parents' policy. AAA denied the claim because it had cancelled the policy prior to the accident. In addition, Mills filed a complaint for personal injuries against the driver and registered

owner of the other uninsured vehicle as well as against Krystal and her parents. The Fields tendered the Mills lawsuit to AAA for defense and indemnity. Again, AAA denied the tender because the policy was not in effect at the time of the accident. Thereafter, Mills dismissed Jeff and Denise Fields from his action prior to trial and the court found in favor of Krystal. However, the court granted Mills a default judgment in excess of $12.7 Million against the driver and owner of the other uninsured vehicle. Mills requested uninsured motorist benefits from AAA and demanded that AAA arbitrate his claim under the AAA policy. AAA denied the demand again because it had cancelled the policy before the accident occurred.

In consolidated actions, the Fields and Mills sued AAA. Krystal Fields and Mills alleged that AAA breached its insurance policy with the Fields when it denied their claims for uninsured motorist coverage. In addition, Jeff, Denise and Krystal Fields alleged that AAA breached its insurance policy by refusing to defend them against the Mills lawsuit. All of the plaintiffs alleged that AAA breached the implied covenant of good faith and fair dealing, and all of them requested punitive damages.

Entry of Judgment Based on Cancellation

In response, AAA filed a Motion for Summary Judgment. It contended that it lawfully cancelled the Fields' policy prior to the accident due to the Fields' failure to provide necessary information AAA had requested in order to underwrite the policy accurately. In particular, California law grants an insurer the right to cancel an automobile insurance policy prior to its expiration due to "a substantial increase in the hazard insured against." (Insurance Code Section 1861.03, subd. (c)(1)). A substantial increase in the hazard insured against occurs when, among other events, the insured refuses or fails to provide the insurer, "within 30 days after reasonable request to the insured, information necessary to accurately underwrite or classify the risk." (California Code of Regulations, Title 10, Section 2632.19(b)(1)). The request for information must inform the insured his or her failure to provide the requested information in the time required may result in the cancellation or non-renewal of his or her policy.

AAA issued an auto insurance policy to the Fields for an annual period commencing March 18, 2004. The policy identified Jeff Fields, Denise Fields and their daughter Krystal Fields as the insured drivers. They granted AAA the right to cancel the policy for any reason permitted by California law by mailing notice to the Fields no less than 20 days prior to the date of cancellation.

On February 5, 2005, the Fields' son, Patrick, collided with a parked vehicle while driving one of the cars insured under the policy. Patrick was not listed as an insured driver on the policy at that time.

AAA renewed the policy on March 18, 2005 for one year. However, by letter dated March 23, 2005, AAA informed the Fields that it sought information it claimed was necessary to underwrite their policy accurately. It offered them the opportunity to exclude Patrick from coverage by completing and returning an enclosed form. Alternatively, if they wanted to add Patrick to the policy or if they had other questions, they were to call AAA. The letter stated that if the Fields did not respond by April 22, 2005, AAA would cancel their policy.

Thereafter, AAA received no response to its request for information from the Fields. As such, by letter dated April 28, 2005, AAA notified the Fields it was cancelling their policy effective May 28, 2005. The decision to cancel the policy was "based on the refusal or failure to provide necessary information to accurately underwrite the policy following the request for the same."

AAA did not receive responses to its request for information or cancellation letters from the Fields. The automobile accident took place on July 6, 2005 after the AAA policy had been cancelled, effective May 28, 2005.

Based on undisputed evidence submitted by AAA establishing that it had properly sent a notice of cancellation letter to the Fields as well as the court's determination that the information request sent prior to the cancellation was reasonable, the trial court entered summary judgment in favor of AAA.

Court of Appeal Decision

On appeal, the Fields argued that the letter sent to the Fields did not set forth a reasonable request for information. In addition, the Fields argued that they never received the information request or notice of cancellation such that a question of fact existed relative to whether either of these letters had been properly sent to them.

In rejecting the Fields' arguments, the Court of Appeal held that the request for information was reasonable. In addition, the Court of Appeal discussed the procedures necessary for establishing the mailing of a notice of cancellation and held as follows:

Certain rules determine whether the facts show the notice of cancellation was mailed. First, "[p]roof of mailing of notice of cancellation . . . to the name insured at the address shown in the policy or to the named insured's latest known address, shall be sufficient proof of notice." (Ins. Code, § 664.) AAA's policy with the Fieldses also provided that "[p]roof of mailing a notice is proof of notice." Second, "[t]he affidavit of the person who mails the notice, stating the facts of such mailing, is prima facie evidence that the notice was thus mailed." (Ins. Code, § 38.) To prove the notice was mailed, the witness's affidavit must describe the following steps: "(1) the witness placed a notice of cancellation of the subject policy in an envelope, (2) the envelope was addressed to [the insured] at the declared address, (3) the envelope was affixed with the proper postage, and (4) placed in the United States mail at a certain location." (Preis v. American Indemnity Co. (1990) 220 Cal.App.3d 752, 759-760 (Preis).) AAA's employee declarations satisfied the Preis requirements.

Mills contends AAA's employee declarations do not satisfy Preis because Tang did not testify that she matched the name and address on each letter with the envelope that bore the same name and address. Tang testified she inserted each cancellation letter into a "properly addressed envelope." This indicates she inserted each letter into its corresponding envelope.

AAA's evidence satisfied the Preis requirements and shifted the burden onto Mills to dispute these material facts with competent evidence. Mills submitted the declarations of Jeff and Denise Fields, who both declared they did not receive either the March request for information or the April notice of cancellation. However, neither Jeff nor Denise made their declarations under penalty of perjury. (See Code Civ. Proc., § 2015.5; Kulshrestha v. First Union Commercial Corp. (2004) 33 Ca1.4th 601, 612 [declarations not made subject to perjury law are defective].) AAA objected to both declarations, and the trial court sustained the objections. We, too, do not consider the unsworn declarations.

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