Admiral Insurance Co. issued a property insurance policy for the Cresent Hills Apartment complex. The annual premium was paid. But Admiral learned the complex had fallen into a deplorable condition.

Based on an inspection report, Admiral decided to cancel the insurance policy. On Oct. 5, 2000, an Admiral underwriting assistant prepared an undated cancellation notice for Cresent, stating the policy would be cancelled Nov. 8, 2000. The notice was to be sent by certified mail to Cresent.

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The Admiral employee taped the cancellation envelope on the outside of the lobby mailbox on Oct. 5, 2000. Attached to the envelope was a note asking the letter carrier to date and sign or postmark the certified mail receipt when it was picked up for delivery.

The receipt was returned to Admiral, undated and without a postmark. But the envelope with the cancellation notice was delivered to Cresent via certified mail on Oct. 11, 2000. A Cresent employee signed the receipt to Admiral and placed the envelope on the desk of Cresent’s president and sole shareholder.

The president did not open the envelope until Dec. 29, 2000. In the interim, a fire destroyed five Cresent apartment units on Dec. 27.

When Cresent’s insurance agent, Bauer Agency Inc., reported the fire loss to the insurer, Admiral informed Bauer the insurance policy for the apartments was cancelled as of Nov. 8.

However, no notice of cancellation was sent to First Savings Bank, the mortgage lender on the apartments, or to Bauer Insurance Agency.

Admiral then sued its insured, Cresent Hills Apartments, for a court declaratory judgment as to whether the policy was cancelled by Admiral on Nov. 8, over a month before the fire occurred on Dec. 27.

If you were the judge would you rule Admiral effectively cancelled its policy before the fire occurred?

The judge said no!

Cresent contended the fire insurance policy cancellation was ineffective because (1) there was no evidence the cancellation was mailed to the insured at least 30 days before the date of the purported cancellation, and (2) the mortgage holder was never notified of the cancellation, the judge began.

Because Admiral failed to follow the requirements to cancel its policy, by giving notice to the insured received at least 30 days notice before the cancellation was to become effective, the attempted insurance policy cancellation was ineffective, the judge ruled. Therefore, Admiral is obligated to pay Cresent’s claim under its insurance policy, the judge concluded

Based on the 2003 U.S. Court of Appeals decision in Admiral Insurance Co. v. Cresent Hills Apartments, 354 Fed.3d 1301.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

***

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