Summary Judgment / Insurance Coverage Dispute Involving Initial Premium Payment

Attorneys Scott Ober and Matthew Lindberg obtained summary judgment in favor of an insurer in a declaratory judgment action arising out of a dispute over coverage under an auto policy.

The plaintiff applied on-line for an auto policy with the defendant insurer. The on-line application agreement included an affirmation by the applicant that if the initial premium payment is made by electronic funds transfer, “the coverage afforded under this policy is conditioned on payment to the Company by the financial institution. If the transfer, check, draft, or other remittance is not honored by the financial institution, the Company shall be deemed not to have accepted the payment and this policy shall be void.”

After reviewing and electronically signing the agreement, the plaintiff elected to make his initial payment by debit card, using the insurer’s on-line payment service. After he completed the application, the plaintiff received e-mails from the insurer regarding the policy, and an insurance card. Around the same time, the plaintiff’s bank repeatedly rejected the insurer’s request for payment due to insufficient funds in the plaintiff’s account. Two weeks after the plaintiff completed the online application, he was involved in a motor vehicle accident. That same day, the insurer sent a letter to him, advising that his policy was void for non-payment back to the date of inception. The plaintiff sought coverage for vehicle damage sustained in the accident, which was denied by the insurer. Litigation followed.

Following discovery, both parties filed Motions for Summary Judgment. The insurer argued that the policy never took effect due to the plaintiff’s failure to make his initial premium payment. The plaintiff argued that avoidance of the policy was ineffective because the insurer (1) failed to provide 20 day notice of cancellation as required by statute, and (2) failed to notify the Registry of Motor Vehicles of the cancellation as required by the policy and statute. The insurer acknowledged that Massachusetts courts had not to that point considered whether the statutory twenty day notice requirement applies to a cancellation where the applicant failed to provide the initial premium payment. The insurer maintained, however, that the statutes cited by the plaintiff were inapplicable because the policy never took effect.

Following a hearing on the Motions for Summary Judgment, the Honorable James R. Lemire of the Worcester Superior Court found for the insurer on the declaratory judgment count and dismissed the remaining counts of the Complaint. In his Memorandum of Decision, Judge Lemire agreed with the defendant that the contract never formed due to nonoccurrence of a condition precedent (payment of the initial premium).