Parents’ Failure to Pay Auto Insurance Premium Does Not Cancel Policy for Adult Child Who Never Received Notice
The California Court of Appeal held that because the insurer failed to send a cancellation notice to the adult child named in the auto policy as an insured, the policy remained in effect when the child was involved in an accident. Molinar v. 21st Century Ins. Co., 2024 Cal. App LEXIS 124 (Cal. Ct. App Feb. 26, 2024).
In 2006, Silvia Escarcega and Alberto Molinar purchased an auto policy from 21st Century. In 2013, when their daughter, Tania, turned 18 years old, Tania was added to the policy. 21st Century increased the premium to cover her. A new declaration page to the policy identified Silvia, Alberto, and Tania as "Rated Drivers." 21st Century later testified that "Rated Driver" was a person in the household or persons in the household who were insured for purposes of driving a vehicle.
In 2016, Tania purchased a 2009 Mazda. Alberto contacted 21st Century to add Tania's Mazda to the policy. 21st Century updated the declarations page and monthly premiums to reflect the change.
In March 2017, the Molinar's bank was unable to process the monthly payment to 21st Century. On April 3, 2017, 21st Century mailed a letter to Silvia nad Alberto informing them that the March 31, 2017 payment had not gone through and asked them to make payment arrangements. Three days later, 21st Century mailed a notice of cancellation of the policy to Silvia and Alberto, cancelling the policy. No notice was sent to Tania.
Four days latter, Tania caused a serious car accident injuring her passenger and another driver. Suit was filed. 21st Century denied the tender of defense on the basis that the policy had been cancelled.
Tania and her parents sued 21st Century for breach of contract and breach of the implied covenant of good faith and fair dealing. 21st Century moved for summary judgment on the ground it had validly cancelled the policy before Tania's accident. The trial court granted 21st Century's motion.
On appeal, the Court of Appeal noted that the Insurance Code permitted cancellation of a named insured's policy for nonpayment of premiums. 21st Century argued that "named insured" only included the policyholders, Silvia and Alberto. The insureds contended that "named insured" included anyone who was covered as an insured and identified by name in the policy, including Tania.
21st Century admitted that Tania was an "insured" under the policy. Further, there was not dispute that Tania was identified by name on the declarations page and 21st Century knew she was the registered owner of the covered Mazda. Prior case law therefore established that she qualified as an insured named in the policy who was entitled to notice of cancellation uner the statute.
This result advanced public policy. It was important that the insurer give notice to all named insureds known to have an ownership interest in any covered vehicle, so that they would not continue to put themselves and others at risk by driving the vehicle without the required coverage.
The court declined to address the bad faith issue which had not been decided by the trial court after finding there was no coverage. The case remanded to the trial court to decide the issue
