An insurance carrier denied coverage for an auto accident, resulting in the insured suing an insurance agency. The agency claimed in court that the carrier should have covered the loss.
An Indiana concrete construction company attempted to purchase a commercial auto insurance policy in April 2022. The insured apparently agreed to permit the insurer to electronically withdraw premium payments from its checking account. However, the insured’s bank did not authorize the withdrawals and the premium went unpaid. Less than three weeks into the policy term, the carrier issued a final bill and said it was canceling the policy. The next day, they went a step further and rescinded the policy on the grounds that the insured never made the initial payment.
A state law permits an insurer to cancel a policy that has been in effect for 90 days or less. However, the law requires the insurer to provide at least 10 days’ advance notice of cancellation for non-payment of premium; 20 days’ notice for cancellation due to the insured’s fraud or material misrepresentation; or 30 days’ notice for any other reason. The insurer in this case made the cancellation effective immediately.
In September, one of the company’s trucks collided with a car and injured an individual. The individual must have sought first-party benefits under his personal auto policy. Nearly two years after the accident, his insurer subrogated against the concrete company for $42,321.94 in medical bills and property damages.
The concrete company sued both the insurer and their insurance agency. They argued that they had a valid insurance policy from the insurer at the time of the accident, and therefore the insurer had a duty to defend them. They claimed that the insurer’s coverage denial was wrongful. They also argued that the agency had assured them that they had a valid insurance policy. Having “reasonably and detrimentally relied” on those assurances, they demanded that the agency be held liable for the loss.
In December 2024, the agency asked the court for “summary judgment,” a ruling in its favor based on the law when there is no dispute about the facts. They argued that the insurer should be liable for its insured’s damages. In January, the insurer made its own motion for summary judgment, saying that a valid policy did not exist. A hearing was conducted in February and the trial court ruled for the insurer and against the agency a few weeks later. The agency appealed.
The agency argued that the insurer had not issued a valid cancellation notice because it did not provide the requisite 10 days’ advance notice and therefore had not strictly complied with the law. However, the judges cited previous rulings in which cancellation notices were not subject to strict compliance “so long as the notice provided ‘was sufficient to apprise’ the insured of the insurer’s intention to cancel the policy so to provide the insured with the opportunity to obtain other insurance.” Even if the insurer had given 10 days’ notice, the policy would still have been canceled when the accident occurred almost five months later.
Accordingly, on June 27, 2025 the court upheld the verdict in the insurer’s favor, leaving the agency in a position of defending itself against the insured’s lawsuit.
The opinions do not explain why the insured thought they had coverage when the policy had been canceled or why they believed the agency had given them assurances of coverage. Depending on the facts, the agency might prevail in the lawsuit the insured has filed.
However, the insurer’s failure to strictly comply with the cancellation notice law was not enough for the agency to hold the insurer liable. If they knew the policy had been canceled, they should have looked immediately for a replacement and asked the insured to work out its banking issues. The court has held the insurer not liable, and now the agency’s E&O carrier may have to fund the loss.
