Despite acknowledging defects in an insurer’s policy cancellation notice, the Lackawanna County Court of Common Pleas recently ruled in favor of an insurer’s declaratory action disclaiming coverage.  In HARIE v. Lackawanna County, The Housing and Redevelopment Insurance Exchange insured the Montage Ski Area and Toyota amphitheater owned by Lackawanna County. Although Lackawanna County subsequently sold the ski area, it retained ownership of the amphitheater, and reached out to the county’s agent of record for advice on how to alter its insurance obligations in light of the sale of Montage. The agent of record advised that coverage should be cancelled since the county would no longer have an insurable interest in Montage, but failed to realize that the same policy insured the amphitheater as well.

The County did not realize that coverage for both Montage and the amphitheater was cancelled until it filed an insurance claim with HARIE for damage to the amphitheater roof caused during a storm. Upon receipt of the claim, HARIE denied it, stating that the commercial policy that previously insured both structures was cancelled before the loss took place, and initiated a declaratory action. The County alleged that the policy cancellation was ineffective, so HARIE still owed a duty to indemnify the county for the amphitheater’s damages.

The Court recognized that the cancellation process deviated from insurance best practices, as the parties did not use the industry standard form for cancellation, and the notice of cancellation incorrectly listed “property sold” as the reason for cancellation despite the County’s continued ownership of the amphitheater. Furthermore, the County argued that a policy endorsement required HARIE to mail notice of policy cancellation to the first named insured on the policy: Montage. In providing notice to Lackawanna County, but not to the ski area, the County argued that HARIE failed to satisfy the endorsement and thus ineffectively attempted to cancel the policy.

Nevertheless, the Court held that Montage was not an existing legal entity, so the first insured was actually Lackawanna County. Although the Court acknowledged HARIE’s technical error in not mailing a notice of cancellation to the ski area, the Court determined that such an error was not a material breach of contract due to the County’s independent initiation of the process and receipt of actual notice. As such, the Court granted the insurer’s declaratory action.

Thanks to Nicole Pedi for her contribution to this post and please write to Mike Bono for more information.