Failure to Formally Cancel Policy Costs Insurer

A recent decision by the Louisiana First Circuit Court of Appeal demonstrates the importance of formally cancelling an insurance policy when coverage has lapsed or expired. In this case, Smith filed a Petition for Damages against Shelmire and her auto liability insurer, Gramercy Insurance Company (“Gramercy”), for an automobile accident that occurred on July 27, 2010. Shelmire failed to pay her insurance premium that was due on July 20, 2010. Notably, a few hours after the motor vehicle accident, Shelmire went to the insurance company’s office and paid the outstanding premium. Gramercy proceeded to pay the property damage claim.

In the lawsuit, Gramercy filed a motion for summary judgment asserting that there was no insurance coverage at the time of the accident because Shelmire had allowed coverage to lapse. The judge denied the motion and the case proceeded to a bench trial where the court ruled that Gramercy was responsible because it never formally cancelled Shelmire’s policy. Gramercy thereafter appealed to the Louisiana First Circuit Court of Appeal, which noted that an insurer has the burden to establish that a policy had been cancelled for nonpayment of premium. The court pointed out that Gramercy offered no credible evidence that it had actually cancelled the insurance policy. Rather, Gramercy actually paid Shelmire’s property damage claim knowing that the accident had occurred after coverage had technically lapsed. Accordingly, the lower court’s decision was affirmed.

This case exemplifies the importance of being mindful of the voluminous regulations that govern the insurance industry in Louisiana, in addition to the hundreds of cases interpreting these same regulations.

Smith v. Gramercy Insurance Company