Reversal: Insurer’s acceptance of payment reinstated policy

A Porter County man won his argument that his insurer’s acceptance of a late payment kept his homeowners coverage in force, after which a garage fire caused damage exceeding $80,000. Now, the insurer also may have to pay bad-faith and punitive damages.

A Court of Appeals panel reversed Porter Superior Judge Roger Bradford’s judgment in favor of the insurer Tuesday in Richard Zeller, Jr. v. AAA Insurance Company,  64A05-1502-CT-84. “On appeal, Zeller argues that the trial court’s ruling is erroneous because the policy was reinstated when AAA accepted his payment. We agree. Therefore, we reverse and remand for further proceedings,” Judge Terry Crone wrote for the panel.

Zeller had coverage with AAA since 2006, but the company sent a notice saying that without a payment the policy would expire Nov. 30, 2011. Zeller mailed AAA a payment stub with his credit card information on Nov. 25, and the payment was posted to his credit card account on Dec. 7, according to the record.

Zeller’s garage caught fire on Dec. 9, but AAA denied coverage and attempted later that month to return Zeller’s premium in the form of a check with the notation, “This check is issued for the following reason – policy cancelled.” Zeller didn’t cash the check and sued instead, but the trial court ruled against him after a bench trial. The trial court found the day payment was “received” was Dec. 7, after the cancellation deadline, and that there was no evidence the insurer had reinstated the policy.

Crone wrote for the panel that Zeller’s policy specifically allows for reinstatement of a cancelled policy upon receipt of adequate payment, as was the case here.

“AAA could have protected itself by drafting more specific deadlines and requirements for reinstatement in its policy or by refusing to accept Zeller’s payment, which it had every right to do. AAA did neither of these things, however, so we must reverse the trial court’s judgment in its favor," Crone wrote.

“We remand for the trial court to consider Zeller’s bad faith claim and his request for compensatory and punitive damages, which are issues that the court did not address in its judgment."