An insurer failed to properly cancel a workers’ compensation policy because its multiple notices and other conduct were not “definite, certain, and unambiguous” as to the status of the coverage.
As a result, Ace America Insurance Co. is obligated to defend and indemnify an employer in connection with an injury claim filed by an employee, the Connecticut Supreme Court ruled, overturning an appellate decision that favored the insurer over its insured, Napolitano Roofing.
The Supreme Court ruled that insurers must comply not only with the statutory requirements of the state’s workers’ compensation law (Section 31-348) when it comes to cancellation but also with traditional principles of contract law that require them to provide “definite, certain, and unambiguous cancellation notices.”
The workers’ compensation law obligates an insurer to provide written notice of cancellation of policies to the chairperson of the Workers’ Compensation Commission via the National Council on Compensation Insurance (NCCI). The statute, however, does not dictate or otherwise regulate the content of the cancellation notice that must be sent to insureds and contains no suggestion that the required notice to the chairperson satisfies the insurer’s obligation to properly and unambiguously notify its insured of the cancellation, the high court explained.
The high court said that consideration of whether a notice of cancellation is sufficiently definite and certain must include “all relevant communications” between the parties, and not just the notice received by the chairperson. The high court said the appellate court erred in not considering all relevant communications.
In the present case, the court found that Ace sent Napolitano conflicting noncooperation and cancellation notices about the status of the insurance coverage, what was required to maintain that coverage, and what the consequences would be for not meeting the deadline to comply with information requests. Napolitano received two notices on the same day, both dated April 5, 2018, that did not reference one another. One warned of cancellation in the future for non-cooperation with a request for financial records; the other said the policy was being cancelled as of April 25. The insured was instructed to contact its insurance agent with any questions. On April 6, Ace sent the cancellation notice, but not the non- cooperation notice, to the chairperson of the state commission via the NCCI as required.
On April 7, Napolitano sent Ace information it had requested and on April 10 the roofing firm asked its agent about the status of its coverage. The agent told Napolitano that Ace said it was in compliance and the agent sent certificates of insurance to Napolitano showing coverage was in effect.
On April 16, Napolitano received an email advising him that the insurer had received some but not all of the information it needed. The email made no reference to the April 25 cancellation date and requested that the plaintiff provide the additional documentation by April 21. Napolitano did not provide the additional documentation.
On May 29, 2018, a Napolitano employee sustained injuries in the course of his employment and, thereafter, filed a claim for compensation benefits with the commission. Ace denied the claim and declined to defend or indemnify Napolitano, claiming that the policy had been terminated as of April 25.
The workers’ compensation commissioner found that the employee had suffered an injury in the course of his employment but determined that Napolitano did not have workers’ compensation insurance in effect on the date of loss because the policy was ”properly cancelled” electronically with the chairperson of the commission.
The high court said the commissioner “narrowly considered only the issue of whether the NCCI had reported the policy as terminated on the date of cancellation but not whether the notices complied with the defendant’s contractual obligations.”
Napolitano and the Second Injury Fund then entered into a settlement agreement with the injured employee, under which Napolitano and the fund paid him $225,000 in compensation for his injuries and medical expenses. In exchange, the employee withdrew a civil action he had filed against Napolitano.
Napolitano then filed a complaint seeking a judgment declaring that Ace was legally obligated to defend and indemnify it in connection with the employee’s workers’ compensation claim and damages for breach of contract.
Both parties moved for summary judgment on those two counts. The trial court concluded that the cancellation of workers’ compensation insurance must be ”unambiguous and unequivocal” and that all communications that directly related to the issue of cancellation must be considered when making that determination. The trial court granted Napolitano’s motion for summary judgment after concluding that the policy was not cancelled on April 25, and that it remained in full effect when the employee was injured because the multiple notices, when considered together, were not unambiguous and unequivocal.
Ace appealed that ruling and the appeals court overturned the trial court, essentially finding that the policy had been effectively cancelled and Ace met its obligation when it sent its notice to the commissioner.
The Supreme Court has now overturned the appeals court, agreeing with the trial court. The high court found that the appellate court incorrectly concluded that Ace effectively cancelled the insurance by providing a cancellation notice that complied with § 31-348. The high court said the appellate court erred in ignoring the fact that the insurer engaged in “other conflicting conduct” that rendered its notice of cancellation “indefinite, uncertain, and ambiguous.”