In January of 2006, the Supreme Court of Vermont was asked to rule on a tricky question about the reinstatement of coverage under an automobile insurance policy. The plaintiff in the suit argued that her insurance company was responsible for covering a loss that occurred after her automobile insurance policy had expired because the company was aware of the loss when it offered to reinstate her policy retroactive to the expiration date.

Even though the insured received a renewal notice a month before the policy expiration date, she failed to pay her renewal premium on time. Consequently, the policy expired on August 13, 2003. Three days later, the insured's car was in an accident and sustained major damage. The insured reported the accident to her insurance agent on August 18, 2003. She was told that same day that coverage was denied because the policy had expired.

However, the insured also received a "Final Notice" dated August 18, 2003 generated by the insurer's computer system. The notice stated that the insured could reinstate the policy back to 8/13/2003 if she paid her premium by August 31, 2003. The insured paid the premium and the insurance company sent her an "Acknowledgment of Late Payment," stating that the coverage under the policy had been reinstated and remained in force without interruption.

On August 27, 2003, the insured re-submitted her claim for the August 16th accident. In a letter dated August 29, 2003, the insurer denied coverage for the accident. The company said that the reinstatement of the policy did not provide coverage for the accident, and that the policy covered only unknown losses. The letter also stated that the previous denial of coverage had never been withdrawn.

The insured sued, saying that the insurer wrongfully refused to provide coverage for the accident. Her contention was that the insurance company could have withdrawn or changed its offer to reinstate coverage concerning the accident that occurred after the policy had lapsed, but it never did. The court that presided over the trial ruled in favor of the insurance company, finding that while an insurer may decide to cover a loss already known to it, there was no evidence that this insurance company made that decision.

The Vermont Supreme Court affirmed the decision in favor of the insurer. It stated that the insured could not show that the insurer was required to cover the accident because of its offer to reinstate her policy. In response to the insured's argument that it was implied that the insurer had waived its right to deny the claim when it made the renewal offer, the Court noted that the offer to reinstate did not demonstrate any intention to reverse the previous refusal of coverage. It also added that the plaintiff couldn't prove any change on the part of the insured's position based upon its actions. The Court concluded that the insurer's actions in this case were unmistakable in denying coverage for the claim. With regard to the insurer's argument that insurance does not apply to losses that have already occurred, and that it was providing insurance coverage for future risks, the Court stated that this was somewhat inapplicable given the insurer's prompt and proper denial of coverage without any change in that position.

In fact, it was this unwavering declining of coverage on the part of the insurance agent and company that seems to have been the controlling factor in the case. Regardless of the insured's assertions to the contrary, the Court found nothing that suggested the insurer's conduct would have led the insured to believe that she had coverage for the accident. 

The moral to the story? Pay your Insurance Premium on time, don't let the policy go late and use EFT if you need to!