Policy Cancellation and Account Credit

In  Auto-Owners Ins. Co. v. Yocum, Yocum Trucking, had an automobile insurance policy with Auto-Owners Insurance Company. On September 22, 2005, Gary Dowding, while driving a truck owned by Yocum and hauling a trailer owned by Harmon Grain, LLC (Harmon), was in an automobile accident with a car. The driver of the car died. Driver’s representative filed a wrongful death suit against Yocum, Dowding, and Harmon. Yocum, Dowding, and Harmon tendered their defense to Auto-Owners Insurance Company. Michigan Millers Mutual Insurance Company (Millers) insured Harmon and asserted a claim against Auto-Owners for equitable contribution. Auto-Owners filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify in the underlying suit because Yocum’s policy had been effectively cancelled prior to the date of the accident.  Yocum’s policy was cancelled for nonpayment. However, Yocum argues that there was a premium credit on his account and that the insurance company should have used that credit to cover the outstanding amount due for the premiums he had not paid.

The court reviewed whether Auto-Owners had an obligation to use the premium refund due to Yocum to satisfy his July premium payment.

The auto policy provided that “[p]remium adjustments will be made at the time of such changes or when we [Auto-Owners] become aware of the changes, if later.” Auto-Owners removed two vehicles from Yocum’s policy. Auto-Owners conceded that Yocum had requested the change to his policy on June 30. At the very latest, however, Auto-Owners was aware of the change by August 30, when it sent an endorsement letter, which was one day before it sent the cancellation notice on August 31. The removal of the two vehicles reduced the monthly premium from $257.25 to $104. Yocum had paid $514.50 toward the premium on his policy; therefore, at the time the July premium was due, there was excess premium on Yocum’s account. Auto-Owners, consequently, never had any basis to cancel the policy based on nonpayment of the premium. Auto-Owners had sufficient funds in its hands at the time the July premium was due and should have applied those funds toward the payment of that premium.

Auto-Owners Ins. Co. v. Yocum, 2013 IL App (2d) 111267, 987 N.E.2d 494 Ill.App. 2 Dist. 2013.