STATE OF MINNESOTA

IN COURT OF APPEALS

A04-1592

Betsy L. Krutzig, et al.,
Respondents,

vs.

First National Insurance Company of America,
Appellant.

Filed June 7, 2005

Affirmed

Minge, Judge

Hennepin County District Court

File No. 01-13965

Michael Baxter, Baxter Engen, Ltd., 2500 County Road 42, Suite 160, Burnsville, MN 55337 (for respondents)

Robert W. Kettering, Jr., Douglas D. McGhee, Arthur, Chapman, Kettering, Smetak & Pikala, P.A., 500 Young Quinlan Building, 81 South Ninth Street, Minneapolis, MN 55402 (for appellant)

Considered and decided by Randall, Presiding Judge; Minge, Judge; and Poritsky, Judge.*

U N P U B L I S H E D O P I N I O N

MINGE, Judge

Appellant insurance company challenges the district court’s order concluding that based on the jury’s special verdict finding the insurance policy was in effect at the time of the accident. Because we find that there is evidence that reasonably supports the special verdict finding, we affirm.

FACTS

This litigation arises from the disputed existence of insurance coverage at the time of an accident. On October 6, 2000, respondents Betsy and William Krutzig took out an insurance policy with appellant Safeco and paid the initial premium with a check for $188.97 drawn from an account with US Bank. Respondents also signed up for a checkless payment plan, which would automatically deduct future insurance payments from their US Bank account. On October 26, respondents expanded coverage to include a car they had recently purchased for their son.

At some time in mid-October, US Bank closed respondents’ account. At that time, respondents’ check for $188.97 had not cleared and was ultimately dishonored. Respondents set up a checking account at another bank. At the end of October or beginning of November, Ms. Krutzig gave to James Lyon, the Safeco agent, a completed form for a checkless payment plan to be drawn on this other account. Lyon’s agency forwarded the material to appellant.

On November 1, 2000, appellant sent to respondents a document titled “CHECKLESS PAYMENT PLAN [new line] CANCELLATION NOTICE” (notice). This notice informed respondents that their US Bank check for $188.97 had been rejected because the account was closed. The notice stated:

In addition to the returned check, your next monthly deduction of $196.94 is also due. Please include this amount with your payment as we will not be deducting this amount from your bank account.

Fortunately, you can keep each policy listed on the back of this notice in force without interruption if we receive a payment for $385.91 and it is postmarked by November 15, 2000.

Regrettably, if we do not receive your payment, or if it is postmarked after November 15, 2000, each policy listed on the back of this notice will cancel on November 16, 2000, at the time stated.

Ms. Krutzig testified that the notice arrived after she had visited Lyon’s office to deliver the new checkless payment forms, that she was confused by the notice, and that she contacted her insurance agent James Lyon for assistance. Her trial testimony differs from that of Lyon as to what Lyon told her to do in response to this notice. Lyon testified that because he did not have a copy of the notice, he told her to send in whatever the company notice directed her to send in. In contrast, Ms. Krutzig testified that Lyon told her to send in a payment for only $188.97 because the rest of the amount owed would be automatically deducted from her new checking account under her new checkless payment plan. On November 14, respondents sent appellant a check for $188.97.

On November 16, appellant sent respondents a document with the heading “MONTHLY PAYMENT PLAN [ST]ATEMENT.” This document acknowledged receipt of respondents’ payment of $188.97 and stated that a balance of $196.94 still remained on the account. The document further declared:

Accepting your partial payment on this combined billing account does not rescind the cancellation notice previously sent to you. Also note that we cannot extend the period of your insurance coverage. Your payment must be postmarked by Nov 14 00 to continue your coverage.

Respondents received this notice before November 23. On November 22, appellant sent respondents a notice that it had cancelled the policy effective November 16.

On December 3, respondents’ son was injured when a car hit him while he was crossing the street. Ms. Krutzig told Lyon about the accident a day or two afterward, and it was then that Lyon first told her that the insurance policy had already been canceled.

Respondents initiated a declaratory judgment action to determine whether the insurance policy was in effect at the time of their son’s accident. The jury was asked two questions on a special verdict form:

(1) Was the totality of Safeco’s actions and communications prior to December 3, 2000 in canceling Betsy and William Krutzig’s insurance policy clear and unambiguous to a reasonable person?

(2) Did Mr. Lyon tell Betsy Krutzig that her coverage would remain in effect if she sent the second check for $188.97?

The jury answered “No” to both questions. Based on the jury’s special verdict, the district court issued an order stating that respondents were covered by appellant’s insurance policy at the time of the accident and that respondents’ declaratory relief was granted.

Appellant moved for a finding that the cancellation of the insurance policy was clear and unequivocal as a matter of law. The district court denied the motion and found that respondents were covered by appellant’s insurance policy at the time of the accident. This appeal follows.

D E C I S I O N

The issue on appeal is whether the district court erred by denying appellant’s motion to find as a matter of law that the cancellation of the insurance policy was clear and unequivocal. Although appellant did not make a formal motion for judgment notwithstanding the verdict (JNOV), the appellant’s motion was the functional equivalent because it sought a finding by the district court that as a matter of law there was not sufficient evidence to support the jury’s answer on the special verdict form.

Whether or not JNOV is granted is a question of law subject to de novo review. Diesen v. Hessburg, 455 N.W.2d 446, 449 (Minn. 1990). When the district court denies JNOV, the appellate court must affirm the decision “if, in the record, there is any competent evidence reasonably tending to sustain the verdict.” Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998) (quotation omitted). This court should not set the district court’s verdict aside unless it is “manifestly and palpably contrary to the evidence viewed as a whole and in the light most favorable to the verdict.” Norwest Bank Minn. N., N.A. v. Beckler,663 N.W.2d 571, 578 (Minn. App. 2003) (quoting Roemer v. Martin, 440 N.W.2d 122, 124 (Minn. 1989)).

Under Minnesota law, an insurer intending to cancel a policy due to nonpayment of a premium must provide notice to the insured before canceling the policy. Minn. Stat. § 65B.15, subd. 1 (2004). Thus, our initial inquiry is the language of the notice. Notice of cancellation by an insurer need not take any particular form, but it must inform the insured that the policy will be canceled as of a certain day in “explicit, unconditional, and unequivocal language.” Cormican v. Anchor Cas. Co., 249 Minn. 196, 203, 81 N.W.2d 782, 788 (1957). A notice that is in any way ambiguous or evasive as to when exactly the policy will be canceled for nonpayment is invalid and will terminate neither the policy nor the insurer’s liability under that policy. Id. at 204, 81 N.W.2d at 788. The clarity of the notice is tested by the meaning it would reasonably convey to one who receives it. Lievers v. Nat’l Ins. Underwriters, 257 Minn. 268, 271, 101 N.W.2d 817, 819 (1960).

In Cormican, the court stated that merely stating that a premium must be paid by a certain date or cancellation will occur without specifying the date cancellation would occur was only a threat of cancellation and not an explicit and unambiguous cancellation. 249 Minn. at 204, 81 N.W.2d at 788. Similarly, in Dairyland Ins. Co. v. Neuman, the court found inadequate notification of cancellation when a regular premium bill with the labels “RENEWAL NOTICE” and “NO GRACE PERIOD” was sent which also included language in small type on the back side stating that the insurance would expire on a specific date unless the premium was paid. 338 N.W.2d 37, 41 (Minn. 1983).

In contrast, the court in Pierce v. MSI Ins. Co., found that a cancellation notice that stated precisely when cancellation would occur unless full payment was made and had a title in bold red letters “NOTICE OF CANCELLATION—NON-PAYMENT OF PREMIUM” was a valid cancellation. 406 N.W.2d 328, 330 (Minn. 1987).

The title of the cancellation notice has played a prominent role in determining whether a cancellation notice is valid. See, e.g., id.; Dairyland Ins. Co., 338 N.W.2d at 41. Appellant’s notice in this case is slightly more like Dairyland, in which inadequate notice was found, than like Pierce, in which adequate notice was found,because in our case the notice contained the heading “CHECKLESS PAYMENT PLAN [new line] CANCELLATION NOTICE.” The most natural reading of this heading in isolation is that the notice referenced a cancellation of only the checkless payment plan and not the whole policy.

However, in looking at appellant’s notice as a whole, it is clear that its purpose was to inform respondents that their policy would be canceled if the premium payment was not received. The most relevant language in the notice was

Regrettably, if we do not receive your payment, or if it is postmarked after November 15, 2000, each policy listed on the back of this notice will cancel on November 16, 2000, at the time stated.

Just like the statement in Pierce, and unlike that in Cormican, this statement contained a specific date and time on which the policy would cancel if payment was not received. This statement was located on the front of the notice and explicitly contained the word “cancel,” both of which were absent in the ineffective notice in Dairyland. Based not only on the similarity of the above quoted language to that in Pierce, but also on a simple understanding of what the language said, the notice clearly states that respondents’ policy would be canceled on November 16, if they did not make the requested payment on the date specified.

Next, we review the timing and sequencing of other events surrounding a cancellation notice because they may render an otherwise effective cancellation notice invalid. Caduff v. Universal Underwriters Ins. Co., 381 N.W.2d 9, 12 (Minn. App. 1986), review denied (Minn. Mar. 27, 1986). In Caduff, the insured requested that his insurance be transferred to a new motorcycle he had recently purchased. Id. at 11. Soon after this, the insured received a notice stating that coverage for his old motorcycle would be canceled on a specific day if he did not remit payment. Id. at 11. However, shortly after receiving this notice, the insured received a statement from the insurer declaring coverage for a newly purchased motorcycle and showing $0.00 in the amount due box. Id. This court affirmed the district court’s holding that even though the cancellation notice itself was clear, the timing and sequence of the events as reasonably perceived by the person receiving the cancellation notice rendered the notice confusing and therefore ineffective to cancel the policy. Id. at 12.

In Pierce, even though the supreme court found that the cancellation notice was clear and unambiguous, it also considered that the insured knew the policy was cancelled because the insured had two separate conversations with her insurance agent, who informed her before the accident that she had no insurance. 406 N.W.2d at 331.

If the contacts between the insurer and the insured do not make the cancellation clear and unambiguous to a reasonable person, the cancellation notice is ineffective. See Cormican, 249 Minn. at 204, 81 N.W.2d at 788; Caduff, 381 N.W.2d at 12.

In this case, the sequence of events surrounding the cancellation of respondents’ checkless withdrawal system could have created confusion about whether their insurance policy would be cancelled if they submitted a check for $188.97. Insurance agent Lyon testified that around the time the notice was sent out respondents set up a new checkless withdrawal from their new account and that Lyon’s office forwarded this information to appellant. Indeed, the jury could find that respondents reasonably interpreted the notice as a cancellation of their previous checkless payment plan. The notice states that “your monthly deduction of $196.94 is also due. Please include this amount with your payment as we will not be deducting this amount from your bank account.” Although the notice states that $196.94 will not be deducted from respondents’ bank account, the jury could find that respondents were confused and believed that this referred to the closed account. Since Ms. Krutzig had just authorized checkless withdrawal from a new, active account, respondents could have reasonably assumed that the monthly deduction of $196.94 would have come out of this new plan. This analysis supports the jury’s finding that appellant’s “actions and communications in canceling [respondents’] insurance policy [were not] clear and unambiguous.”

The sequence of events surrounding the attempted notice of cancellation and the checkless withdrawal system is somewhat similar to the circumstances in Caduff. 381 N.W.2d at 11. In Caduff, the insured requested that his policy be transferred to a new motorcycle and therefore reasonably misinterpreted the cancellation notice that followed soon after the request as a cancellation of the old policy. Id.

Respondents could also have been confused by Ms. Krutzig’s conversation with insurance agent Lyon about what she should do. The jury found that Lyon did not tell her that she should only submit $188.97, but this does not mean that she was not reasonably confused by the conversation. Lyon testified that he did not have a copy of the notice when he talked to her on the phone. Although he testified that he told Ms. Krutzig to pay whatever the appellant was telling her to pay, since he did not have the notice in front of him, he presumably could not tell her with certainty what that number was. A reasonable person could have misunderstood, and like Ms. Krutzig, sent in the wrong amount.

Although this court may have come to a different decision on its own examination, this court will sustain the jury verdict if it is not manifestly and palpably contrary to the evidence viewed in the light most favorable to the verdict. Norwest Bank Minn. N., 663 N.W.2d at 578. Because the totality of the circumstances, especially the heading on the cancellation notice and setting up of a new checkless payment account, we conclude that there is sufficient evidence for the jury to reasonably find that the appellant’s attempted cancellation was not clear and unambiguous and that the district court did not err in finding that appellant’s insurance policy was still in effect at the time of the accident.

Affirmed.

* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.