Insurance Coverage - No Coverage Where Policy Lapses

This case is captioned Edward v. State Farm Insurance Company, 2012 Ill. App (1st) 112176.

Plaintiff brought suit against State Farm for breach of contract and specifically for failing to pay damages arising from an auto accident that occurred after the insurance policy lapsed and was cancelled for nonpayment.  State Farm brought a declaratory judgment counterclaim alleging that there was no duty to cover an accident that occurred when the policy was not in force.

While this would appear to be an obvious defense to a payment, the Circuit Court of Cook county found that State Farm had "waived" its defense to coverage by reinstating the policy when the premium was eventually paid.  The Circuit Court, Judge Pamela E. Hill Veal,  also found that State Farm acted in bad faith and awarded $50,000 in punitive damages.

State Farm refunded her the premium for the period when the policy was not in force.  State Farm reinstated the policy but refused to provide retroactive coverage.

The Appellate Court reversed on the ground that (a) plaintiff breached the contract by failing to pay the premium on time; (b) State Farm declined to offer retroactive coverage and did not waive its rights.  State Farm also provided a clear and unequivocal cancellation notice.

Comment: State Farm should not have had to go to the Appellate Court to have this decision reversed.

Edward X. Clinton, Jr.