Many producers, and their clients, have been in a position where they have had to scramble to find replacement coverage for a policy that has been nonrenewed by an insurer. An insured and broker found themselves in that position in California after a carrier nonrenewed a policy because the carrier believed the insured had made misrepresentations in the application process. The insured sued the carrier for, among other things, bad faith in nonrenewing.
The nonrenewal is just one of the subjects of dispute in the case, an old-fashioned donnybrook between St. Paul Fire & Marine Insurance Company and Atmel Corporation. Atmel is a computer chip maker, and it was sued in an underlying case by Seagate Corporation for allegedly selling defective computer chips. St. Paul says Seagate complained about the chips before Atmel applied for a St. Paul policy, but the situation was not disclosed on the application. St. Paul also issued a unilateral rescission of the policy that had been written.
Apparently, Atmel paid $4.65 million to settle the Seagate case, and another insurer (Royal) contributed an additional $1.25 million toward a settlement that totaled $5.9 million. Atmel’s defense cost another $7.45 million, and it appears Royal paid about half of that cost. Atmel sued St. Paul for all of that money, plus its attorneys fees in the bad faith case plus punitive damages. Atmel complained about St. Paul’s refusal to defend the Seagate case and the rescission as well as about the nonrenewal.
On the nonrenewal, the U.S. District Court for the Northern District of California said this in deciding a motion for partial summary judgment. “Atmel argues that it was damaged by St. Paul’s failure to renew because Atmel was forced to ‘scramble’ to seek new insurance. Atmel also contends that it was damaged by St. Paul’s nonrenewal because Atmel had to disclose to prospective insurers the reason for St. Paul’s nonrenewal, namely that St. Paul believed that Atmel had engaged in misrepresentation in the application process. Atmel contends that the statement in the nonrenewal that Atmel had made misrepresentations, combined with the timing of the nonrenewal, caused prospective insurers to charge substantially higher premiums.” Atmel Corp. v. St. Paul Fire & Marine Insurance Co., 2006 WL 708944 (N.D. Cal. Mar. 21, 2006).
We are left to only imagine what the impact a claim that ultimately cost over $13 million to defend and resolve might have had on the premium.
Although the insured and broker had to “scramble,” and the premiums might have been pushed higher by the fact there was a nonrenewal, the court said California law is clear: in the absence of a statutory restriction, an insurance company has no legal duty to renew an insurance policy after its expiration and refusing to do so does not amount to bad faith. In the absence of a statutory provision (or a contractual one), the court affirmed that in California an insurer may refuse to renew a policy “for any reason, or for no reason at all.”
Cancellation, however, is another matter. In California, cancellation provisions are subject to an implied covenant of good faith and fair dealing.