Background
Casey Smith obtained an automobile insurance policy from CURE effective February 25 through August 25, 2022, with the premium payable in three installments. CURE advised Smith that his second installment was due April 24, 2022. On that same date, before the payment deadline had passed, CURE mailed a notice stating that the policy would be canceled effective May 9 for nonpayment unless Smith paid the amount due.
Smith did not pay before May 9 and was injured in a June 21, 2022 automobile accident. After he made a payment two days later, CURE reinstated the policy effective June 23 but denied PIP benefits for the accident because it considered the policy canceled on May 9. The Wayne Circuit Court agreed that the cancellation was valid and granted summary disposition to CURE.
The Court’s Holding
The Michigan Court of Appeals held that CURE’s cancellation notice was ineffective under MCL 500.3020(1)(b). Under the Michigan Supreme Court’s decision in Yang v. Everest National Insurance Co., a cancellation notice based on nonpayment must be peremptory, explicit, and unconditional, and an insurer cannot issue such a notice before nonpayment has actually occurred.
Because CURE mailed the notice on April 24, when Smith still had the remainder of the day to pay, the asserted ground for cancellation had not yet arisen. Smith’s later failure to pay did not cure the defective notice. The policy therefore remained in effect when the accident occurred, so the appellate court reversed the grant of summary disposition and remanded for further proceedings.
Key Takeaways
- An insurer may not effectively cancel a Michigan automobile policy for nonpayment by mailing the cancellation notice before the premium-payment deadline has passed.
- A cancellation notice under MCL 500.3020(1)(b) must be peremptory, explicit, and unconditional; later nonpayment does not validate a notice that was premature when issued.
- A notice mailed after a missed payment may allow the insured time to cure without becoming impermissibly conditional, but a notice mailed before nonpayment occurs is ineffective.
Why It Matters
The decision reinforces that strict compliance with Michigan’s statutory cancellation requirements is necessary to terminate automobile coverage. The timing of the notice—not merely whether the insured ultimately failed to pay—determines whether cancellation for nonpayment is effective.
For insurers, the ruling cautions against generating cancellation notices on the payment due date. For insureds and PIP practitioners, it confirms that coverage may remain in force when the insurer acted before the stated payment period expired.