The Connecticut Appellate Court ruled in 21^st Century North American Insurance Company v. Perez, 177  Conn.App. 802 (2017), that an insured may not avoid cancellation of an automobile insurance policy for failure to pay the full amount of an installment premium due by payment of a substantial portion of the premium.  The Appellate Court concluded that the equitable doctrine of substantial performance does not apply to automobile insurance premium payments due under an installment payment plan.

In Perez, the insureds purchased an automobile insurance policy that required them to make monthly installment premium payments.  When the insureds failed to make a monthly installment, the insurance company sent a notice of cancellation of insurance informing the insureds that their insurance policy would terminate for nonpayment of premium on a certain date.  The notice provided the insureds an opportunity to avert the cancellation by paying a specific amount before the termination date of the policy.  The amount required to be paid to avert cancellation included the missed monthly installment payment and an amount equal to the next monthly payment.  In response to the notice of cancellation, the insureds paid the amount of the missed monthly payment but did not pay the additional amount stated to be due in the cancellation notice.   Upon receipt of the partial payment, the insurance company sent the insureds another billing notice confirming receipt of the partial payment and advising them that the remaining balance needed to be paid before the cancellation date in order to avoid cancellation.  The insureds made no further payment before the cancellation date, but they sent an additional payment two weeks after the cancellation date.  The insurance company returned the additional payment to the insureds because the policy had been cancelled two weeks before in accordance with the cancellation notice.   Three days later, one of the insureds was involved in an accident that fatally injured a passenger in another car.

After trial of the insurance company’s declaratory judgment action seeking a judgment declaring that the insurer had no duty to defend or indemnify the insureds in a wrongful death case filed on behalf of the deceased victim, the trial court entered judgment against the insurance company. The trial court concluded that the insurance company could not cancel the insurance policy for nonpayment of premium because the insureds had substantially complied with their obligations under the insurance policy by remitting the missed monthly installment payment due after they received the cancellation notice and before the policy cancellation date.

The Connecticut Appellate Court reversed the judgment of the trial court, concluding that the insurance company properly cancelled the insurance policy when the insureds did not pay the entire amount stated to be due in the cancellation notice before the cancellation date. The court ruled that the failure to pay the entire amount due was not excused under the equitable doctrine of substantial performance of contract.  Under the doctrine of substantial performance, a contracting party may be excused from a technical breach of a contract term when actual performance under the contract is so similar to the required performance that any breach that may have occurred is immaterial.  The Connecticut Appellate Court ruled that the doctrine of substantial performance has no application when a policyholder fails to remit insurance premiums due under an automobile insurance policy installment payment plan because timely payment of insurance premiums is an essential and material condition of automobile insurance policies.  As a result, there can be no substantial performance of the insurance contract when the performance owed is the payment of money and time is of the essence.  The insurance company therefore was not required to provide coverage to the insured for any liability arising from the fatal accident.

The Perez case serves as an example that if a party to an insurance contract fails to comply with an essential and material condition of the policy, the failure to comply with the condition or term may not be excused even if the party partially performs in a substantial way.  The extent to which the Perez decision may be applied to situations involving noncompliance with other conditions or terms of an insurance policy remains to be seen.  If the condition is an essential and material part of the insurance contract, full compliance with the condition may be required. Perez also serves as a reminder of the strict statutory requirements and procedures that automobile insurers must follow in Connecticut in order to effectively cancel an insurance policy for nonpayment of premium.  Failure to strictly comply with the requirements will likely render any purported cancellation invalid.