SDBT Archives v. Penn-Star Ins. Co.

382 So.3d 506

SDBT ARCHIVES LLC, Appellant

v.PENN-STAR INSURANCE COMPANY and BGA Finance Inc., Appellees

NO. 2022-CA-00099-COA

Court of Appeals of Mississippi.

06/27/2023.

Rehearing Denied October 17, 2023

WASHINGTON COUNTY CIRCUIT COURT, HON. RICHARD A. SMITH, JUDGE

ATTORNEYS FOR APPELLANT: C. VICTOR WELSH III, Jackson, ANN RUSSELL CHANDLER

ATTORNEYS FOR APPELLEES: EDWARD J. CURRIE JR., JOSEPH WALTER GILL, CHARLES EDWIN ROSS, Jackson, DENNIS JASON CHILDRESS

BEFORE BARNES, C.J., LAWRENCE AND EMFINGER, JJ.

BARNES, C.J., FOR THE COURT:

¶1. This case arises out of a property insurance claim by SDBT Archives LLC (SDBT) for hail damage to its storage warehouse in Greenville, Mississippi. SDBT borrowed money from BGA Finance Inc. (Finance), a premium finance company (PFC), to pay its property insurance premium for a policy issued by Penn-Star Insurance Company (Penn-Star). SDBT gave Finance its power of attorney and agreed that Finance could cancel the policy if SDBT defaulted on its loan.

¶2. In February 2018, SDBT failed to make its monthly payment to Finance. Accordingly, Finance gave SDBT notice to bring the loan current within ten days, or Finance would cancel the policy under the PFC cancellation statute, Mississippi Code Annotated section 81-21-19 (Rev. 2015). When SDBT failed to make the payment within ten days, Finance cancelled SDBT’s policy, effective March 8, 2018. Finance also provided SDBT’s notice of the policy cancellation to Penn-Star’s general agent, Beasley General -Agency Inc. (Beasley General). Then Penn-Star, through Beasley General, gave thirty-days’ notice of cancellation to South Delta Planning and Development District Inc. (South Delta), which held a mortgage on SDBT’s warehouse. The notice stated that South Delta’s interest in the policy would be effectively cancelled on April 18, 2018.

¶3. On March 10, 2018, two days after SDBT’s interest in the policy was cancelled but before South Delta’s interest was cancelled, SDBT’s warehouse suffered over $800,000 in roof damage from a hail storm. Penn-Star denied SDBT’s claim on the grounds the policy was not in effect on March 10. However, South Delta filed a claim under the policy that Penn-Star had paid because South Delta’s interest in the policy was still in effect on March 10.

¶4. Aggrieved by the denial of its insurance claim, SDBT filed this lawsuit,¹ alleging the policy was not properly cancelled prior to the hailstorm, and thus Penn-Star improperly denied the claim. SDBT filed a motion for partial summary judgment claiming cancellation of the policy was not effective until April 18, 2018, because of Finance and Penn-Star’s failure to comply with section 81-21-19(4), which provides that an "insurance contract may not be cancelled unless notice is given to … [the] mortgagee [South Delta]." In response, Finance filed a motion for summary judgment on all of SDBT’s claims, and Penn-Star filed a motion for summary judgment and an alternative motion for partial summary judgment. The circuit court denied SDBT’s, motion for partial summary judgment and granted Finance’s and Penn-Star’s motions for summary judgment. The court found no genuine issue of material fact regarding the insurance coverage, and summary judgment was granted in favor of the defendants as a matter of law.

¶5. SDBT now appeals, arguing that the circuit court improperly found section 81-21-19 included "the legal fiction of separate policies of insurance that could be separately cancelled." Finding no error with the circuit court’s judgment, we affirm.

FACTS AND PROCEDURAL HISTORY

¶6. SDBT’s principal place of business is a commercial warehouse used to store medical records in Greenville, Mississippi. SDBT’s purchase of the warehouse was financed through a loan program with South Delta in 2013. In July 2017, SDBT sought renewal of its property insurance coverage and obtained a commercial insurance policy from Penn-Star for the period from July 31, 2017, to July 31, 2018. The annual premium on the policy was $11,609.81, payable upfront. SDBT made a down payment of $3,127.45 on the premium and borrowed the remaining balance of $8,482.36 from Finance, which paid the rest of the premium.² SDBT executed a premium finance agreement (Finance Agreement) with Finance on July 11, 2017, where SDBT agreed to make nine monthly payments of $1,006.43 to Finance on the eleventh day of each month starting in August 2017. Under the. terms of the Finance Agreement, SDBT granted Finance power of attorney³ to cancel the Penn-Star policy on SDBT’s behalf and collect all return premiums in the event SDBT failed to make timely loan repayments. On the policy, South Delta was identified as the mortgagee.

¶7. Finance and Penh-Star note that SDBT never made a single payment on time to Finance. Instead, SDBT would wait to receive a ten-day notice from Finance warning of cancellation before SDBT attempted to make its payment.⁴ This practice resulted in Finance’s cancelling the Penn-Star policy twice before the cancellation here—once in August 2017 and again in January 2018. Both times, SDBT cured its default with Finance, and Penn-Star agreed to reinstate the policy at Finance’s request.

¶8. In February 2Ó18, SDBT again failed to make its payment, which was due on February 11. Thus, on February 22, 2018, Finance mailed SDBT a ten-day notice of intent to cancel, advising that it would request cancellation of the Penn-Star policy under its power of attorney unless SDBT paid all premiums by March 4, 2018. After SDBT did not make the payment within ten days (by March 4), Finance mailed a notice of cancellation of the policy to SDBT and Beasley General on March 8, 2018.⁵ This notice, as with the other notices, informed SDBT that any payments made after the notice would not automatically reinstate the policy; instead, requests for reinstatement would be at the sole discretion of Penn-Star.

¶9. On March 10, 2018, two days after the policy cancellation, SDBT’s warehouse sustained significant hail damage to its roof. On both March 12 and March 14, 2018, SDBT made a payment to Finance of $1,006.43, bringing its account current. SDBT then made a claim for loss under the policy, citing wind, hail, and lightning damage to the warehouse. Upon receiving these post-cancellation payments, Finance sent SDBT an email receipt, stating:

IMPORTANT NOTICE: You hereby agree that payment(s) received after Finance Company has mailed a cancellation notice will reduce the indebtedness and will not reinstate the policy. The Finance Company, at its option, may only request reinstatement. Only your Insurance Company, at its sole discretion, may reinstate coverage. Do not assume or expect that you have insurance coverage. Check with your agent to be sure.

¶10. On March 13, 2018, Finance sent SDBT a notice that it had requested Penn-Star reinstate its policy but noted that Penn-Star might decline to do so. Because it was SDBT’s third cancellation that year due to SDBT’s default on the loan, Penn-Star declined to reinstate the policy under its internal guidelines. Finance then refunded SDBT’s March 12 payment. Beasley General, on behalf of Penn-Star, issued a cancellation endorsement form, noting the policy had been cancelled, effective March 8, '2018, "for non-payment to finance company." Additionally, the form noted SDBT received a full refund of all unearned premiums on the policy as of the March 8 cancellation date, totaling $4,481.98. On March 15, 2018, Beasley General, on behalf of Penn-Star, mailed South Delta a separate notice of cancellation of insurance. The notice informed South Delta that since SDBT defaulted on its premium finance payment, South Delta’s interest in the policy would end on April 18, 2018. On May 15, 2018, Penn-Star reiterated its denial of coverage to SDBT in a letter to SDBT’s public adjuster:

As advised in our letter of March 21, 2018 this policy cancelled for nonpayment of premium effective March 8, 2018. On February 22, 2018, BGA Finance Inc. sent a notice of intent to cancel to SDBT Archives, LLC with an effective date of cancellation, of March 8, 2018. On March 12, 2018 and again on March 14, 2018 SDBT Archives LLC made a payment to the finance company. As this was after the effective date of cancellation, the policy was not re-instated.

The notice to the mortgage company was for the benefit of their interest in the property only and did not extend to SDBT Archives, LLC. Accordingly, Penn-Star Insurance Company stands by the denial of coverage issued to SDBT Archives for the reported hail damage to the roof on March 10, 2018.

¶11. In its third amended (and the operative) complaint, SDBT sued Penn-Star, Finance, and Beasley General⁶ in the Washington County Circuit Court. SDBT sought declaratory relief on the effective date of the policy’s cancellation, whether the policy was effectively cancelled at all, and Penn-Star’s rights to assert claims, if any, under the South Delta note, mortgage, or deed of trust. Further, SDBT sought a determination on whether the hail damage was covered by the policy.⁷

¶12. In July and August 2021, the parties filed cross-motions for summary judgment regarding insurance coverage. After a hearing on the motions, on February 2, 2022, the circuit court entered an order denying SDBT’s motion for partial summary judgment and granting the defendants’ motions for summary judgment. The court ruled that Finance complied with the notice requirements of the PFC cancellation statute when it cancelled SDBT’s interest in the insurance policy. Further, the court found that' SDBT received sufficient and proper notice—Penn-Star’s thirty-day notice to South Delta only applied to South Delta’s separate interest in ` the policy and not SDBT’s interest.

¶13. In granting summary judgment in favor of the defendants, the circuit court concluded:

The[re] are no genuine issues of material fact as stated herein. SDBT’s interest in the Penn-Star policy was cancelled effective March 8, 2018. South Delta’s

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