Workers’ Comp Insurance Cancellations Must Be Unambiguous

The Connecticut high court ruled that when an insurer cancels a workers’ compensation insurance policy, that insurer must comply with not only the Workers’ Compensation Act, but with contract law, stipulating the cancellation notice must be definite and unambiguous.

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The plaintiff, Thomas Napolitano, who owns the business Napolitano Roofing, accused Ace American Insurance Co., the defendant, of breach of contract when Ace canceled Napolitano’s workers’ compensation insurance despite conflicting communication.

On March 28, 2018, Ace informed Napolitano that it had yet to receive payroll and tax records needed for a policy premium audit, and without the records, there would be $912. The letter was resent on April 3, 2018.

On April 5, 2018, Ace mailed two notices to Napolitano. One was a notice of noncooperation, and the other was a notice the insurance policy would be canceled April 25, 2018. Napolitano emailed the tax records on April 7, 2018, and after checking with Ace, was informed he was compliant and received two certificates showing he had workers’ compensation insurance coverage.

One of Napolitano Roofing’s employees was injured after falling off a roof and filed a claim, but Ace denied the claim and argued it had no duty to defend or indemnify because the policy had been canceled.

The workers’ compensation commissioner determined that Ace had complied with Connecticut General Statutes §31-348, which outlines the requirements when reporting policy expirations to the chairperson of the Workers’ Compensation Commission. The commissioner stated his inquiry was limited to §31-348.

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The trial court ruled in favor of Napolitano, and concluded the cancellation of the policy needs to be “unambiguous and unequivocal,” and that all communications between the parties regarding the cancellation must be considered.

However, the Appellate Court disagreed, and ruled that Ace had properly complied with its contractual obligations. But the Supreme Court reversed the Appellate Court’s decision, and stated compliance with §31-348 does not replace “applicable and basic principles of contract law.”

The high court said Ace’s notices failed to follow contract law because two conflicting notices were sent on April 5, 2018, Napolitano was informed he was compliant, and the cancellation date was only stated in the cancellation notice and not in any other communications.

Ace claimed the analysis of multiple communications provided by insurers would lead to “disingenuous claims by a party who would want to take all measures necessary to remain covered by insurance.”

“As a matter of law,” the Supreme Court stated, “employers are required to have workers’ compensation insurance; see General Statutes §31-284(a); but insurers are the parties that typically write these contracts and largely decide what is required to maintain coverage. Given the leverage insurers have over insured parties … we resolve all doubts in favor of coverage and require that insurers give objectively definite and certain notices of cancellation to insured parties.”

The high court also indicated that since the Legislature has not indicated that §31-348 replaced insurers’ obligation to follow contract law, the defendant’s position “conflicts with basic principles of insurance law.”

“Insurers must both provide definite, certain, and unambiguous cancellation notices as a matter of contract law between the insurer and the insured and comply with the statutory requirements of section 31-348 when seeking to cancel a workers’ compensation insurance policy,” the Supreme Court held.

Kristen Greene of Feldman, Perlstein & Greene, counsel for Napolitano, said this ruling is satisfying after a six-year battle.

“He’s a small-business owner, and it’s a great victory for him,” Greene said. “It’s one that really should have happened without having to even bring a lawsuit, but here we are.”

“I’m hoping that insurance companies take a look at their policies and procedures and the way they handle cancellations, and make some changes,” Greene said.

Greene said it was a challenge for a small business to continue the litigation for all these years, and many other companies would have had to give up.

“We were able to move forward and get the right results after a lot of fighting,” Greene said. “I’m glad the Supreme Court did what was right.”

Brian M. Pace of Conway Stoughton represented Ace. He did not respond to a request for comment.

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