An automatic termination provision is a clause in an insurance policy that provides for the termination of the policy if the insured obtains other insurance.
An automatic termination provision was the issue in the case, Nodak Insurance Company v. Farm Family Casualty Insurance Company, et al, decided by the North Dakota Supreme Court on May 9, 2023.
THE FACTS
The facts of the case are quite simple. Bruce and Diana Hamilton owned a 2011 pickup truck. They purchased an auto policy from Farm Family with effective dates October 19, 2018, to April 19, 2019. The Farm Family policy had bodily injury liability limits of $250,000 per person and $500,000 per accident.
The Hamiltons subsequently purchased another auto policy that covered the truck from Montana West Farm Bureau Mutual Insurance Company. The Montana West policy had effective dates December 2, 2018, to June 2, 2019, and bodily injury liability limits of $100,000 per person and $300,000 per accident.
THE ACCIDENT
On April 16, 2019, Samuel Hamilton, the son of Bruce and Diana Hamilton, was driving the pickup under the influence of alcohol when he ran a stop sign and hit a passenger vehicle. The driver of that vehicle was seriously injured, and the passenger was killed. The passenger’s vehicle was insured by the plaintiff in this case, Nodak Insurance Company.
THE LAWSUIT
Nodak filed this action against Farm Family and Montana West seeking a declaration that both insurance companies were liable for the bodily injury and death of its insureds. Farm Family filed a motion for summary judgment claiming that its policy had terminated once the Montana West policy had been issued. Farm Family relied upon an automatic termination provision in its policy, which provided that:
10. CANCELLATION OR NONRENEWAL OF THIS POLICY
If other insurance is obtained by you on your insured car, similar insurance afforded under this policy for that car will cease on the effective date of the other insurance. (emphasis added)
If different requirements for cancellation and nonrenewal or termination of policies are applicable because of the laws of your state, we will comply with those requirements.
Farm Family argued that the automatic termination provision was clear and that its policy was canceled when the Montana West policy was issued and that, as a result, there was no coverage under the policy on the date of the accident.
WHAT DOES SIMILAR MEAN?
The North Dakota Supreme Court first stated the maxim that an insurance policy is a contract between the insurance company and the insured and that, unless there is an ambiguity in the policy, it will be given its ordinary meaning. In the event of an ambiguity, a court will interpret the policy to give it the meaning intended by the parties to the contract. However, where there is an ambiguity, the court will favor an interpretation that results in coverage.
In this case, the Court found an ambiguity. The ambiguity was in the meaning of the phrase “similar insurance”. The Court found an ambiguity, in part, because the term was not defined in the policy.
The policy at issue does not define “similar insurance.” Thus, we apply the ordinary meaning of “similar,” which means “having characteristics in common: strictly comparable” and “alike in substance or essentials.” Merriam-Webster’s Collegiate Dictionary 1161 (11th ed. 2005); see also American Heritage Dictionary 1141 (2d Coll. ed. 1985) (defining “similar” as “[r]elated in appearance or nature; alike though not identical”). We conclude the language “similar insurance” in the Farm Family policy means the other insurance obtained by the insureds is similar “in type and in amount.”
THE HOLDING
Once the Court defined the term “similar insurance” to essentially mean “the same”, it had to decide whether the Farm Family policy and the Montana West policy were the same. And it held that the two policies were not “similar”, because they were not the same in type and amount. The coverage limits of the Montana West policy were substantially less than the coverage limits of the Farm Family policy. As a result, the Montana West policy did not cause the cancelation of the Farm Family policy, and the Farm Family policy provided coverage for the accident.
The remaining issue is whether the Mountain West policy is “similar insurance” in type and in amount to the Farm Family policy. Under the undisputed facts of this case, this Court concludes, as a matter of law, the Farm Family policy and the Mountain West policy do not provide “similar insurance,” i.e., insurance that is “strictly comparable” or “alike in substance or essentials.” An essential part of automobile liability insurance is the amount of coverage. A policy providing bodily injury liability coverage limits of $250,000 per person and $500,000 per accident and a policy providing bodily injury liability coverage limits of $100,000 per person and $300,000 per accident are not strictly comparable or substantively alike.
As a result, the Court held that both the Farm Family policy and the Montana West policy provided coverage for the accident.
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