LOWELL, Mass. — A Lowell District Court judge has ruled that a Progressive loss payee cancellation notice sent electronically was defective because it was not mailed as required by the policy and omitted required premium information.
In a memorandum of decision dated July 31 and entered on the court docket Sept. 15, Associate Justice Mark G. Fabiano granted summary judgment to Source One Financial Corp. on its breach-of-contract and third-party-beneficiary claims in Source One Financial Corp. v. Progressive Direct Insurance Co.
The decision produced a mixed result. The court granted Source One’s motion on Counts I and II and otherwise denied it. Progressive obtained summary judgment on Count III, alleging breach of the implied covenant of good faith and fair dealing, and Count V, alleging violations of G.L. c. 93A and c. 176D. The court otherwise denied Progressive’s motion and ordered that Count IV, alleging negligence, proceed to trial.
Policy Renewed Despite Outstanding Premium
Source One financed $15,599 of Thamyres Rodrigues Paizante’s vehicle purchase in May 2021 and perfected its security interest in the Chevrolet Cruze. Progressive insured the vehicle and identified Source One as the policy’s loss payee and secured lender.
The initial policy period ran from May 3 through Nov. 3, 2021. Paizante missed several premium payments. On Nov. 3, Paizante paid $380 but left an unpaid balance of $105.42. Progressive nevertheless renewed the policy for another six months, through May 3, 2022.
Progressive mailed Paizante a cancellation notice on Nov. 8 stating that the policy would be canceled effective Nov. 29 unless the required payment was received. Paizante made no additional payment.
Source One had enrolled in Insurance Notification Clearinghouse Services, or INCS, to receive automated electronic insurance notifications through Electronic Data Interchanges.
On Nov. 9, Progressive transmitted an electronic notification through INCS advising Source One that the policy would be canceled effective Nov. 29. The notification did not state the premium arrearage or explain how the overdue amount could be paid.
Progressive reported the cancellation to the Massachusetts Registry of Motor Vehicles on Dec. 1 and notified Source One through INCS on Dec. 2 that the policy had been canceled for nonpayment.
On Dec. 7, the vehicle was involved in a collision and declared a total loss. Source One submitted a claim, which Progressive denied on the ground that the policy had been canceled effective Nov. 29.
Progressive Argued Different Rules Applied to Loss Payees
Progressive did not dispute that the policy required notice to Source One. Instead, it argued that the additional statutory and regulatory requirements governing notices to policyholders did not apply to secured lenders.
Progressive pointed out that G.L. c. 175, § 113A refers to the “insured” and “named insured,” while 211 CMR 97.04(2), including its premium-deficiency and payment disclosures, expressly applies to notices issued to a “Policyholder.”
Loss payees, Progressive argued, are addressed separately under 211 CMR 97.04(3)(a). Because Source One enrolled in INCS, Progressive maintained that it had agreed to receive electronic notices and that the Nov. 9 notification supplied the required 20 days’ advance notice.
Source One countered that the policy required Progressive to send notice to the secured lender “in a similar manner” to notice sent to the policyholder. It also argued that a nonpayment notice was ineffective without stating the amount necessary to cure the default.
Court Finds Progressive Loss Payee Cancellation Notice Defective
Judge Fabiano rejected Progressive’s distinction between the notices required for policyholders and loss payees.
The court found that Progressive’s electronic notification was not mailed to Source One as required by the policy. It also found that the notice did not state the premium deficiency, applicable fees or that payment before the effective date would prevent cancellation.
The notice therefore failed to satisfy both the policy’s “similar manner” requirement and the requirements the court applied under § 113A and 211 CMR 97.04.
Because Progressive did not provide legally sufficient notice, the court concluded that the attempted cancellation was ineffective as to Source One. Coverage remained in force for Source One on Dec. 7, and Progressive’s denial of its claim breached the policy.
Progressive Prevails on Implied-Covenant and Chapter 93A Counts
The court entered summary judgment for Progressive on Source One’s implied-covenant claim. Although every contract includes an implied covenant of good faith and fair dealing, the court found that this count rested on the same conduct and sought the same damages as the breach-of-contract claim.
The record also did not establish that Progressive acted with a dishonest purpose or interfered with Source One’s contractual rights independently of the breach.
Progressive also prevailed on the c. 93A and c. 176D count. The court found no evidence that Progressive acted in bad faith or employed coercive or extortionate settlement tactics.
Negligence Count Remains Despite Unaddressed Issues
The court denied both parties summary judgment on Source One’s negligence claim. It reasoned that a factfinder could consider Source One’s failure to inquire or otherwise protect its interest after receiving the electronic alert. The court cited Massachusetts’ comparative-negligence statute, G.L. c. 231, § 85.
Progressive had separately argued that the negligence count was barred by the economic-loss doctrine because Source One alleged only financial loss arising from Progressive’s performance of a contractual notice obligation. The decision did not address that argument or identify a duty independent of the policy.
The decision also did not identify damages under the negligence count separate from the policy benefits recoverable under the contract counts. Although alternative liability theories may proceed together, Source One cannot receive duplicate compensation for the same loss.
The Sept. 15 docket entries state that Count IV shall proceed to trial.
Decision Turns on Policy Language and Notice Content
The decision does not hold that electronic notification is invalid in every circumstance. The ruling rests on Progressive’s policy language, the information omitted from the EDI notification and the court’s application of Massachusetts cancellation requirements to Source One as the designated loss payee and secured lender.
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Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
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