Workers’ Compensation – Insurance – Premium Financing Company – Power of Attorney – Nonpayment -Request for Cancellation – Party Aggrieved

Diaz v. Smith (Lawyers Weekly No. 12-07-0378, 19 pp.) (Robert C. Hunter, J.) Appealed from the Industrial Commission. On petition for rehearing. N.C. App. Full-text opinion.

Holding: An employer’s power of attorney gave a premium-financing company the authority to request cancellation of the employer’s workers’ compensation insurance policy if the employer failed to make its premium payments. Therefore, when the employer failed to make its premium payments and the financing company requested cancellation of the workers’ compensation policy, G.S. § 58-35-85 applied. Notice was properly sent to the employer by the financing company.

On rehearing, we affirm the Industrial Commission’s determination that the employer’s workers’ compensation policy was canceled prior to plaintiff’s compensable injury.

Even though plaintiff was awarded compensation, since the Commission ruled that the employer’s policy was canceled, plaintiff is a “party aggrieved” with standing to appeal.

We previously held in this case that G.S. §§ 58-36-105 and 58-35-85 overlap with regard to cancellation of a workers’ compensation insurance policy, but that § 58-36-105 is the more specific statute and is, therefore, controlling. Upon re-examination, we hold that only § 58-35-85 applies in situations, such as this one, where a premium-finance company with power of attorney initiates cancellation of a workers’ compensation insurance policy.

G.S. § 58-36-105 applies to situations where the insurer seeks to cancel the insured’s policy prior to expiration of the policy. It follows that this statute does not apply where the insured requests cancellation of the policy.

Rather, G.S. § 58-35-85 applies where a premium finance company with power of attorney, such as Monthly Payment Plan, Inc. (MPP) in this case, steps into the shoes of the insured and requests cancellation of an insurance policy due to a breach of the financing agreement.

MPP was not receiving payment from the employer, in violation of the financing agreement; therefore, it had the ability through the power of attorney clause in the financing agreement to cancel the employer’s policy with the insurer.

MPP was bound to follow the provisions of § 58-35-85 regarding notice and return of unearned premiums, which it did.

Plaintiff points to the fact that G.S. § 58-36-105 refers to “the insured” in section (a), but then refers to “the insured or the insured’s representative” in subsections (a)(2), (a)(5), and (a)(6). Plaintiff argues that the insured and the insured’s representative are not one in the same.

In certain situations, the insured and the insured’s representative may not be one and the same for purposes of § 58-36-105(a)(2), (a)(5), (a)(6); however, we do not interpret this language to mean that a premium finance company cannot step into the shoes of the insured and cancel the policy under the power of attorney provision.

While the employer and MPP are not the same entity, a power of attorney creates an agency relationship. MPP was the employer’s agent and was acting in the place of the employer by authority from him.

Moreover, G.S. § 58-35-85(3), which we hold is controlling, states, “Upon receipt of a copy of the request for cancellation notice by the insurer, the insurance contract shall be cancelled with the same force and effect as if the request for cancellation had been submitted by the insured, without requiring the return of the insurance contract or contracts.” This court has recognized that a premium-finance company has the authority under the power of attorney provision of the financing agreement to cancel an insurance policy on behalf of the insured.

MPP was permitted to invoke the power of attorney provision in the financing agreement and cancel the employer’s policy. Effectively, the employer — the insured — was initiating cancellation of the policy through his agent. Because the insurer was not cancelling the policy on its own initiative, § 58-36-105 simply does not apply.

The legislature did not intend to require the insurer to notify the insured of the reason for cancellation pursuant to § 58-36-105(b) where the insured, either personally or through his agent, has provided a written notice of cancellation pursuant to § 58-35-85. We note that § 58-35-85(2) says the premium-finance company must provide notice to the insured that a request for cancellation has been made. This provision guarantees that the insured is made aware that his agent has requested cancellation. The employer received the notice of cancellation that MPP sent to the insurer.

Affirmed.