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Maine’s highest court reversed a lower court ruling Tuesday and held that an Arch Capital Group Ltd. unit failed to adequately inform a wood pellet mill operator that it was not renewing its coverage, in connection with payment for a fire that caused $15 million in damages.
Arch Capital unit Arch Specialty Insurance Co. had issued to Corinth Maine -based Corinth Pellets LLC a surplus lines policy that covered property loss, business interruption and extra expenses, for an initial term of January 2017 to January 2018, according to the unanimous ruling by the Supreme Judicial Court of Maine in Portland in Corinth Pellets, LLC v. Arch Specialty Insurance Co. et al.
Coverage was subsequently extended for three consecutive three-month terms, to September 18, 2018, the ruling said.
In early September 2018, an agent for Scarborough, Maine-based broker Varney Agency Inc. alerted Corinth that Arch would not renew the policy after its Sept. 18 termination, the ruling said.
“The agent assured Corinth that he was in the process of finding a new insurance policy” and that there was no need for Corinth to do anything on its end, the ruling said.
On Sept. 17, though, the Varney agent notified Corinth that it could not provide a “firm quote” from an issuer, and Varney did not obtain substitute property insurance coverage for Corinth before Sept. 19, 2018, the ruling said.
“Though Corinth knew by Sept. 17, 2018, that Arch did not intend to renew the policy, at no point did Arch give written notice of intent to Corinth or Varney,” the ruling said. On Sept. 19 – the day after the Arch policy’s final expiration date – Corinth’s wood pellet mill sustained a catastrophic fire that caused about $15 million in damage, which met the covered definition of a covered loss under the Arch policy.
Arch declined to participate in the investigation into the fire’s cause and origin and eventually denied coverage on the ground its coverage had terminated on Sept. 18.
Corinth filed suit against Varney and Arch in Maine district court in Biddeford, and Varney filed a crossclaim against Arch. Arch moved to dismiss both claims. The Maine attorney general and the Superintendent of Insurance opposed Arch’s motions to dismiss.
In April 2020, the district court granted Arch’s motion to dismiss Corinth’s claims against Arch and Varney’s crossclaim.
Arch had contended that under state law, an insurer must provide prior notice to an insured when the policy is both canceled and not renewed, and all the parties acknowledged Arch had not canceled the policy. The lower court ruled that because this was the case, the insurer had not violated state law, and dismissed the case against Arch.
The state high court said it disagreed with Arch’s argument. State law “requires insurers to give prior notice of their intent either to cancel a policy or not to renew a policy,” it said.
This is supported by the law’s legislative history, which provides that surplus lines insurers must give a 14-day “advance notice of nonrenewal as a policyholder protection measure,” the ruling said, in overturning the lower court and remanding the case for further proceedings.
Varney attorney Brett R. Leland, a partner with Verrill Dana LLP in Portland, said in a statement, “We are very pleased with the decision of the Maine Supreme Judicial Court on this significant issue of first impression. It will provide important guidance not only to insurance practitioners in Maine but across the country, and will result in more protection for high-risk insureds.”
Attorneys for Corinth and Arch did not respond to requests for comment.