Inaccuracy business descriptions spells trouble for a business

This was an appeal by insureds from a grant of summary judgment against them on their lawsuit against an insurer for breach of contract and wrongful termination of insurance, and for negligent representation on the part of the insurer's agent. There was no insurance in force when their drapery business was damaged by fire.
The insurer issued a business package policy, and later conducted a survey because underwriting practice prescribed it when property insurance was in excess of a specified amount. The insurer canceled the policy more than sixty days after it was effective upon the inspector's recommendation. He found that, while the insureds did sell draperies, they were in the business of manufacturing them to a much greater extent. The insurance company did not insure manufacturers. The insurer's agent then referred the clients to another insurance office for replacement coverage, which was arranged. That insurer canceled its policy, apparently for nonpayment of premium. (Its action was not contested.) The fire occurred thereafter.
The evidence made clear that the first insurer's agent had filled in the insurance application, indicating the type of business as "drapery sales," as he was told by a representative of the insureds. A co-owner of the firm signed the application, certifying that she had read it and that the statements were correct.
The New Mexico Supreme Court found that the agent "satisfied his legal duty" when he procured another underwriter for the insureds. It found that the pertinent statute provided for cancellation within sixty days without cause and, thereafter, for reasonable cause and giving notice of cancellation. The insureds did not dispute their receiving cancellation notice. They said they were misled in not being informed of the reason for it.
The court concluded that the insurer had complied with the statute, noting that an insurer was not required to inform insureds of the specific cause when giving notice of cancellation. It also found it difficult to understand how "experienced business people" could believe a policy was in force after they had received notice of its cancellation and they had then arranged replacement coverage in another company.
The summary judgment of the trial court was affirmed in favor of the insurance company and its agent and against the insureds.
(CORBIN, Plaintiff, Appellant v. STATE FARM INSURANCE COMPANY ET AL., Defendants, Appellees. New Mexico Supreme Court. No. 18,598. February 7, 1990. CCH 1990 Fire and Casualty Cases, Paragraph 2600.)

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