AIG-owned surplus lines insurer Western World Insurance Company on the hook over legal technicality

When a fire destroyed a motel owned by Jai Hospitality on June 26, 2020, the operator filed a claim with AIG owned surplus lines carrier Western World Insurance Company. The insurer denied coverage, arguing that the policy had expired on June 1, 2020, just over three weeks earlier.

Jai Hospitality, which operated the Relax Inn in Oklahoma, contended that it never received direct notice of a renewal offer from Western World and that the insurer had failed to comply with Oklahoma state law (36 O.S. § 3639), which requires insurers to send written notice to the first named insured when there is a premium increase, deductible change, or coverage reduction. Jai argued that because Western World did not properly notify it of the renewal offer—including a $3,000 premium increase—the policy should be considered in effect at the time of the fire.

Western World maintained that it had sent the renewal offer to Jai’s insurance agent, J. Charles Insurance LLC, and the surplus lines broker, All Risks, Ltd., arguing that notice to these intermediaries was sufficient. The trial court ruled in favor of Western World, agreeing that the policy had lapsed, and the Oklahoma Court of Civil Appeals upheld that decision. Jai then appealed to the Oklahoma Supreme Court, arguing that the policy should have remained active due to Western World’s failure to follow statutory notice requirements.

The Oklahoma Supreme Court reversed the lower court rulings, finding that Western World:

1. Failed to Properly Notify the First Named Insured – Oklahoma law and the policy required Western World to send written notice directly to Jai Hospitality, not just to its broker or agent. Because the renewal included a premium increase, the insurer was legally obligated to provide direct notification.
2. Extended Coverage Beyond June 1, 2020 – Since Western World did not send proper notice, the court determined that coverage remained in effect until 45 days after proper notice was given or until Jai obtained replacement insurance. Jai did not secure a new policy until July 9, 2020, meaning the policy was still in effect at the time of the fire.
3. Misapplied Surplus Lines Agent Rules – Western World argued that notice to J. Charles Insurance LLC and All Risks, Ltd. should be considered legally equivalent to notice to Jai. However, the court ruled that under Oklahoma law (36 O.S. § 1435.3), surplus lines brokers act as representatives of the insured only for policy procurement, not for renewal notices.
4. Bad Faith Claims Can Proceed – Since Jai Hospitality’s coverage was valid at the time of the fire, the court ruled that Western World’s denial of the claim may have been in bad faith, allowing Jai’s lawsuit for damages to proceed.

The court vacated the decision of the Court of Civil Appeals, reversed the trial court’s summary judgment ruling, and sent the case back for further proceedings, including an assessment of Jai’s claims for bad faith damages.

This ruling shows that insurers must strictly comply with notice requirements before nonrenewing or modifying policies. It also sets a precedent for surplus lines insurers, clarifying that notice sent only to brokers or agents does not satisfy statutory or contractual requirements.

For insurers, the ruling underscores the need for compliance with notice laws, particularly when adjusting premiums, deductibles, or coverage terms. Failure to provide direct written notice could lead to unintended policy extensions, as seen in this case.

The case will now return to the trial court, where Jai may pursue damages for bad faith denial of coverage.