Insurer’s Insistence on Keeping Premium Defeats Claim of Voidance for Breach of Condition

Posted on September 16, 2026 by Barry Zalma

Post 4845

After USAA Learned Ford Had Sold The BMW, It Did Not Attempt To Revoke The Policy And Refund The Amount Ford Had Paid For Coverage and was Estopped or Waived it Right to Revoke Coverage

In Lisa White v. USAA Insurance Agency Incorporated, et al., No. CV-24-00378-PHX-KML, United States District Court, D. Arizona (September 10, 2026) Dezmond Ford purchased a USAA automobile policy covering a 2013 BMW for August 7 through December 27, 2020, and apparently paid the full premium.

Ford later sold the BMW to Jack Eddia without notifying USAA, but kept the policy active to avoid a coverage gap. Eddia obtained title and registration and, on November 1, 2020, struck and killed Lisa White’s son while driving the BMW. USAA had accepted premiums through the accident date and, after learning of the sale, did not refund the premium attributable to the post-sale period. White obtained a $3.75 million judgment against Eddia under a Damron agreement and, as Eddia’s assignee, sued USAA for breach of contract and bad faith.

LAW

Arizona generally requires an insurer relying on an insured’s breach of a notice condition to prove actual prejudice. The statute A.R.S. § 20-1105 makes a property insurance contract enforceable only for the benefit of a person with an insurable interest, defined as an actual, lawful, and substantial economic interest in preserving the insured property. Arizona waiver and estoppel precedent also bars an insurer from treating a policy as void to deny coverage while treating it as valid to retain premiums.

DISCUSSION

USAA asserted that the policy barred transfer or assignment, Ford breached the policy by failing to report the sale, and Ford’s sale extinguished his insurable interest.

White did not rely on any transfer or assignment theory; she argued Eddia was a covered person using a vehicle listed on the declarations and that USAA waived or was estopped from asserting lack of insurable interest because it retained the premiums.

USAA offered only a conclusory declaration that it would have canceled the policy and did not establish actual prejudice. On insurable interest, the court agreed that Ford’s sale generally extinguished his interest and would ordinarily make the policy inapplicable, but held that Arizona precedent prohibited USAA from invoking that defense while retaining the unearned premium.

ANALYSIS

The decisive point was the inconsistency in USAA’s position. Arizona cases establish that an insurer may waive forfeiture or be estopped when it knowingly retains premiums for a period during which it claims the policy was void.

Although the named insured’s lack of an insurable interest favored USAA on the underlying statutory question, USAA retained the premium attributable to coverage after Ford sold the vehicle and did not explain what that premium purchased if the policy had ceased to provide any coverage.

Because the relevant facts were undisputed, waiver or estoppel could be resolved as a matter of law. By contrast, USAA’s notice defense failed at summary judgment because it lacked legal and factual proof of actual prejudice.

Because White is not pursuing these theories, USAA’s arguments addressed to them are irrelevant. USAA is not entitled to summary judgment on claims or theories White is not pursuing.

There is no dispute that after USAA learned Ford had sold the BMW, it did not attempt to revoke the policy and refund the amount Ford had paid for coverage between August and December. immediately upon the sale of the BMW.

USAA is either estopped or it waived the insurable interest requirement by retaining the portion of premium attributable to the period after the sale of the BMW. USAA’s motion for summary judgment is denied and White’s motion is granted.

CONCLUSION

The court denied USAA’s motion for summary judgment and granted White’s motion for partial summary judgment. It held that USAA could not rely on the lack-of-insurable-interest defense after retaining the post-sale premiums.

ZALMA OPINION

The competence of the underwriting and claims departments of major insurers is difficult to find. Once the BMW was sold the insured had no interest in the vehicle and the policy should have been void but the seller continued to pay the premium. Once USAA learned of the sale it knew, or should have known, its insured had no interest in the vehicle and should have given notice the policy was void as of the date of the sale and returned premium paid after the sale. It did not and as a result – for a few dollars of premium – USAA exposed itself to pay a multimillion dollar judgment.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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