## Facts

- St. George Creaghe was injured in a collision involving Muril J. Osborn’s truck and obtained an unsatisfied judgment against Osborn.
- Creaghe sued Iowa Home Mutual Casualty Company to collect the judgment, alleging Osborn was insured under a liability policy at the time of the accident.
- Iowa Home Mutual admitted it had issued Osborn a policy, but asserted it was canceled shortly before the collision.
- Osborn operated a commercial vehicle subject to Colorado Public Utilities Commission (PUC) requirements; the policy had to be filed with the PUC and could not be canceled without ten days’ notice to the Commission.
- Under the policy, the insured could cancel by surrendering the policy or mailing a notice; premium adjustment was to be made “as soon as practicable” after cancellation became effective.
- Osborn paid only part of the premium to the local agent; remaining amounts were carried on an account between Osborn and the agent, and coverage changes increased the balance due.
- Osborn tendered a partial-payment check that was returned for insufficient funds; the agent testified Osborn stated he wanted the insurance canceled immediately and retrieved the returned check.
- The agent already possessed the policy for endorsement changes, sent it to the insurer with notice of cancellation, and the insurer notified the Colorado PUC; the PUC responded by letter dated October 29.
- The collision occurred on November 25, more than ten days after the PUC’s written response date.

## Issues

1. Whether the evidence established effective cancellation of the policy before the accident in compliance with the policy terms and the PUC ten-day notice requirement.
2. Whether cancellation was ineffective because any unearned premium was not promptly refunded.
3. Whether the agent’s testimony about Osborn’s statements requesting cancellation was inadmissible hearsay.

## Decision

- The Tenth Circuit affirmed a directed verdict for Iowa Home Mutual.
- The court held the undisputed evidence showed Osborn canceled the policy and that the statutory PUC notice period had expired before the accident.
- The court held that any unearned-premium adjustment did not condition the effectiveness of cancellation under these facts.
- The court upheld admission of Osborn’s statements as nonhearsay verbal acts evidencing cancellation.

## Legal Principles

- A liability policy is effectively canceled when the insured manifests a clear intent to cancel in a manner consistent with the policy’s cancellation provisions, and any applicable regulatory notice requirements have been satisfied.
- Where an agent already possesses the policy, physical surrender may not be required as a separate act to effect cancellation.
- A policy clause providing that premium adjustment will be made after cancellation generally makes refund timing a post-cancellation accounting matter rather than a condition precedent to cancellation.
- Out-of-court statements that constitute the operative words of a legal act (e.g., cancellation) are admissible as verbal acts and are not excluded as hearsay when offered to prove the act occurred.

## Conclusion

The court concluded that the commercial auto liability policy was canceled before the collision because Osborn timely communicated cancellation to the agent, the insurer provided notice to the PUC and the ten-day period elapsed before the accident, and neither refund timing nor evidentiary objections to the cancellation statements created a triable issue.


Creaghe v. Iowa Home Mut. Cas. Co., 323 F.2d 981 (10th Cir. 1963)