A Colorado-based premium financing provider has agreed to pay $42,000 to resolve allegations that it illegally and prematurely cancelled certain financed auto insurance policies belonging to nearly 50 Massachusetts customers.
The settlement was announced by Massachusetts Attorney General Martha Coakley last week.
According to the assurance of discontinuance, filed in Suffolk Superior Court on Jan. 15, 2013, Flatiron Capital issued cancellation requests to insurers with an effective date that was the same as the date of the notice. This alleged practice violated a state insurance statute that requires premium financing providers to give at least a 20-day notice to the insurer that issues the policy.
This statute works in conjunction with other provisions to ensure that customers have adequate time to bring their accounts current before their policies lapse and they are forced to take vehicles off the road or seek replacement coverage.
“We allege that Flatiron failed to provide enough time to Massachusetts customers to seek replacement coverage before canceling their auto insurance,” Coakley said.
“It is important that these providers play by the rules and give customers adequate time to bring their accounts current before they face costly interruptions.”
Flatiron is a company that provides loans that enable people to pay their insurance premiums in installments. A premium financing provider uses the unearned premium on the policy as collateral for the loan.
If a customer misses a scheduled payment, the premium financing provider may seek to cancel the policy.
Under the terms of the settlement, Flatiron will make payments totaling more than $32,000 to roughly 50 customers in Massachusetts whose policies Flatiron allegedly prematurely cancelled or sought to prematurely cancel in violation of state law.
Flatiron will also pay $10,000 to Massachusetts and has agreed to modify its auto insurance cancellation procedures and bring its notice practices into compliance with state statutes.
The attorney general’s office began its investigation of illegal cancellation practices by premium financing providers in 2011. This is the second investigation to result in corrective action and payments to Massachusetts customers. In 2011, IPFS Corporation paid $82,000 to settle similar allegations.
The attorney general’s office said several other premium finance companies still remain under investigation.