An Illinois-based premium financing provider has agreed to pay $200,000 to resolve allegations that it illegally and prematurely cancelled certain financed auto insurance policies affecting nearly 200 Massachusetts customers. The agreement was announced Thursday by Massachusetts Attorney General Martha Coakley’s office.
According to the assurance of discontinuance filed Thursday, FIRST Insurance Funding Corporation issued cancellation requests to insurance companies with an effective date that was the same as the date of the notice, violating a state insurance statute that requires premium financing providers to give at least a 20-day notice to the insurance company that issues the policy.
“Financing companies are required to give Massachusetts customers adequate protections and proper notice of auto insurance cancellations so they can determine a solution for continued coverage,” said Attorney General Coakley.
“Our office will continue to track these providers to make sure that they are complying with state laws when dealing with the insurance policies of consumers and small businesses,” Coakley said.
Officials said Massachusetts’ insurance statute works in conjunction with other state laws 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.
A premium finance company provides loans that enable people to pay their insurance premiums in installments. The company 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, FIRST will pay more than $140,000 to roughly 200 customers in Massachusetts whose policies were allegedly prematurely cancelled by FIRST or were sought to be prematurely canceled.
FIRST will also pay an additional $60,000 to the state of Massachusetts. FIRST also agreed to modify its auto insurance cancellation procedures and bring its notice practices into compliance with state statutes.
The Massachusetts Attorney General’s office began its investigation of illegal cancellation practices by premium financing providers in 2011. This is the fourth investigation to result in refunds to Massachusetts customers. Previously, the Attorney General’s office recovered funds from IPFS Corporation, Flatiron and New York-based premium financing provider AICCO.
Source: Massachusetts Attorney General’s office
- Mass. AG Coakley Urges Greater Transparency for Auto Insurance Surcharges
- Finance Firm to Pay $160K for Prematurely Canceling Mass. Auto Policies
- Massachusetts AG Settles With Premium Financing Provider Flatiron Capital