Even after the underwriting period has ended, insurance carriers have the opportunity to cancel a property/casualty insurance policy prior to the renewal. However, the reasons insurance carriers are allowed to use to effectuate these mid-term cancellations are often strictly limited by statute.
Not surprisingly, states regulate mid-term cancellations in various ways. Only nine states apply one list to all lines of business. The remaining 41 and the District of Columbia allow for different reasons based on the coverage in question (auto, homeowners, fire policies, etc.).
There are commonalities among the 50 states and the District of Columbia. Every state allows mid-term cancellation of a policy for:
- Nonpayment of premium; or
- Material misrepresentation (or misstatement).
Additionally, most states allow cancellation for:
- Substantial breach of contractual duties (or policy provisions);
- Material or substantial change in the risk assumed or an increase in hazard.
The term “material” —or material fact— is not defined in statute but is commonly defined within insurance to mean, “A fact that would have caused the underwriter to decline the risk, charge a different (higher) premium, or apply different terms and conditions to the policy,” according to the Glossary of Insurance Terms.
Beyond these commonalities there are a myriad of reasons allowed by the states. Every state’s mid-term cancellation can be found in a free document, Mid-term Cancellations by State, from the Insurance Journal Academy of Insurance. In addition to the reasons, this document provides the number of days of notice required and the applicable statute or regulation.
Editor’s Note: This is Part II, “When P/C Insurance Carriers Can Cancel.” In Part I, Underwriting Period by State, Boggs discussed how states vary in the applicability, limitations, notification requirements and allowed length of the right to cancel a newly-written policy during the new policy “underwriting period.” This first article also included a chart on underwriting period information for each state.
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