The Insurance Review - November 2009
CANCELLATION PROCEDURES
By Roland L. Enz - President, California Plus Insurance
This month I want to take a few pages out of our Client Manual that we provide to each of our insured’s when they purchase insurance through our agency. With the economic down turn, many of you are terminating your insurance for one reason or another. You may be parking the truck, selling it or leasing it to a prime carrier that will provide you with coverage. Since most of you have filings (Certificates of Insurance) that have been issued in your name to either the state and/or the Federal Motor Carrier Safety Administration (FMCSA), through your insurance company, certain procedures have to be taken into consideration when cancelling your coverage. Let’s look at some of these proper procedures that need to be followed when cancelling a policy.
If you have operating authority through the PUC, the Department of Motor Vehicles or the FMCSA, it is the legal responsibility of the insurance company, that has made the filing on your behalf, that in the event of cancellation, the authorizing agency (or agencies) must be notified with a written “Thirty Day Notice of Termination” by mail. There are only two ways that cancellations can be accomplished
without the Thirty Day Notice of Termination requirement.
The first way to cancel your policy without the Thirty Day Notice of Termination is to cancel your authority and provide the insurance company with a copy of that document. The insurance company should honor that date as the effective date for the cancellation. However, not all companies will do this. The State of California does not have a problem with terminating your authority or “putting it on ice” but the FMCSA is another issue altogether. The FMCSA will require a notarized request. Their turn-around time usually takes longer than the Thirty Day Notice of Termination. The cancellation by the insurance company has to reflect the effective date of both authorities.
The second way to cancel your policy without the Thirty Day Notice of Termination is to re-write your insurance with a new company and then get a “Hold Harmless” letter from that company. With that letter, the previous carrier should cancel to that date.
All requested cancellations by the insured must have a signature on a Cancellation Request Form or the return of the original insurance policy. Time is of the utmost importance in a request for cancellation. Since the insurance supports your authority, it will take a minimum of 35 days (this includes processing and mail time). Premiums are earned during that time. If you have a deposit, the cancellation period will probably take most of that money. If there is a deficiency, you will be responsible for any amount due. It is necessary that you make your payments during the cancellation period to protect your deposit. If there is any unearned premium, that money will be returned to you.
Another option, but not the best one, is to stop paying your premiums. Most truck insurance policies are financed. The cancellation procedure, in the event of non-payment, is outlined in the following procedures. Since the insurance company has to give the required 30-day notice to the regulating authority, this can only take place after the payment is delinquent with the finance company. After the payment is delinquent with the finance company, they must contact the insurance company, notifying them of the delinquency. At that time, the insurance company will put the regulating authority on notice of the termination. As you can see, this process usually takes a minimum of 45 days. The finance company is on a short fuse, so the payments have to be made on-time to avoid cancellation notices. Upon payment, reinstatement notices would go out. If another payment is due, in the mean time, the finance company will not send a request for reinstatement until all of the money due is sent and the account is current. Many finance companies, when reinstating a policy, will require you to send certified funds.
If, in the course of a cancellation or termination, money becomes due, you will be required to cover that amount. It is easy to get upside down in this process, and the finance company will come after you for any deficiency. Understand that financed policies must have both the insurance company, as well as the finance company, kept in the loop. Since most of the truck policies are financed, any return premium, from the insurance company, will go back to the finance company to pay off the loan. Any balance will be returned to the insured. The finance companies clock continues to tick, and money is due in either case – whether the insurance policy is cancelled through the insured’s request, or if the policy is cancelled for non-payment.
Reinstatements for a financed contract vary from insurance company to insurance company. Contact your broker and discuss this with him/her. Some insurance companies will charge you extra for reinstatements, and some companies will not reinstate you at all after a predetermined number of cancellation requests have been made. Some companies will not offer a renewal on policies that have had numerous cancellation and reinstatement requests. The rule of thumb, concerning cancellations, is that the insurance company will not reinstate after the third cancellation.
In these trying times, we all must do what we have to do to survive, but that doesn’t mean that we have to make bad (or dumb) choices. When cancelling a policy, make sure that you do it right and follow all of the proper procedures. If you have any insurance-related comments or questions, I can be reached at California Plus Insurance Service in Modesto, California at 1-800-699-7101.