Facing cancellation of your auto insurance policy? Know the rules of the road

Anyone can make a mistake. You’ve been busy at work, you’ve been traveling or you just plain forgot. For whatever reason, your auto insurance bill didn’t get paid.

Of course, your auto insurance company wants its money. If you failed to pay your premium, your auto insurance policy can be canceled. Another reason for cancellation: You gave false or misleading information on your insurance application.

A policy cancellation typically occurs within 10 to 15 days of you receiving written notification from your auto insurer, according to Dan Weedin, an insurance and risk management consultant in Seattle. A non-renewal takes longer — about 30 to 60 days. Racking up too many claims is one reason for non-renewal. By the way, cancellation happens during the policy period, while non-renewal occurs at the end of the policy period.

Room to maneuver?

Consumers may have some wiggle room with an auto insurer in a cancellation situation – especially if the consumer has a good track record with that company.

A good track record with your auto insurance company may give you some breathing room if you’re in jeopardy of losing your coverage.

“It really depends on the insurer and what state you reside in, but you stand a good chance of reinstating your insurance simply by calling your insurance company,” says Pete Moraga, a spokesman for the Insurance Information Network of California, an industry trade group. “Most insurers still want you as a customer.”

“That said, you may lose any discounts you’ve accumulated and you might be charged a higher amount (of money),” Moraga says. “But if it’s your first lapse, your insurance will likely want to do business with you.”

Auto insurance customers have another ace in their pocket. Insurers in most states must tell customers how much cash they owe before a policy essentially is tossed.

In late 2010, the State of New York was able to reinstate the policies of 73 consumers whose auto insurance policies canceled for non-payment of premiums. According to the New York State Insurance Department, the auto insurer improperly canceled those policies by failing to notify consumers how much money was due.

“Consumers must be treated fairly and there are requirements in place to make sure that happens,” New York Insurance Superintendent James Wrynn said in a statement. “One of those requirements is the obligation of an insurance company to make sure a consumer knows how much is owed on a premium before the insurer acts to cancel for non-payment.”

It’s not just about notifying auto insurance customers about the amount of money that consumers owe. In New York, for example, auto insurance companies also must:

• Give customers 15 days from the date a cancellation notice is mailed to halt the cancellation by paying the premium.

• Tell customers that a policy cancellation will result in notification to the state Department of Motor Vehicles that a vehicle is uninsured and, therefore, subject to revocation of your driver’s license and vehicle registration.

• Mail the cancellation notice to the address that’s on file for the insured person. The state’s Insurance Department recommends that if you move, you should notify your auto insurance company — in writing — about the change of address.

Read the fine print

Moraga, the Insurance Information Network of California spokesman, says that it’s the consumer’s responsibility to make payments on time — or face the consequences.

“The rules are spelled out right there in the contract,” he says. “Insurers feel they have stated what they provide and what the customer must provide – so you have to check your contract and read your (billing) statements.”

If a canceled policy situation goes downhill, many states do have mechanisms in place to get the policy reinstated. That usually means opting for an “appeal” through your state insurance office.

If the appeal involves non-payment of a premium, “it might be as simple as getting the premium in before the allotted time expires,” Weedin says. “If it’s for false information, there won’t be any recourse.”

For non-renewals, there’s more time to appeal, Weedin says. Often, it’s a case of convincing your local agent to go to bat for you and see whether there’s a chance to negotiate.

However, a jilted policyholder can’t take a non-renewal case to court unless there’s proof that the insurer acted in “bad faith,” Weedin says. An example of bad faith “might be an insurer singling out one insured customer but allowing others to get away with the same problem,” he says.

One step consumers should take is to ask an insurer before both sides sign on the bottom line about what procedures are used in policy cancellations and non-renewals — and what it would take for you to keep your coverage.

–Brian O’Connell