Everybody knows your car insurance could be canceled for a serious infraction like driving drunk. But what if it gets canceled because you didn’t wear a helmet while skateboarding? Or you own a company that makes firearms? Not likely, right?
Actually, these are two recent cases when motorists were told by car insurance companies that they no longer would be insured following events that, at least on the surface, had little or nothing to do with driving.
In fact, there are lots of unexpected ways people can lose their car insurance. One woman’s coverage was revoked because her husband’s driver’s license was suspended. A man’s policy was dropped when the insurance company couldn’t locate his sister-in-law’s driving records.
These are not your usual cancellations. According to the Insurance Information Institute, typical grounds for cancellation include failing to pay premiums on time, and having a suspended, revoked or expired license.
Several insurance companies didn’t respond to requests for information about unusual cancellations. Others declined to comment and referred questions to industry organizations.
The affected policyholders also could not be reached for additional explanations. For the most part, they described their experiences on anonymous consumer complaint boards or had them reported by news media.
But even without knowing the particulars of each case, these cancellations are credible. All of the situations described could be legal reasons for cancellation.
Can you really do that?
Many insurers, for instance, will cancel a policy if the policyholder gets too many traffic tickets. If helmet-less citations were recorded on a skateboarder’s driving record, it could trigger cancellation. According to FindLaw, if a bicyclist receives a ticket, it’s treated the same as a violation in a car.
The firearms maker lived in Montana, where state law allows cancellation if the insured vehicle is used to commercially transport explosives. While firearms themselves are not explosive, ammunition is.
The cases of the husband’s suspended license and the mysterious sister-in-law rest on similar policy provisions. In the first scenario, cancellation is allowed if anyone living in the same household as the insured drivers has his or her license revoked. This applies even if the person whose license is revoked has insurance with another carrier. Another typical policy provision says the policy can be canceled if someone at the same address has too many tickets or accidents.
An insurer can cancel a policy for any reason for a short period just after the policy is issued. In most states, this period is set by law at 60 days from the day it takes effect.
After that point, however, cancellation is not something insurers can do without justification. “Most state insurance laws are very specific about the circumstances under which an auto insurance company can cancel your policy and are set forth by the state insurance departments,” says Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute.
Texas, for instance, allows cancellation if someone in the same household has a driver’s license suspended or revoked. In California, a policyholder may have his policy canceled if someone else living at the same address misrepresents the facts about his driving record, claims history or even annual mileage.
Insurers can cancel because of actions of someone other than the policyholder, since coverage doesn’t include just the policyholder, says Mark Hanna, a spokesman for the nonprofit Insurance Council of Texas. “They’re insuring everyone in your house, so they need to know what drivers they’re insuring,” Hanna says.
Costs of cancellation
A driver whose insurance has been cancelled could lose the vehicle if it is wrecked, catches fire or sustains some other damage while he’s uninsured. An uninsured motorist also could be ticketed for violating state insurance laws.
And cancellation can bump up premiums if the lapse continues long enough. Insurers typically charge more to drivers who have gaps of more than a month or two in coverage.
Sometimes cancellation can be reversed. This happened with a man who said his wife’s license was mistakenly shown as revoked after they moved to another state.
However, when coverage is reinstated, some carriers will charge a fee. In addition, many state motor vehicle departments will assess a fee, from $25 to $100, for reinstating coverage after it has lapsed.
Responding to cancellation
Before canceling, insurers must warn a policyholder in writing. Worters says that state laws typically require insurers to give policyholders 10 to 30 days’ notice before canceling coverage.
Insurers may treat the regular monthly bill as a notice of cancellation if the bill isn’t paid on time. So, if it is paid late, the policy may be canceled automatically.
Generally, a policyholder whose coverage is canceled should contact his state’s insurance department. The department can let the policyholder know whether the state has any rules regarding unexpected cancellations.
For instance, a California insurer can’t cancel a firefighter’s or police officer’s policy for crashing while driving a fire truck or squad car. In Texas, insurers can’t use the fact that a state official is publicly elected as a reason to cancel coverage.
In Illinois, a claim resulting from a hate crime against the policyholder’s property is not a valid reason for cancellation. According to the Illinois Hate Crime Act, a hate crime is any crime committed because of the victim’s race, color, creed, religion, ancestry, national origin, sexual orientation, disability or gender. Hate crime offenses can include criminal damage to property, which could trigger an insurance claim.
Some states provide canceled policyholders with an official appeal process or other remedy. In California, canceling insurers must refer former policyholders to the state pool for hard-to-insure drivers. Texas orders insurers to offer the option of a rider to exclude coverage is someone living in the same house is the problem.
But even if your policy gets canceled, don’t get too discouraged. In Texas, for instance, “the competition is pretty fierce for auto insurance,” Hanna says. “We have 185 companies that offer auto insurance. For the right premium, nearly every driver is insurable.”