Author: Bill Wilson
An insured requested that a second location be removed from his policy. He made the request on 09/29/06. The second location was sold 06/24/04 and he requested that it be removed effective 06/24/04, the date he sold the property, with a return of premium. He presented court house records showing that the property had been sold on that date. The insurer is only willing to remove the property effective 07/12/06 which was the current policy's renewal date. Who's right and why?
Here is a question from an Iowa agent our "Ask an Expert" service recently received:
"My agency has an insured that requested that a second location be removed from his policy. He made the request on 09/29/06. The second location was sold 06/24/04 and he requested that it be removed effective 06/24/04, the date he sold the property, with a return of premium. He presented us with the court house records showing that, indeed, the property was sold 06/24/04. The insurance company is only willing to remove the property effective 07/12/06 which was the renewal date. Can you give me any information that would support either side of this issue?"
Note to users of our "Ask an Expert" service...it is important that we be provided with a policy form number (not policy number, but form number) that shows the type of policy and edition date. Cancellation laws typically vary by line of insurance, especially personal vs. commercial lines. Keep in mind too, that while we'll try to respond to questions involving state laws (cancellation, uninsured motorists, workers compensation, etc.), we can't always do so and you may want to consider contacting your state association.
That being said, our follow up revealed that this was a personal lines account and the second location was a home the insured had for sale. Needless to say, the insured's primary interest was a premium refund. It's interesting that the insured apparently didn't realize he was paying premium on an exposure that he relinquished two years ago. (This also illustrates the importance of agencies asking about changes in exposures at renewal time.)
It's equally surprising that the insurer was willing to cancel effective with the most recent renewal rather than the actual date of notice.
If the policy language is comparable to most forms, particularly ISO, it is a rare insurer that is going to remove coverage retroactively for a premium credit. The insurer has already been exposed to the risk of loss which has now passed. Just because he was no longer the owner doesn't mean that he can't be sued for something such as the condition of the property that arose when he was owner and an in-force policy could provide coverage.
Removing coverage is considered by some insurance departments to be a form of cancellation and most policies require the insured to cancel in writing. For example:
Cancellation
The insured shown in the Declarations may cancel this policy by mailing or delivering to us advance written notice of cancellation.
Notice that this says the insured has to provide ADVANCE cancellation. Until the time of cancellation, the coverage remains in place whether the insured needs/wants it or not.
Also, most policies require that any coverage changes be made in writing. For example:
Changes
This policy contains all the agreements between you and us concerning the insurance afforded. The insured shown in the Declarations is authorized to make changes in the terms of this policy with our consent. This policy's terms can be amended or waived only by endorsement issued by us and made a part of this policy.
Until the insured actually asks for the change, nothing can be done and the insurer has no obligation to retroactively refund premium unless you have a law to the contrary. The insured should have removed the property at the time of sale if that was his intent.