The Insurance Scene: Autombile Policy Cancellation (A True Story)
By J.B.M. Murray
My son-in-law purchased an automobile insurance policy and set up an automatic payment plan. The insurance company took the first payment, but it was larger than my son-in-law expected. He called to inquire about the error, and found out the insurance company was using the wrong rating. He told them they could get confirmation of his rating from his previous insurer. At this point, he threatened cancellation if they did not sort things out. He then left for Nova Scotia (from Ontario) to do a scheduled work-term.
Six weeks later, his truck was stolen. He called his agent, who investigated his claim. The agent called back several days later to inform my son-in-law that the company had cancelled his policy, so he was no longer insured!
In light of the above circumstances, what constitutes cancellation?
There are many unanswered questions here that make it impossible to give a definitive answer. Did the son-in-law give his agent his new address in Nova Scotia? Did he advise the post office of his new address, so his mail could be forwarded? Did he close his bank account? If so, did he make arrangements to ensure his premium installments would be paid? If he left no forwarding address, and if his payments were not kept up to date, how could he expect the insurance coverage to continue?
Presumably, the company did not, for one reason or another, receive the second payment. It would then likely have communicated with the agent, but again, presumably, did not get the insured's address. So all it could do was cancel the policy for non-payment of premium.
Cancellation must be done according to the Termination Condition set out in the Ontario policy (Condition 11). This requires the insurance company to give the policyholder named in the contract 15 days' notice of termination, either by letter personally delivered or by registered mail addressed to his latest post-office address as notified to the company.
If the registered letter is not delivered (or picked up at the post office following notification), the post office will return the envelope to the insurer with the reason for non-delivery. That envelope will be placed, unopened, in the policy file as evidence that the correct procedure was followed. Thus, if the policyholder doubts that the policy was correctly cancelled, he is entitled to see the cancellation letter which will show the date it was posted.
However, there is another possible reason for the policy cancellation. If the son-in-law was involved in a chargeable driving conviction while insured under his previous policy, and if this was not disclosed in the application for insurance with the new company, then the company has the right to cancel the contract. Again, the insurer would likely get in touch with the agent to see whether there was some acceptable reason why this information was not disclosed, before issuing the cancellation letter. A driving conviction could also account for the higher-than-expected payment.
In conclusion, if any of these possibilities are correct, it is unlikely that your son-in-law will be successful in convincing the company to pay his theft claim. But he is entitled to know what actually caused the cancellation, and, if he feels he has not been treated fairly, he might receive some assistance from the Insurance Bureau of Canada's consumer information centre. See the Web site (www.ibc.ca) for the toll-free telephone number for each province.
J.B.M. Murray, FCII, MAAA, is a Chartered Insurer and Casualty Actuary.