Many times an insurance lawyer is approached by someone who has a claim denied due to the insurance company assertion that the policy has been cancelled. In this regard, understanding the reasons for cancellation are important.
“Cancellation” refers to the insurance company’s termination of coverage before the end of the policy period. A cancellation is in contrast to a non-renewal, which involves an insurer’s unwillingness to reissue the policy following the completion of the policy term of coverage.
As seen in the 1994, opinion from the Waco Court of Appeals opinion, Truck Ins. Exch. v. E.H. Martin, Inc., insurance policies often contain provisions regarding cancellation. In E. H. Martin, the insurer complied with its own policy provision regarding cancellation when it cancelled the policy for nonpayment of premiums. Specific provisions for cancellation of coverage must be precisely followed by the insurer and will be strictly construed by courts. This is seen in numerous cases, including, the 1993, Texarkana Court of Appeals opinion, Cruz v. Liberty Mut. Ins. Co. and the 2001, Corpus Christi Court of Appeals opinion, Jones v. Ray Ins. Agency.
An insurance policy may include a provision making cancellation effective upon the insurer’s mailing notice to the insured. An example of this is seen in the 1988, 1st District Court of Appeals in the opinion styled, Har-Con Corp. v. Aetna Cas. & Sur. Co., where the court said, “The policy or any Insuring Agreement may be cancelled by the Company by mailing to the Insured at the address shown in this Policy written notice stating when not less than fifteen days thereafter such cancellation shall be effective. The mailing of notice as aforesaid shall be sufficient proof of notice.”
When the parties have contracted for terms of cancellation in an insurance policy and have expressly agreed that mailing of notice is sufficient proof of notice of cancellation, the cancellation is effective when the notice is mailed, even if the addressee never actually receives it. This was stated in the Har-Con opinion.
The Texas Insurance Code, Section 551.001(a), authorizes the Texas Department of Insurance to prescribe and enforce rules and regulations regarding the cancellation of certain liability, property and casualty, and other insurance policies. Texas Insurance Code, Section 551.001(b) says in adopting its rules and regulations, TDI should consider the reasonable needs of the public and the operations of insurance companies.
Under this authority, the Commissioner of Insurance has adopted rules restricting cancellation of certain property and casualty coverages. These are found in the Texas Administrative Code, Sections 5.7001 to 5.7016.
In addition, there are statutory limits on cancellation of certain liability policies, and certain property and casualty policies, including automobile and homeowners. These are found in the Administrative Code, Sections 551.051 to 551.056, 551.101 to 551.112, 551.151 to 551.152.