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Policy cancellations: You can fire me, but only if I mess up

If you are among the thousands of Florida homeowners who were "depopulated" from Citizens Property Insurance Corp. last year, you may now be dealing with a different insurer for the first time in years. The coverage may vary slightly, but the basic terms of the contract and your relationship with the insurance company have not changed. State law makes sure of that.

State law also spells out the reasons an insurer can cancel a policy. Because Florida has some interesting exceptions, we will focus here on cancellation of homeowners insurance.

Remember, there is a difference between cancellation and nonrenewal. An insurer may choose not to renew your policy, but the policy remains in effect until the end of the coverage period. An insurer can cancel your policy, with proper notice, during your coverage period. (In Florida, proper notice depends on the reason for the cancellation and the time of year.) Please note: Once the policy has been in effect for 90 days, the insurer can only cancel for the reasons we are discussing here.

The first two reasons should not surprise anyone, as they are common reasons someone would cancel any contract. First, the insurance company can cancel your homeowners policy if you fail to pay your premium or deductible. Second, your insurer has the right to cancel if your application contains a material misrepresentation or misstatement.

It is the second reason that is open to interpretation. Generally, the insurance industry considers a "material" fact to be "a fact that would have caused the underwriter to decline the risk, charge a different (higher) premium, or apply different terms and conditions to the policy.” Lie about the age of your home or deliberately omit information about a termite infestation, and your insurer can cancel your policy.

Florida also allows mid-term cancellation if

  • You fail to comply with underwriting requirements established by the insurer within the first 90 days of coverage.
  • There is a substantial change in the risk covered by the policy.
  • The cancellation applies to all insureds under policies written for that specific class of insureds.

The state has specifically barred insurers from canceling homeowners policies under certain circumstances. We will explain more in our next post.

Sources:

Insurance Journal, "When P/C Insurance Carriers Can Cancel: Mid-term Cancellation Provisions by State," Christopher J. Boggs, Dec. 15, 2014

Insurance Journal (Wells Media Group), "Mid-Term Cancellations by State," December 2014

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