SENATE BILL REPORT
SB 6318
BYSenators von Reichbauer, Moore, Garrett and Rasmussen; by request of Insurance Commissioner
Revising provisions on the cancellation and renewal of insurance policies.
Senate Committee on Financial Institutions & Insurance
Senate Hearing Date(s):January 26, 1988
Majority Report: That Substitute Senate Bill No. 6318 be substituted therefor, and the substitute bill do pass.
Signed by Senators von Reichbauer, Chairman; West, Vice Chairman; Johnson, Kreidler, McCaslin, Moore, Rasmussen, Sellar, Smitherman.
Senate Staff:Walt Corneille (786-7416)
January 26, 1988
AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, JANUARY 26, 1988
BACKGROUND:
If an insurance policy is cancellable at the option of the insurer, a cancellation may only be accomplished by giving written notice to the insured and his or her representative in charge of the subject of the insurance 45 days before the effective date of cancellation. This requirement applies to cancellation of binders for such policies as well. These requirements do not apply to contracts of life or disability insurance which do not contain a provision allowing cancellation prior to the date premiums have been paid or to policies procured by insurers not authorized by the Commissioner to solicit business in this state. Like notice of not less than 45 days must also be sent to a mortgagee, pledgee or other person shown to have an interest in any loss (loss payee) that may occur. This can create a situation where the loss payee receives a notice of cancellation prior to the insured.
An insurer is required to renew a contract of insurance unless: (1) the insurer gives at least 45 days written notice of the nonrenewal; or (2) at least 20 days before the expiration date the insurer, in writing to the insured and his or her representative, indicates a willingness to renew the contract along with a statement of the new premium and the insured fails to pay the premium when due; or (3) the insured's agent has procured other coverage acceptable to the insured.
A renewal must be based on forms and rates applicable to the existing policy unless 20 days advance notice of a change in rates or contract provisions is given.
In 1986 the Legislature enacted a provision requiring that notice of cancellation or nonrenewal be sent to the agent or broker as well as the insured. Existing language requiring notice to the insured's representative creates an additional requirement.
SUMMARY:
Cancellation provisions applicable to binders apply only to binders which do not contain a clearly stated expiration date. The requirement that notice of cancellation or nonrenewal be sent to the insured's representative is stricken. The exemption from cancellation requirements is extended to surety bonds required by statute.
Any insurer failing to include in a notice of renewal the increased premium or explanation of any change in the contract provisions must renew the policy according to the rates and contract provisions that apply to the existing policy. Where there is a renewal based on rates and contract provisions in the existing policy the insurer may make one change in the rates and/or contract provisions during the renewal term if 20 days advance notice is given.
The notice requirement to the loss payee is made the same as that of the insured.
EFFECT OF PROPOSED SUBSTITUTE:
The exception from the cancellation requirements for surety bonds required by statute is stricken.
The requirement that willingness to renew a policy be communicated to the insured may be carried out either directly by the insurer or through its agent.
A change in either rates or contract provisions may be made once during the term of a policy which is renewed at the premium rate and with the contract provisions of the previous policy.
Appropriation: none
Revenue: none
Fiscal Note: none requested
Senate Committee - Testified: Richard Marquardt, Insurance Commissioner; Scott Jarvis, Insurance Department; Basil Badley, AIA; Steve Wehrly, United Pacific Insurance Company