California law provides significant protections for policyholders regarding the termination of their insurance coverage. These regulations dictate when and how an insurance company can cancel a policy, ensuring that such actions are not arbitrary and that consumers have adequate notice.
Grounds for Mid-Term Policy Cancellation by Insurers
An insurer can legally cancel a policy in the middle of its term, but after a policy has been in effect for 60 days, the grounds for cancellation become strictly limited. For both auto and property insurance, cancellation is permitted for nonpayment of premium or for fraud in pursuing a claim. A material misrepresentation by the insured on their application is also a primary reason. This occurs when a policyholder provides false information that, had the insurer known the truth, would have caused them to deny coverage or charge a higher premium.
Another valid reason is a substantial increase in the hazard insured against. For a homeowners policy, this could be a physical change that makes the property uninsurable. For automobile policies, California Insurance Code Section 661 also permits cancellation if the driver’s license of the policyholder or another regular driver is suspended or revoked.1FindLaw. California Code, Insurance Code – INS § 661
Prohibited Bases for Insurance Cancellation
California law forbids insurers from canceling policies for discriminatory reasons. A company cannot use characteristics like race, color, religion, national origin, ancestry, marital status, or sex as a basis for terminating coverage, as detailed in Insurance Code Section 679.71.2Justia. California Insurance Code § 679.71 (2024)
Insurers are also barred from canceling policies for reasons not specifically permitted by statute. For example, a homeowners policy cannot be canceled solely because the policyholder operates a family daycare home at the location, unless there was a material misrepresentation. An insurer also cannot cancel a policy simply because a policyholder made an inquiry about their coverage or filed a claim.
Insurer’s Obligations for Cancellation Notices
When an insurer cancels a policy, it must provide the policyholder with a written notice mailed to their last known address. California law specifies minimum advance notice periods that insurers must provide. For cancellation due to nonpayment of premium, the insurer must give at least 10 days’ notice.3Justia. California Insurance Code § 662 (2024) For most other permissible reasons, such as fraud or a substantial increase in hazard, at least 20 days’ notice is required for personal auto and homeowners policies.
The content of the cancellation notice is also regulated. The notice must clearly state the precise reason for the cancellation and its effective date. For auto insurance cancellations, the notice must provide information about the California Automobile Assigned Risk Plan (CAARP), while notices for residential property insurance must mention the California FAIR Plan.
Policyholder Options After Receiving a Cancellation Notice
Upon receiving a cancellation notice, a policyholder should first contact the insurer to clarify the reason and correct any errors. If the issue cannot be resolved or the cancellation seems unlawful, you can file a formal complaint with the California Department of Insurance (CDI). The CDI provides a “Request for Assistance” form on its website.4Templateroller. Form CSD-001-P Request for Assistance (Rfa), California
It is important to immediately begin searching for replacement insurance to avoid any gap in coverage, which can have serious financial and legal consequences. If a policy is canceled mid-term, the policyholder is entitled to a pro-rata refund of any unearned premium paid for the period after the cancellation date.5FindLaw. California Code, Insurance Code – INS § 481
Understanding Non-Renewal of Insurance Policies
A mid-term cancellation differs from a non-renewal, which is an insurer’s decision not to offer a new policy when the current one ends. Insurers have more flexibility in their reasons for non-renewal. However, they must still provide adequate notice. For personal auto policies, an insurer must provide at least 45 days’ notice before the policy’s expiration.
For residential property insurance, this notice period is extended to at least 75 days.6FindLaw. California Code, Insurance Code – INS § 678 If the insurer fails to provide this 75-day notice, the existing policy remains in effect with no change in terms for 75 days from the date the notice is finally delivered. The non-renewal notice must state the reason for the insurer’s decision. For residential property, the notice must also include information on the California Home Insurance Finder tool to help policyholders search for new coverage.