Obtaining Insurance Coverage After Your Policy Has Lapsed For Non-Payment
With the recession that all the financial experts say may be coming upon us, not all the bills are going to be paid. I don’t recommend you fail to pay your bills, especially your automobile insurance. However, if you are unable to and/or you forget to pay your car insurance, you should be aware that the insurance company may be obligated to pay claims, even if the incident occurred after the policy lapsed after a failure to pay the premiums. Here is the law on when an insurance company can cancel an insurance policy and the obligations they must fulfill before being able to decline coverage
Pennsylvania law provides that an insurer may cancel an insurance policy for nonpayment of a premium. 40 Pa. Stat. Ann. § 991.2004 (West 2015). In Pennsylvania, a cancellation or refusal to renew by an insurer of a policy of automobile insurance will not be effective unless the insurer delivers or mails to the named insured at the address shown in the policy a written notice of the cancellation or refusal to renew. 40 Pa. Stat. Ann. § 991.2006 (West 2015). Notification of the cancellation of a policy by the insurer must meet several requirements in order to be effective. The notice shall:
(1) Be in a form acceptable to the Insurance Commissioner.
(2) State the date, not less than sixty (60) days after the date of the mailing or delivery, on which cancellation or refusal to renew shall become effective. When the policy is being cancelled or not renewed for the reasons set forth in section 2004(1) and (2), however, the effective date may be fifteen (15) days from the date of mailing or delivery
(3) State the specific reason or reasons of the insurer for cancellation or refusal to renew.
(4) Advise the insured of his right to request in writing, within thirty (30) days of the receipt of the notice of cancellation or intention not to renew and of the receipt of the reason or reasons for the cancellation or refusal to renew as stated in the notice of cancellation or of intention not to renew, that the Insurance Commissioner review the action of the insurer.
(5) Either in the notice or in an accompanying statement advise the insured of his possible eligibility for insurance through the automobile assigned risk plan.
(6) Advise the insured that he must obtain compulsory automobile insurance coverage if he operates or registers a motor vehicle in this Commonwealth, that the insurer is notifying the Department of Transportation that the insurance is being cancelled or not renewed and that the insured must notify the Department of Transportation that he has replaced said coverage.
(7) Clearly state that when coverage is to be terminated due to nonresponse to a citation imposed under 75 Pa.C.S. § 1533 (relating to suspension of operating privilege for failure to respond to citation) or nonpayment of a fine or penalty imposed under that section coverage shall not terminate if the insured provides the insurer with proof that the insured has responded to all citations and paid all fines and penalties and that he has done so on or before the termination date of the policy.
40 Pa. Stat. Ann. § 991.2006 (West 2015). The insurer has the burden of proving compliance with the statutory requirements for cancellation of an automobile policy of insurance, and the notice of cancellation must be in strict compliance with the provisions of the Act. See Nationwide Ins. Co. v. Pennsylvania Ins. Dep't, 779 A.2d 14, 17 (Pa. Commw. Ct. 2001).
In a case involving an alleged improper cancellation of an automobile insurance policy, the court noted that the only evidence the insurance company presented to satisfy its burden of proving that the policy was properly cancelled was the testimony of a representative. Id. at 17. In his testimony, the representative explained that the computer printouts showed the dates on which certain actions were taken and the type of notices sent to the insured. Id. at 17-18. The Insurance Commissioner concluded that where an insurer fails to introduce as evidence a copy of the actual termination notice, an exemplar of a computer generated form, or detailed testimony about what was mailed on a particular date, the insurer does not establish a presumption that a termination notice was received by the insured. Id. at 17-18. The court, as such, ultimately held that the cancellation notice did not provide the necessary 15-day window between the date of mailing and the date of cancellation. Id. at 19.
Under Pennsylvania law, an insurer is not required to accept a lesser sum than the amount of the premium due. See Panizzi v. State Farm Mut. Auto. Ins. Co., 386 F.2d 600, 606 (3d. Cir. 1967). In a case where the insurer had properly cancelled the policy, the insurer gave the insured a chance to reinstate the policy by paying the full amount of $52.00. Id. at 604. The offer of reinstatement clearly stated that such reinstatement would be ‘effective upon receipt of the required amount,’ which did not occur until after the accident at issue in this case. Id. If the insured had paid before the August 7 termination date, no lapse in coverage would have occurred, but the insured did not pay in full until August 12. Id. He was, therefore, without coverage from August 7 through August 12. Id. The $26.00, which the insured did tender, was partial payment for reinstatement, conditionally accepted, and to be effective when and if the balance of the premium was paid. Id. at 606. The court, therefore, found that the insured was not covered by the policy at the time of the accident, which occurred on August 11. Id; See also
Holland v. Fed. Kemper Ins. Co., 553 A.2d 450, 452 (Pa. Super. 1989) (holding that acceptance by the insurer of one-half of the renewal premium was insufficient consideration to provide a valid contract of insurance after the effective date of cancellation notice).
Furthermore, an insurance company may cancel an insured's policy at any time for lack of timely payment until such time as the balance is paid in full. See Kelly v. Allstate Ins. Co., 138 F. Supp. 2d 657, 662 (E.D. Pa. 2001). The protecting power of the policy is suspended until the full assessment is paid, and no recovery can be had for a loss sustained during the continuance of such default. Id. at 662. Where a premium payment is received after the loss occurs, the acceptance of it merely reinstates the policy as of the date of its receipt. Id. In one Pennsylvania case, the plaintiff argued that her automobile insurance policy could only be cancelled for nonpayment of a premium if a cancellation notice is sent after the premium becomes past due, and the notice is sent at least fifteen days before the effective cancellation date. Id. at 661. In that case, the plaintiff had purchased an automobile insurance policy from the defendant, and the defendant sent plaintiff a bill for the premium period between February 28 and August 29, 2000, which offered plaintiff the option of paying for that period in full, or paying monthly installments of $227.68 over the next four months. Id. at 658. The initial bill indicated that payment was due by April 29, 2000. Id. The plaintiff, however, failed to make payment by that date, and the defendant sent her a cancellation notice for non-payment of premium stipulating that unless payment was received before May 29, 2000, her insurance policy would be cancelled on that date. Id. Although plaintiff payed an amount of $227.68 on May 16, she was still responsible for an additional payment of $227.68 to be paid before May 29. Id. The defendant mailed a special notice to plaintiff advising her that her policy would be cancelled if they did not receive that payment by May 29. Id. Plaintiff did not make another payment until June 11, and defendant advised plaintiff by a reinstatement notice dated June 13 that while her policy was cancelled on May 29, it had been reinstated on June 11. Id. Plaintiff, however, was in an automobile accident on June 9, in which she sustained personal injuries. Id. Defendant denied plaintiff’s claim to recover medical expenses, asserting that her losses were uncovered since the accident occurred during the period when the policy had lapsed. Id. The court ultimately found that the defendant had properly cancelled the insurance policy on May 29, and, as such, did not owe plaintiff any benefits for the accident occurring on June 9. Id. at 662.
In short, Pennsylvania law provides that an insurer may cancel an insurance policy for nonpayment of a premium and may do so at any time until such time as the balance is paid in full. However, a cancellation or refusal to renew by an insurance company will not be effective unless the insurer delivers or mails to the named insured at the address shown in the policy, a written of the cancellation or refusal to renew. Notification of the cancellation of a policy by the insurer must meet several requirements in order to be effective, including providing for a 15-day window between the date of mailing and the cancellation date. Further, the protecting power of the policy is suspended until the full assessment is paid, and no recovery can be had for a loss sustained during the continuance of such default. Where a premium payment is received after the loss occurs, the acceptance of it merely reinstates the policy as of the date of its receipt. Thus, you should be aware that even if you forgot or failed to pay your insurance premiums and an accident occurs after the insurance policy lapsed, there still may be an opportunity to obtain insurance coverage. However, there are certain factors that must exist for the carrier to be obligated to pay after a failure to pay one’s premiums.
Today, Jim Heneghan explains the law on when an insurance company can cancel an insurance policy and the obligations they must fulfill before being able to decline coverage