This past Saturday, I had the privilege of volunteering at Law Day, organized by the City of Arcadia, a community just 13 miles northeast of downtown Los Angeles. Law Day was open to the public giving many an opportunity to ask a lawyer questions without any charge. There was a tremendous turnout with hundreds attending the event. I served as an attorney volunteer and fielded questions primarily on insurance matters.
One question asked more than once involved cancellation of homeowner policies. I heard from several homeowners who expressed that they did not know why their insurance had been cancelled. None of them had failed to timely pay the premium. I told the homeowners to review the cancellation notice because California is very clear about what insurance companies must do in order to effectively cancel a policy.
According to Insurance Code section 676, the notice of cancellation (if the policy has been in effect for 60 days or more) must be based on one or more of the following:
(a) Nonpayment of premium, including nonpayment of any additional premiums,
calculated in accordance with the current rating manual of the insurer, justified by a
physical change in the insured property or a change in its occupancy or use.(b) Conviction of the named insured of a crime having as one of its necessary elements
an act increasing any hazard insured against.(c) Discovery of fraud or material misrepresentation by either of the following:
(1) The insured or his or her representative in obtaining the insurance.
(2) The named insured or his or her representative in pursuing a claim
under the policy.(d) Discovery of grossly negligent acts or omissions by the insured or his or her
Representative substantially increasing any of the hazards insured against.(e) Physical changes in the insured property which result in the property becoming
uninsurable.1
Furthermore, pursuant to Insurance Code section 677 the insurance company must provide in writing the specific grounds for the cancellation and the “specific information supporting the cancellation, the specific items of personal and privileged information that support those reasons, if applicable, and corresponding summary of rights.”2
The reason a homeowners policy is being cancelled by the insurance company should not be a mystery. If the disclosure is not made, the insurance company is in violation of the Insurance Code. Moreover, if the insurance company is not forthcoming with the information, then it is possibly cancelling for an improper motive. If that is what is happening, then the insurance company is not acting in good faith.
1 Cal. Ins. Code §676.
2 Cal. Ins. Code §677.
