From time to time, I am asked by homeowners about cancellation of their homeowner insurance policies by the insurance company. Questions include: Must the insurance company provide a reason for the cancellation? Should I have received from the insurance company a notice of cancellation in writing?
In Arizona, the answers to these questions can be found in the Arizona Revised Statutes, specifically A.R.S. §§ 20-1652 and 20-1653. A notice of cancellation must be in writing and be mailed to the named insured at the address shown in the policy or the insured’s last known address.1 A cancellation of the policy is not effective unless it is based on or more of the following enumerated reasons:
- Nonpayment of premium.
- Conviction of the named insured of a crime arising out of acts increasing the hazard insured against.
- Acts or omissions by the insured or the insured’s representative constituting fraud or material misrepresentation in obtaining the policy, continuing the policy or presenting a claim under the policy.
- Discovery of grossly negligent acts or omissions by the insured substantially increasing any of the hazards insured against.
- Substantial change in the risk assumed by the insurer, since the policy was issued, except to the extent that the insurer should reasonably have foreseen the change or contemplated the risk in writing the contract.
- A determination by the director of insurance that the continuation of the policy would place the insurer in violation of the insurance laws of this state.
- Failure of the insured to take reasonable steps to eliminate or reduce any conditions in or on the insured premises that contributed to a loss in the past or will increase the probability of future losses.”2
Importantly, the insurance company must present specific facts to support the reason for cancellation. In the past, the Arizona Department of Insurance (DOI) has received many complaints about the insurance companies’ use of “loss history” as the reason. According to the DOI, using the terms “loss history” is too vague and does not comply with the law. The DOI provides as an example where the policyholder has incurred two losses within six months because his neighbor’s children have fallen into the insured’s unfenced swimming pool. Here, the insurance company cannot use “loss history” as a reason to cancel the policy. This is because “loss history” is not one of the seven acceptable reasons for which the insurance company may legally cancel. Also, staying with the same example, according to the DOI the insurance company cannot use “substantial change in risk” as a reason to cancel if nothing about the swimming pool has changed since the insurance company initially accepted the risk.3
If you, as a policyholder, have been presented with either a notice of cancellation or non-renewal and do not believe the insurance company has provided a proper reason for its action, you should consult with an insurance professional.
1 A.R.S. §20-1653.
2 A.R.S. §20-1652.
3 State of Arizona, Dept. of Insurance, Circular Letter 90-1A (Jan. 29, 1990).