Last week, the Arizona Department of Insurance issued the first Regulatory Bulletin of 2017.1 The Bulletin reminded property insurance carriers that, pursuant to A.R.S. § 20-1677, they must provide their policyholders with written notice of premium increase, changes in deductible or reduction in limits or substantial reduction in coverage at least thirty days before the expiration date of the policy.2
The Interior Director explained,
It is the Department’s view that notice under A.R.S. § 20-1677, including new policy terms and conditions, must include information sufficiently specific to allow policyholders to make an informed decision regarding their insurance before the changes take effect. Merely informing a policyholder about the possibility of future changes in premium, deductible or coverage, or a vague notice stating that coverages or rates “may” increase is not adequate notice. It is also insufficient notice to merely advise policyholders that Arizona law requires advance notice of a premium increase, change in deductible or reduction in limits or substantial reduction in coverage.
(Bold emphasis added; italicized emphasis in original.)
In other words, a property and casualty insurer doing business in Arizona cannot make unilateral changes to the insurance policy without timely notifying the policyholder of the changes and ensuring that the policyholder understands the significance of the proposed changes.
Although A.R.S. § 20-1677, in its current form, has been in effect since 2011, some carriers still fail to clearly and thoroughly articulate the specific nature of the coverage changes, particularly when the changes involve a reduction in coverage. Too often, the policyholder will provide their attorney or representative with a copy of the policy that they received when the policy first begun but, by the time the loss occurs, the policy has been amended substantially through subsequent exclusions or endorsements, and the terms of these changes were not provided and/or explained to the policyholder before the changes become effective.
The failure to provide proper and adequate notice is not without consequences. In Arizona, “If [an] insurer fails to provide the thirty days’ notice, the coverage provided to the named insured remains in effect until notice is given or until the effective date of replacement coverage obtained by the named insured, whichever occurs first.”3 So, if a question arises as to whether the policyholder was aware of and/or consented to subsequent changes that decrease coverage, the policyholder can and should rightfully demand that the carrier provide proof that notice of these changes were timely and properly given. If notice was not timely and properly given, the prior coverage terms remain in effect, which can mean the difference between a covered loss or one that is not.
1 Regulatory Bulletin 2017-01 is available at https://insurance.az.gov/sites/default/files/documents/files/RegulatoryBulletin_2017-01_20170517.pdf (last accessed May 19, 2017).
2 The Bulletin also reminded insurers of the requirement of prior notice of nonrenewal and cancellation set forth in A.R.S. §§ 20-1676 and 20-1674.
3 A.R.S. § 20-1677(A); see also Torrez v. State Farm Mut. Auto. Ins. Co., 130 Ariz. 223, 635 P.2d 511 (App. 1981) and Civil Service Employees Insurance Co. v. Rodriquez, 25 Ariz. App. 534, 544 P.2d 1135 (1976) (both explaining that a carrier’s failure to comply with the notice requirements invalidates any cancellation, non-renewal or reduction in limits).