Cancellation and Nonrenewal

Mid-Term Cancellation

Once a policy is in force, the insurer can’t casually cancel it. Except for new policies, umbrella or excess liability policies, and the war risks coverage in an aircraft policy (s. Ins 6.77), no insurance policy may be canceled by the insurer before the expiration of the agreed term, or one year from the effective date of the policy or renewal (whichever is sooner), EXCEPT for:

• Failure to pay a premium when due.
• Grounds stated in the policy, falling into these specific classes: material misrepresentation; substantial change in the risk assumed (except changes the insurer should have reasonably foreseen or contemplated in writing the contract); substantial breaches of contractual duties, conditions, or warranties; or attainment of the age specified as the terminal age for coverage.

If the cancellation is for attainment of terminal age, the insurer must accompany the notice with a pro rata return of the premium.

Notice required for mid-term cancellation

• No cancellation on the grounds above is effective until at least ten days after first-class mailing or delivery of a written notice to the policyholder. Seven days’ notice is required for the war risks coverage in an aircraft policy.
• For workers’ compensation: at least thirty days’ first-class mailing or delivery to the policyholder, AND at least thirty days’ notice to the Wisconsin Compensation Rating Bureau. However, cancellation is still effective (whether or not notice has been given) on the effective date of replacement coverage obtained by the employer, or of an order exempting the employer from carrying workers’ comp.

Mid-term cancellation of new policies (under 60 days)

The above permissible grounds for cancellation and notice requirements don’t apply to new policies in effect less than sixty days at the time of the cancellation notice. For new policies:

• No cancellation is effective until at least ten days after first-class mailing or delivery of written notice.
• The cancellation notice need not state the grounds for cancellation — UNLESS it’s a health insurance policy.

In other words, in the first sixty days of a brand-new policy, the insurer has more freedom to cancel. They still have to give ten days’ written notice, but they don’t have to fit the cancellation into one of the limited grounds. The rationale: those first sixty days function as a kind of extended underwriting period. Workers’ comp policies still require thirty days’ notice to the policyholder and the Rating Bureau, with the same exceptions.

Anniversary cancellations

• A policy may be issued for a term longer than one year, or for an indefinite term, with a clause providing for cancellation by the insurer by giving notice sixty days prior to the anniversary date. The notice must comply with the statutory requirements for nonrenewals.

Nonrenewal

Subject to the rules for mid-term and anniversary cancellations, a policyholder has the right to have their policy renewed — on the terms then being applied by the insurer to similar risks — for an additional period equal to the last term (if the last term was a year or less) or for one year (if the last term was longer than a year). The policy must be renewed unless, at least sixty days before the expiration date, a notice of intent not to renew is mailed or delivered to the policyholder. To be effective, the notice of nonrenewal must state with reasonable precision the facts on which the insurer’s decision is based.

Terminating coverage at renewal for nonpayment

• To effectively terminate coverage at renewal because the policyholder didn’t pay the renewal premium on time, the insurer must give written notice between ten and seventy-five days before the premium is due. The notice must clearly state the effect of nonpayment by the due date.
• For workers’ comp, the notice window is between thirty and seventy-five days before the premium is due.

When the nonrenewal rules don’t apply

• The nonrenewal protection doesn’t apply if the policyholder is insured elsewhere, has accepted replacement coverage, has requested or agreed to nonrenewal, or if the policy is expressly designated as nonrenewable.
• For workers’ comp: no nonrenewal is effective until sixty days after the insurer has given written notice to the Wisconsin Compensation Rating Bureau. But, as with cancellations, nonrenewal is still effective on the effective date of replacement coverage or an exemption order, whether or not the formal notice has been given to the policyholder.

Renewal with Altered Terms

Sometimes an insurer wants to renew a policy but on different terms or at higher rates. The rules depend on the type of policy.

General (non-personal-lines P&C)

If the insurer offers to renew a policy (other than a personal lines property & casualty policy) on less favorable terms or at higher rates, the new terms or rates take effect on the renewal date IF the insurer sent first-class mail or delivered to the policyholder notice of the new terms at least sixty days prior to the expiration date.

If the insurer notifies the policyholder within sixty days prior to the renewal date, the new terms don’t take effect until sixty days after the notice is mailed or delivered. During that sixty-day window, the policyholder may elect to cancel the renewal policy.

If the insurer doesn’t notify the policyholder of the new terms before the renewal date, the policy must be renewed under the terms of the expiring policy. Return premiums or additional charges are calculated proportionately based on the old rates.

This section does NOT apply if the only change is a rate increase of less than 25% that’s either generally applicable to the business class to which the policy belongs, or results from a classification change based on the altered nature or extent of the risk.

Personal lines P&C

• For personal lines P&C policies issued for a term longer than one year or for an indefinite term, the insurer may alter terms or premium on the anniversary date only if notice of the less favorable terms or premiums is sent at least forty-five days prior to the anniversary date. If notice is given within forty-five days, the new terms don’t take effect until forty-five days after the notice is mailed or delivered, and the policyholder may elect to cancel during that forty-five-day window. The notice must include a statement of the policyholder’s right to cancel.

Motor vehicle liability

• An insurer is prohibited from issuing or renewing a motor vehicle liability policy that’s less favorable, or canceling or nonrenewing a policy, because of any accident that occurs during the insured’s business or employment — UNLESS the policy covers the insured for liability arising in the course of their employment or business.

Cancellation Tied to Termination of an Intermediary’s Contract

An insurance company can’t simply nonrenew a customer’s policy just because the intermediary’s contract with the insurer ended. An insurer may refuse to renew or cancel a policy only if the notice of nonrenewal or cancellation contains an offer to continue to renew the policy with the insurer if the insurer receives a written request from the policyholder before the cancellation or renewal date. If the policyholder makes a timely request, the insurer will continue or renew the policy unless the policyholder doesn’t meet normal underwriting criteria.

What Notices of Nonrenewal and Cancellation Must Contain

A notice of nonrenewal must state with reasonable precision the facts on which the insurer’s decision was based. If a risk-sharing plan exists for the kind of coverage being canceled, the notice of nonrenewal isn’t effective unless it contains adequate instructions to the policyholder on how to apply for coverage in the plan.

Exceptions: these requirements don’t apply if the grounds for cancellation or nonrenewal is nonpayment of premium, or if the policy is in a mandatory health care liability risk-sharing plan.

Liability for Statements

There’s no liability and no cause of action against any insurer, its authorized representatives, agents, employees, or any firm/person/corporation furnishing information related to the reasons for cancellation or nonrenewal, when those statements are made to comply with s. 631.36 and s. Ins 21.01. So insurers and agents can speak candidly about the reasons for nonrenewal without worrying about defamation claims, as long as they’re acting within these notice requirements.