Life Insurance Claim Denied Because Policy Was Cancelled

Often times when a claim for benefits is denied, the reason for the denial is that the policy has been cancelled.

“Cancellation” refers to the insurer’s termination of coverage before the end of the policy period.  A cancellation is in contrast to a non-renewal, which involves an insurer’s unwillingness to reissue the policy following the completion of the policy term of coverage.

Most insurance policies contain provisions regarding cancellation and the Courts honor this provisions as can be seen in the 1994, Waco Court of Appeals opinion styled, Truck Ins. Exch. v. E.H. Martin, Inc.  Specific provisions for cancellation of coverage must be precisely followed by the insurer and will be strictly construed by the courts.  This was seen in the 2001, Corpus Christi Court of Appeals opinion styled, Jones v. Ray Ins. Agency.

An insurance policy may include a provision making cancellation effective upon the insurer’s mailing notice to the insured.

As an example, in the 1988, 1st District Court of Appeals opinion styled, Har-Con Corp. v. Aetna Cas. & Sur. Co. said “The Policy or any insuring Agreement may be cancelled by the Company by mailing to the Insured at the address shown in this Policy written notice stating when not less than fifteen days thereafter such cancellation shall be effective.  The mailing of notice as aforesaid shall be sufficient proof of notice.”

When the insurance company and the insured have contracted for terms of cancellation in an insurance policy and have expressly agreed that mailing of notice is sufficient proof of notice of cancellation, the cancellation is effective when the notice is mailed, even when the addressee never actually receives it.   This was the situation in the Har-Con opinion.

The Texas Insurance Code authorizes the Texas Department of Insurance to prescribe and enforce rules and regulations regarding the cancellation of certain liability, property and casualty, and other insurance policies.  Pursuant to Section 551.001(b) these rules are found in Sections 551.001(a), 551.055, and 551.109.  In adopting these rules and regulations the Department is to consider the reasonable needs of the public and the operations of insurance companies.

Under this authority, the Commissioner of Insurance has adopted rules restricting cancellation of certain property and casualty coverage.  This can be seen in the 28 Texas Administrative Code, Section 5.7001 thru 5.7016.

In addition, there are statutory limits on cancellation of certain liability policies, and certain property and casualty policies, including automobile and homeowners.  In this regard, see Section 551.051 to 551.056, 551.101 to 551.112, and 551.151 to 551.152.

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