Author: VU Faculty

Can an agency that fronts money for an insured cancel the policy when the insured refuses to pay? If you think the answer is "yes," then you'll definitely want to read this article!

"One of our companies says that the company, not the agency, has the power to cancel an agency-billed policy. Since the agency is responsible for the collection of premium, it seems only reasonable that we should be able to cancel the policy if the premium is not paid. We do not believe that our contract with the company addresses who can cancel a policy. What do you think?"

Unless you have case law to the contrary, all policies are contracts between the insurer and insured. In fact, aside from entries on the Declarations page, I'm not sure I've ever seen a standard policy form that even mentions the agent or agency.

As such, only the insurer has the authority to cancel a policy. The agency can certainly request such cancellation if cancellation is permitted at all by the terms of the policy or state law. The policy, not the agency/company agreement, usually governs cancellation.

I'm betting that the agency has fronted the premium for the insured to the insurer and now is being stuck by the insured who won't pay the premium due. If that's the case, then the insurer HAS been paid and, therefore, it's doubtful that it can initiate cancellation due to nonpayment. Again, you might have case law to the contrary and you might want to run this scenario by your insurance department.

This situation came up in in my state a number of years ago and our insurance department was of the opinion that, since the insurer had been paid (albeit by the agency rather than insured), that they couldn't cancel. In the DOI's opinion, the agency just had a bad debt like any other business.

I argued this until I was blue in the face because the policy gave the insurer the right to cancel for nonpayment if "YOU have not paid the premium." My point was that, since "you" is the insured and the agency, not the insured, paid the premium, then the insurer was within its rights under the contract to return the fronted money to the agency and initiate cancellation proceedings for nonpayment by the insured.

The DOI wouldn't buy that argument, but I still think it's the correct interpretation (if that's what the policy or statutory cancellation provision says) and the one that is fairest to all parties...if the insured doesn't pay, they shouldn't have any coverage. You should examine the specific policy language and seek an opinion from your insurance department.

If the agency operates under a premium financing arrangement, many if not most, states have laws that permit the finance company to request cancellation for failure to meet a payment on the schedule. Absent that, the agent's best course of action would be to cite the policy provision or law, if any, that says coverage can be cancelled if the insured does not pay the premium, and then request that the carrier exercise that policy condition.

I ran this by the VU faculty and below are some representative comments.


I think this issue came up once before.  I agree with you completely that if the agent advanced the premium to the company on behalf of the insured, the company has been paid and the policy can't be cancelled for nonpayment.  But if you regard the lack of payment to the agent (deadbeat insureds are not good risks) as an "underwriting reason" then, unless the state law restricts cancellations to certain kinds of underwriting reasons and the situation doesn't fit into the wording of the permissible reasons in the statute, I would say it can be cancelled for underwriting reasons.  Of course if there is a statute and deadbeat status isn't enough, you could always look (inspect or whatever) for a permissible reason — in good faith, of course.


In cases like this, the agent should request that the company cancel the policy for nonpayment. The company can then be sure that the policy provisions, as well as state law, regarding things like number of days notice are complied with. Prior to asking the company to send notice, the insured should be warned that cancellation will be requested if payment is not received by a given date.


Unless the insured has given the agency Power of Attorney only the company can cancel a policy for nonpayment. This is similar to why a premium finance company needs Power of Attorney. Now, as to the company authorizing an agent to request nonpayment cancellation, look at the Authorization to Collect Premiums provisions of the contract. It should have a "days for returning" provision. This provision will allow an agent to return an installment, endorsement or audit for the cancellation AND company collection. Usually you give up commission on the uncollectible balance.