Author: David Thompson
I recently had dinner with Rita Miller of Vero Insurance. (Name used with permission.) Rita and I have been friends for more decades than we care to discuss, and in addition to being an "insurance nerd" she's a pretty good golfer. In fact, she won the club championship tournament for the senior division at Vero Beach Country Club recently. (Rita would prefer to drop the senior part!) We had dinner at the club enjoying a light meal and music played on a grand piano by a local musician. With a nice meal and music, the conversation naturally turned (of course) to insurance!
Rita said to me, "I have to educate people (staff and customers) that if you sell a car or house you don't delete the car that day or cancel the homeowners policy that day; you do it the next day. I've never heard you talk about that in a class." My reply was, "You need to attend even more of my classes because I routinely discuss this!"
Remember that if you remove an automobile from a policy or cancel a homeowners policy, that is effective at 12:01 a.m. In other words, one minute after midnight. So if the customer called you at 4:00 p.m. on Tuesday saying they just sold the car, and the automobile was removed that day; coverage ceased 16 hours earlier.
In one case I am familiar with, the customer was going to make a vehicle change. About 9:00 a.m. the car dealer called the agency saying, "Mr. Smith is trading in his Honda for a Toyota so please make the change." The agency staff made that change upon the request of the dealer. (That's the subject of another article maybe!) Never take policy changes from anyone other than the insured.) The vehicle was removed that day, remember effective just after midnight. In the category of "you can't make it up," after lunch, the customer was driving to the dealer and was involved in an accident. A literal reading of the policy says that the loss is not covered because the vehicle is no longer a "your covered auto" under the policy. Amazingly, the insurer initially denied coverage. It took a call to the claims manager who agreed that while the policy technically did support a claim denial, the loss would be paid. (Kudos to the claims manager!) The agency staff member should have consulted with the customer and made the change effective the next day. Under the standard ISO personal auto policy (read yours, they all differ) a replacement auto is covered for 14 days for the broadest coverage of any auto on the policy. Even if no auto on the policy has physical damage coverage, that coverage is provided for four days subject to a $500 deductible.
Turning to the standard ISO homeowners policy, suppose the customer called at 4:00 p.m. saying, "I just left a real estate closing and we sold our house effective today. It's final so please cancel my policy effective today. We are moving tomorrow." The same concept applies here too; don't cancel the policy effective that day. The earliest you cancel the policy is the next day. There is, however, a better answer to the question of when a homeowners policy should be canceled: cancel the policy the day after the customer obtains a replacement homeowners policy. No one should ever go even one day without being covered under some type homeowners (HO-3, HO-4, HO-6) policy.
For example, assume the customer said they sold the house and they were all moving from Vero Beach to Jacksonville, and would stay in a hotel for a week while they looked for an apartment to rent. Some might argue "no insurable interest if you keep the HO-3 on the Vero Beach house in effect." Certainly, there is no insurable interest in the dwelling itself, but the customer still needs coverage for their contents as well as liability. The HO-3 should be cancelled the day after the customer obtains an HO-4. There have been several instances of agents telling me that the underwriter wanted the customer to sign the "LPR" to cancel the HO-3 policy the date after closing. In one case when the agent explained the situation and said they would have the customer sign the LPR in a few weeks the underwriter went so far as to say, "We will send direct notice of cancellation today then." Well, that's fine, because under Florida statutes (other states differ) the insurer owes a 120-day notice of cancellation in this situation (45 days in surplus lines) to cancel a homeowners policy that has been in effect for more than 90 days. So, even with a notice of cancellation sent, coverage typically remains in effect for long enough for a replacement policy to be obtained.
One final point: removing an automobile or cancelling any policy should be confirmed in writing with the customer. That could be via a signed request by the customer or an email exchange back and forth stating that ownership has been transferred.
So, there you have it; the information that Rita uses to educate her staff, customers, and at times an underwriter! A nice dinner, relaxing piano music, and discussion about insurance; it's tough to beat that…unless dinner had been BBQ!
© FAIA, 4/30/17 (Used with Permission)
Last Updated: June 9, 2017