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H.B. 137

             1     

CANCELLATION OR RENEWAL OF

             2     
INSURANCE

             3     
1999 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: Trisha S. Beck

             6      AN ACT RELATING TO INSURANCE; PROHIBITING NONRENEWAL IN CERTAIN
             7      CIRCUMSTANCES; AND MAKING TECHNICAL CORRECTIONS.
             8      This act affects sections of Utah Code Annotated 1953 as follows:
             9      AMENDS:
             10          31A-21-303, as last amended by Chapter 5, Laws of Utah 1991
             11      Be it enacted by the Legislature of the state of Utah:
             12          Section 1. Section 31A-21-303 is amended to read:
             13           31A-21-303. Termination of insurance policies by insurers.
             14          (1) (a) Except as otherwise provided in this section, in other statutes, or by rule under
             15      Subsection (1)(c), this section applies to all policies of insurance other than life and disability
             16      insurance and annuities, if [they] the policies of insurance are issued on forms [which] that are
             17      subject to filing and approval under Subsection 31A-21-201 (1).
             18          (b) A policy may provide terms more favorable to insureds than this section requires.
             19          (c) The commissioner may by rule totally or partially exempt from this section classes of
             20      insurance policies in which the insureds do not need protection against arbitrary or unannounced
             21      termination.
             22          (d) The rights provided by this section are in addition to and do not prejudice any other
             23      rights the insureds may have at common law or under other statutes.
             24          (2) (a) [Except as provided in Subsection (2)(c), no insurance policy may be cancelled by
             25      the insurer prior to the expiration of the agreed term or one year from the effective date of the
             26      policy or renewal, whichever is less, except for failure to pay a premium when due or on grounds
             27      stated in the policy.] As used in this Subsection (2), "grounds" means:


             28          (i) material misrepresentation;
             29          (ii) substantial change in the risk assumed, unless the insurer should reasonably have
             30      foreseen the change or contemplated the risk when entering into the contract;
             31          (iii) substantial breaches of contractual duties, conditions, or warranties;
             32          (iv) attainment of the age specified as the terminal age for coverage, in which case the
             33      insurer may cancel by notice under Subsection (2)[(b)](c), accompanied by a tender of proportional
             34      return of premium; or
             35          (v) in the case of automobile insurance, revocation or suspension of the driver's license of
             36      the named insured or any other person who customarily drives the car.
             37          (b) (i) Except as provided in Subsection (2)(e) or unless the conditions of Subsection
             38      (2)(b)(ii) are met, an insurance policy may not be canceled by the insurer before the earlier of:
             39          (A) the expiration of the agreed term; or
             40          (B) one year from the effective date of the policy or renewal.
             41          (ii) Notwithstanding Subsection (2)(b)(i), an insurance policy may be canceled by the
             42      insurer for:
             43          (A) nonpayment of a premium when due; or
             44          (B) on grounds defined in Subsection (2)(a).
             45          [(b)] (c) (i) [Not sooner than 30 days after the delivery or first class mailing of a written
             46      notice to the policyholder, the] The cancellation provided by Subsection (2)[(a)](b), except
             47      cancellation for nonpayment of premium, is effective no sooner than 30 days after the delivery of
             48      first-class mailing of a written notice to the policyholder.
             49          (ii) Cancellation for nonpayment of premium is effective no sooner than ten days after
             50      delivery or first class mailing of a written notice to the policyholder.
             51          (d) (i) Notice of cancellation for nonpayment of premium shall include a statement of the
             52      reason for cancellation.
             53          (ii) Subsection (6) applies to the notice required for [other] grounds of cancellation other
             54      than nonpayment of premium.
             55          [(c)] (e) (i) Subsections (2)(a) [and (b)] through (d) do not apply to any insurance contract
             56      that has not been previously renewed if the contract has been in effect less than 60 days when the
             57      written notice of cancellation is mailed or delivered. [No]
             58          (ii) A cancellation under this Subsection [is] (2)(e) may not be effective until at least ten


             59      days after the delivery to the insured of a written notice of cancellation.
             60          (iii) If the notice required by this Subsection (2)(e) is sent by first-class mail, postage
             61      prepaid, to the insured at [his] the insureds last-known address, delivery is considered
             62      accomplished after the passing, since the mailing date, of the mailing time specified in the Utah
             63      Rules of Civil Procedure. [Policy cancellations]
             64          (iv) A policy cancellation subject to this Subsection [are] (2)(e) is not subject to the
             65      procedures described in Subsection (6).
             66          (3) A policy may be issued for a term longer than one year or for an indefinite term[, with]
             67      if the policy includes a clause providing for cancellation by the insurer by giving notice as provided
             68      in Subsection (4)(b)(i) 30 days prior to any anniversary date.
             69          (4) (a) Subject to Subsections (2), (3), and (4)(b), a policyholder has a right to have the
             70      policy renewed[,]:
             71          (i) on the terms then being applied by the insurer to similar risks[,]; and
             72          (ii) (A) for an additional period of time equivalent to the expiring term if the agreed term
             73      is one year or less[,]; or
             74          (B) for one year if the agreed term is longer than one year.
             75          (b) [The] Except as provided in Subsection (4)(c), the right to renewal under Subsection
             76      (4)(a) is extinguished if:
             77          (i) at least 30 days prior to the policy expiration or anniversary date a notice of intention
             78      not to renew the policy beyond the agreed expiration or anniversary date is delivered or sent by
             79      first-class mail by the insurer to the policyholder at the policyholder's last-known address;
             80          (ii) not more than 45 nor less than 14 days prior to the due date of the renewal premium,
             81      the insurer delivers or sends by first-class mail a notice to the policyholder at the policyholder's
             82      last-known address, clearly stating:
             83          (A) the renewal premium[,];
             84          (B) how it may be paid[,]; and
             85          (C) that failure to pay the renewal premium by the due date extinguishes the policyholder's
             86      right to renewal;
             87          (iii) the policyholder has:
             88          (A) accepted replacement coverage[,]; or [has]
             89          (B) requested or agreed to nonrenewal; or


             90          (iv) the policy is expressly designated as nonrenewable.
             91          (c) Unless the conditions of Subsection (4)(b)(iii) or (iv) apply, an insurer may not fail to
             92      renew an insurance policy as a result of a telephone call or other inquiry that:
             93          (i) references a policy coverage; and
             94          (ii) does not result in a claim being filed or paid.
             95          (5) (a) (i) Subject to Subsection (5)(b), if the insurer offers or purports to renew the policy,
             96      but on less favorable terms or at higher rates, the new terms or rates take effect on the renewal date
             97      if the insurer delivered or sent by first-class mail to the policyholder notice of the new terms or
             98      rates at least 30 days prior to the expiration date of the prior policy.
             99          (ii) If the insurer did not give [this] the prior notification described in Subsection (5)(a)(i)
             100      to the policyholder[,] the new terms or rates do not take effect until 30 days after the notice is
             101      delivered or sent by first-class mail, in which case the policyholder may elect to cancel the renewal
             102      policy at any time during the 30-day period.
             103          (iii) Return premiums or additional premium charges shall be calculated proportionately
             104      on the basis that the old rates apply.
             105          (b) Subsection (5)(a) does not apply if the only change in terms that is adverse to the
             106      policyholder is:
             107          (i) a rate increase generally applicable to the class of business to which the policy
             108      belongs[,];
             109          (ii) a rate increase resulting from a classification change based on the altered nature or
             110      extent of the risk insured against[,]; or
             111          (iii) a policy form change made to make the form consistent with Utah law.
             112          (6) (a) If a notice of cancellation or nonrenewal under Subsection (2)[(b)](c) does not state
             113      with reasonable precision the facts on which the insurer's decision is based, the insurer shall send
             114      by first-class mail or deliver that information within ten working days after receipt of a written
             115      request by the policyholder. [This]
             116          (b) A notice under Subsection (2)(c) is not effective unless it contains information about
             117      the policyholder's right to make the request.
             118          (7) If a risk-sharing plan under Section 31A-2-214 exists for the kind of coverage provided
             119      by the insurance being cancelled or nonrenewed, [no] a notice of cancellation or nonrenewal
             120      required under Subsection (2)(b) or (4)(b)(i) [is] may not be effective unless it contains instructions


             121      to the policyholder for applying for insurance through the available risk-sharing plan.
             122          (8) There is no liability on the part of, and no cause of action against, any insurer, its
             123      authorized representatives, agents, employees, or any other person furnishing to the insurer
             124      information relating to the reasons for cancellation or nonrenewal or for any statement made or
             125      information given by them in complying or enabling the insurer to comply with this section unless
             126      actual malice is proved by clear and convincing evidence.
             127          (9) This section does not alter any common law right of contract rescission for material
             128      misrepresentation.




Legislative Review Note
    as of 2-2-99 12:56 PM


A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel


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