Can your insurer cancel & void your auto insurance policy?

Posted by on January 30, 2011 | No Comments

Many of us heard of some horrible stories about insurance companies refusing to pay some insurance claims based on certain ‘discovery’ related to the insured. The question that is asked repeatedly: Does the insurance company have the right to nullify a car insurance policy after it policy is issued? And if so, what are the circumstances under which a company may cancel an auto policy. Before answering this question, we need to be briefed about a fundamental principle of the insurance business: The Principle of Utmost Good Faith. In Latin, this principle is called uberrimae fidei.

The Principle of Utmost Good Faith is related to the doctrine underlining most financial contracts which require certain minimum standard from parties of the contract (ie the client and the insurance company) to act honestly toward each others, not to mislead, and not to withhold critical information from each others. That requires the insurance company, for example, to disclose its financial data, its claims procedures, etc. At the same time, the insured is required to disclose all pertinent information about self or about the subject of insurance, answer all questions in a truthful manner.

If someone breaches this doctrine and acts deliberately in a different manner, then the other party will have the right to nullify the contract, or rescind the contract, or canceling the contract from the beginning like it never took place. Nullifying an insurance policy after a loss can be devastating not only to the person insured, but also to other victims that might have been involved in the car accident.

Answering the question above we can wrap up that the car insurance company does certainly have the rights to annul the policy from the date of inception (the date the car insurance started, as if insurance has never taken place.) The following are major causes why insurance companies may do that:

A. Acts of Fraud. If an individual purchases a car insurance policy with the objective of tricking the insurance company then the insurance company has the rights to rescind (nullify) that policy. If someone pays for a full coverage automobile insurance contract on a car that is badly smashed with the intent of making claims on that damage later then this will be classified as fraud. In cases like this one the insurance company may also report this to the local authority for further examination. Deliberately hiding facts may be dubbed as fraud.

B. Misrepresentation. A representation is a statement made by the automobile insurance applicant(s) in the process of purchasing the car insurance policy. There are a few questions pertaining to age, gender, marital status, other drivers in the household, and driving history & records on the application. If the misrepresentation is material then the insurance carrier may have the right to nullify the contract.

What is a material representation? A material misrepresentation is related to the fact that if the truth were known by the insurance company, then the insurance company either would not have issued the policy, or would have issued it with different conditions and terms, and most likely would have charged the customer higher premiums. With that definition in mind, failure to disclose modification of the insured vehicle, failure to disclose youthful drivers in the same household is a material misrepresentation, so is failure to disclose motor vehicles activities related to the driving histories of all the people listed on the application.

Insurance Fronting: Almost everyone knows that youthful drivers (broadly known as drivers under age 25 years) are charged higher premiums than other operators. If an insurance policy is procured under the parent’s name, while the driver is a young one then this is called fronting, and insurance carriers under these conditions do have the rights to rescind and nullify the insurance policy. While many companies pay for claims resulting from undisclosed youthful operators, others (especially if the claim is big) will fight and declare policy null and void (rescind policy.) This discussion about your auto insurance applies to your SR22 insurance policies and the non-owner insurance contract. All of these contracts are bound by the same rules.

Keep in mind that the discussion about your auto insurance applies equally to your SR22 insurance and the non-owner insurance. All of these contracts are bound by the same rules. It is always better to state all the facts when buying a car insurance policy because failure to do so may result in you paying to accidents from your pocket.

Looking to find the best deal on car insurance quotes, then visit www.insurancenavy.com to find the best advice on Cheap SR22 insurance quotes for you.

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