Rules Spell Out Why Insurance Can Be Canceled

The state has adopted new insurance regulations designed to keep auto insurers from canceling customers’ policies unfairly.

The new rules, which were proposed by Insurance Commissioner John Garamendi and approved by the state Office of Administrative Law, spell out the permissible criteria for an insurer to cancel or refuse to renew a policy.

No longer can a motorist be dropped because of age, occupation, health, changing vehicles, or accidents or violations that occurred before the policy took effect.

Under the new regulations, the only valid reasons for canceling or refusing to renew are suspension or revocation of the driver’s license during the policy period, noncompliance with the insurer’s requests for information, excessive use of the vehicle by someone other than the policyholder, failure of the vehicle to meet safety standards and a change in use from personal to commercial.

A carrier can refuse to renew--but not cancel--a customer’s policy if the driver has accrued at least two points in the current year, on top of a total of at least three points over the preceding three years. A moving traffic violation usually results in one point; an at-fault accident with property damage is one point, or two points if bodily injury occurs.

“These regulations end the mystery of coverage denial and protect insurance consumers from the fear that they may lose their insurance at the whim of an insurer,” Garamendi said in a statement Wednesday.

Michael Shames, executive director of Utility Consumers Action Network, a San Diego-based consumer organization, said unfair cancellation has been one the most frequent complaints of consumers.