Cancellation of Auto Insurance for Nonpayment of Premiums
The mandatory nature of motor vehicle insurance in the United States means that the system under which cars and trucks are insured involves a three-part relationship among the vehicle owner or operator, the insurer, and the government of the state where the car or truck is located. The heart of the auto insurance business relationship, though, is the policy of insurance, a bilateral contract under which the insurer agrees to provide the requested insurance coverage on a vehicle and pay valid claims and the insured agrees that he or she will in return pay the premiums due under the policy. When an insured fails to make timely payment of the premiums or fails to pay them at all, the insurer’s ultimate recourse is to cancel the policy for nonpayment of premiums.
Unlike most contracts between private parties, however, a contract of insurance involves a third party, the government of the state where the vehicle is insured, which, as noted above, has an interest in seeing to it that every person operating a motor vehicle on the roads of the state be covered by the required kinds and amount of insurance while doing so. As a result, state laws often contain provisions concerning the right of insurers to cancel motor vehicle insurance policies for nonpayment of premiums.
Because the insurance business has historically been regulated under the laws of each state rather than by a single system of federal regulation, legal requirements for the cancellation of auto insurance policies for nonpayment of premiums vary from state to state. Such provisions can cover a range of requirements and limitations, from descriptions of the form and substance of the notification that an insurer has to give an insured before canceling a policy to the degree of delinquency in the payment of premiums that will trigger the insurer’s right to cancel a policy.