AZ Circular Letter 1990-01A: Cancellation or Nonrenewal of Homeowners' Policies

STATE OF ARIZONA

DEPARTMENT OF INSURANCE

JANE DEE HULL

2910 NORTH 44th STREET, SUITE 210

CHARLES R. COHEN

Governor

PHOENIX, ARIZONA 85018-7256

Director of Insurance

602/912-8456 (phone) 602/912-8452 (fax)

Former Director Susan Gallinger issued the following Circular Letter on January 29, 1990:

Circular Letter 90-1A

TO:

ALL PROPERTY AND CASUALTY INSURERS, INSURANCE TRADE

ASSOCIATIONS, AGENTS’ ASSOCIATIONS AND OTHER INTERESTED

PERSONS

FROM:

SUSAN GALLINGER, DIRECTOR OF INSURANCE

DATE:

JANUARY 29, 1990

RE:

CANCELLATION OR NONRENEWAL OF HOMEOWNERS’ POLICIES

Recently, the Insurance Department has received complaints that some insurers

are not providing the specific facts regarding the reason a homeowners’ policy is being

cancelled or nonrenewed. The purpose of this circular letter is to remind insurers of the

statutory requirements governing nonrenewal of homeowner’s policies and to highlight

certain specific areas in which the Department has found non-compliance.

The laws applicable to cancellation or nonrenewal of homeowners’ insurance

(A.R.S. § 20-1651 et seq.) apply to all homeowners’ policies and residential properties

consisting of not more than four dwelling units. As noted above, these laws establish a

number of requirements regarding cancellation or nonrenewal. Some examples follow:

1.

A.R.S. § 20-1652(A) states that after a policy has been in effect for sixty

days or, if the policy is a renewal effective immediately, no notice of cancellation is

effective unless it is based on one of the following seven reasons:

--

nonpayment of premium.

--

conviction of the named insured of a crime arising out of acts increasing

the hazard insured against.

--

acts or omissions by the insured or his representative constituting fraud or

material misrepresentation in obtaining the policy, continuing the policy, or

in presenting a claim under the policy.

is

effective unless it is based on one of the following seven reasons:

--

nonpayment of premium.

--

conviction of the named insured of a crime arising out of acts increasing

the hazard insured against.

--

acts or omissions by the insured or his representative constituting fraud or

material misrepresentation in obtaining the policy, continuing the policy, or

in presenting a claim under the policy.

Circular Letter 90-1A

January 29, 1990

Page 2

--

discovery of grossly negligent acts or omissions by the insured

substantially increasing any of the hazards insured against.

--

substantial change in the risk assumed by the insurer since the policy was

issued.

--

a determination by the Director of Insurance that the continuation of the

policy would place the insurer in violation of Arizona insurance laws.

--

failure of the insured to take reasonable steps to eliminate or reduce any

conditions in or on the insured premises which contributed to a loss in the

past or will increase the probability of future losses.

2.

A.R.S. § 20-1652(B), effective September 30, 1988, directs insurers in the

event of nonrenewal based on condition of the premises to give the insured thirty days’

notice to remedy the identified conditions. If the conditions are remedied, coverage

shall be renewed. If the identified condition is not satisfactorily remedied, insurers must

give the insured an additional thirty days, upon payment of the premium, to cure the

defective condition. Insureds who believe nonrenewal under this subsection is arbitrary

or capricious may appeal to the Director.

3.

A.R.S. § 20-1653 requires the insurer to provide notice of cancellation or

nonrenewal in writing and to present the specific facts which constitute the grounds set

forth in A.R.S. § 20-1652 upon which the insurer is relying to cancel or nonrenew the

policy

cure the

defective condition. Insureds who believe nonrenewal under this subsection is arbitrary

or capricious may appeal to the Director.

3.

A.R.S. § 20-1653 requires the insurer to provide notice of cancellation or

nonrenewal in writing and to present the specific facts which constitute the grounds set

forth in A.R.S. § 20-1652 upon which the insurer is relying to cancel or nonrenew the

policy. Many complaints received by the Department indicate that insurers use such

general terms in the notice as “loss history.” This phrase has little meaning to the

insured, does not comply with the law because it does not present the facts, and clouds

the issues.

For example, if a policyholder has incurred two losses within six months because

his neighbor’s children have fallen into the insured’s unfenced swimming pool, the

insurer cannot use “loss history” as a reason to nonrenew or cancel coverage. First,

“loss history” is not one of the reasons for which the insurer may legally cancel or

nonrenew under A.R.S. § 20-1652(A). Second, the losses are being caused by a

condition of the premises which the insured could probably correct by fencing his pool.

Therefore, A.R.S. § 20-1652(B) applies, and the insurer must give the specific facts

regarding the condition of the premises to the insured under A.R.S. § 20-1653 in its

notice. Also, in the preceding example, the insurer could not use “substantial increase

in hazard” or “substantial change in risk” as reasons to cancel or nonrenew if nothing

about the swimming pool has changed since the insurer initially accepted the risk.

It should also be noted that theft, vandalism and malicious mischief are also

typical types of losses for which the insured can often correct the condition of the

premises to avoid future losses.

ould not use “substantial increase

in hazard” or “substantial change in risk” as reasons to cancel or nonrenew if nothing

about the swimming pool has changed since the insurer initially accepted the risk.

It should also be noted that theft, vandalism and malicious mischief are also

typical types of losses for which the insured can often correct the condition of the

premises to avoid future losses.

Circular Letter 90-1A

January 29, 1990

Page 3

4.

A.R.S. § 20-1654 requires an insurer to give at least thirty days advance

notice of its intention to nonrenew or to condition renewal upon reduction of limits or

elimination of coverage. If the insurer does not give thirty days advance notice, the

insurer must renew the policy upon payment of the premium. Any policy previously

written for less than a one year term may be renewed for a term of one year if the

required notice is not given. A policy with no fixed expiration date is deemed to be

written for successive policy periods of one year.

Although this circular is not intended as an exhaustive analysis of the

homeowners’ cancellation or nonrenewal laws, we hope it will serve to assist insurers in

compliance with certain specific requirements. Since A.R.S. § 20-1651 et seq. has

other provisions relating to a variety of issues, we encourage those who issue

homeowners’ policies in Arizona to obtain a copy of the laws and to become thoroughly

familiar with them.