Can Insurance Companies Cancel Auto Insurance By Rescinding Policies

by Ed Snenneh, Illinois Auto Insurance Agent in Chicago

Common Problems With Auto Insurance Coverage

People purchase auto insurance for three main things: (1) Auto liability insurance to protect their wealth in the event of them getting sued for negligent acts, (2) Auto physical damage (Comprehensive & Collision) to protect their property against damages resulting from theft, fire, collision etc, and (3) Auto liability insurance to comply with the law and prevent suspension or revocation of their driving privileges.

A number of problems may arise that make coverage questionable. The most common reasons why companies may question coverage or validity of insurance include  (a) Failure to Disclose All Operators, (b) Failure to Disclose Incidents, and (c) Undisclosed Use of the Vehicle (Business vs. Personal Use).

Failure to Disclose Operators on Auto Policy

When you purchase auto insurance you are required to disclose two types of people:

  1. All members of the households who are over 16 years of age, and who might be operating the vehicles you are insuring, and;
  2. Everyone else who will be driving the vehicles you are insuring on regular basis, even if they are not household members (such as a friend, a cousin, a nephew or a niece).

If the insurance company can establish that an operator who was involved in crash with an insured vehicle was a member of the household or a regular operator of one of the insured vehicles, but was not disclosed on the policy, the insurer will question the validity of the policy, and in some instances the insurer will rescind the policy based on material misrepresentation, or omitting materialistic facts whereas if these facts were disclosed to the insurer, a different policy at different conditions and premiums would have been issued.

By rescinding auto insurance policies the insurers declare that there was no coverage whatsoever under those policies and the insurer will refuse to pay for any damages or claims. Some larger and more reputable insurers may pay smaller claims although in situations where there are evidences of clear material misrepresentations because it may cost the insurers more to fight the case in court and to protect their image and reputation. In all situations where big claims are expected, all insurers will try to avoid paying those big claims that are filed while evidences of material misrepresentation are present.

Failure to Disclose Traffic Incidents & Citations.

While most insurers do check for the presence of claims and traffic citations of listed operators, there are few other companies – particularly among the non standard insurers- that do not. Also, there could be situations where a traffic ticket or an at fault accident that took place last week that is not yet reported on operators MVR of the driver. Failure to disclose traffic incident & citations can be a material misrepresentation as well. It can also be used as a ground to rescind auto insurance policies and reject paying claims.

Undisclosed Business Use of the Vehicle (Business vs Personal Use).

Insurance companies set their auto insurance rates based on average use of an operator for personal uses. It is clear that a an SUV that is being used by an operator to deliver articles or merchandise, as a messenger service, or pizza delivery, for instance; can potentially cause more accidents than the same SUV if operated by a housewife who uses the vehicles for shopping or taking children to school.

Vehicles used for business can potentially cause more accidents, and their rates are usually higher than autos used for personal uses. If you carry a personal auto policy and you use the vehicles for business purposes (deliveries, contractors, snow removal etc.) insurance companies may find that a ground to reject coverage and decline any claims.

Many companies will endorse their personal auto policies for certain business uses. However, other insurance carriers – especially non standard- may not allow that, or they simply do not have the business auto insurance form, and in this case a business auto policy may be the only solution.

posted on Wednesday, April 5, 2017