(Revised February 2004)
What Are Your Rights? Policy Rights
Renewal & Cancellation Rights
Premium Rights
What Are Your Responsibilities?
Glossary of Insurance Terms
The California Department of Insurance is concerned about your privacy and the protection of your legal rights involving personalinsurance
. We realize that insurance contracts can be complex and confusing to many consumers and have attempted to write this publication in easy to understand language. Throughout this document we have italicized industry terms and described them more completely in the glossary of terms at the end of this guide.
This brochure is designed to help you understand the regulations, rules, and provisions that give protection under the following circumstances:
- When you apply for insurance, what kind of information is obtained?
- What are independent sources?
- What if you disagree with the information provided by the independent sources?
- Who has access to information about you?
:
- When your automobile insurance policy is canceled or nonrenewed.
- When your residential insurance policy is canceled or nonrenewed.
:
- When your premium is misquoted .
- When your policy is subject to cancellation fees.
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Your insurance company or agent will require that you disclose certain personal information on the application to determine your eligibility for insurance coverage and establish the price of coverage. If you are applying for automobile insurance, the company will collect information such as your driving record, use of automobile, mileage driven, and years of driving experience.
For residential insurance, the company will require you to disclose information such as the type of the construction and the age of the property. In addition, your insurance company may obtain information from independent sources.
For automobile insurance, most insurance companies will order a Motor Vehicle Report (MVR) for all the drivers listed on the insurance application. The MVR is the state’s official record of driving information obtained from the Department of Motor Vehicles (DMV). It is used to verify accidents, traffic violations and license suspensions for all potential drivers listed on the application.
A California Insurance Proof Certificate filing is required in cases of unsatisfied judgments, major convictions, license suspensions and failure to have liability coverage at the time of an accident. Your insurance company files this form with the DMV. The filing requirement period can be up to three years. Most major convictions of traffic offenses, such as hit and run, reckless driving, and driving under the influence will remain on your record for seven years from the violation date. Most minor convictions will remain on your record for three years.
The SR22 form should not be confused with the SR1 form, which is the California Traffic Accident Report Form. Whenever you are involved in an accident, the DMV requires that you file the SR1 form within ten days of the accident date, if there is any bodily injury, or property damage that exceeds $500 ($750 as of 1/1/03).
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In addition to the Motor Vehicle Report, an insurance company may use independent sources such as CLUE and ADD reports obtained from consumer reporting agencies to underwrite insurance policies.
Comprehensive Loss Underwriting Exchange (CLUE), is a claims history report that allows insurance companies to exchange their claims records on drivers and vehicles. When you apply for a new automobile or residential insurance policy, your insurance company may order this report to check the validity of the claims history as you reported on the application.
In the case of automobile insurance, this report may reflect comprehensive losses or accidents valued below $500 ($750 as of 1/1/03) that would not necessarily appear on your MVR.
Additional Driver Discovery Report (ADD) is a database of all licensed drivers that live or previously lived in your household at any time. Insurance companies may run this report to identify possible undisclosed drivers in the household that might increase their liability exposure.
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Your insurance company must inform you if a report provided by an independent source is used to take action against you, such as denying an application for insurance. In addition, your insurance company must give you the name, address and phone number of the credit-reporting agency that provided the report. Under the Fair Credit Reporting Act, you have the right to dispute the accuracy or completeness of any information furnished by the credit-reporting agency. You have the right to a free copy of the report from the credit-reporting agency, which must be provided within sixty days of your request.
A credit-reporting agency must remove or correct inaccurate or unverified information usually within thirty days after you dispute it. However, the credit-reporting agency is not required to remove accurate data from your file unless it cannot be verified.
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The information collected is kept by the company. It can be used in connection with issuing, servicing and continuing insurance policies, and processing claims. Certain persons or organizations may obtain your information, such as:
- Your insurance agent or broker .
- Persons performing a business function for the company: example, auditors.
- Independent or Public Adjusters.
- Actuarial or research organizations conducting statistical or research studies; however, they must agree to maintain your anonymity.
- Other companies with which your company is affiliated.
- Nonaffiliated persons or organizations for marketing purposes. However, you may indicate in writing if you do not want the information to be disclosed for such purposes. You may do this when you apply for coverage.
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Can an Insurance Company Cancel or Nonrenew My Automobile Insurance Policy?
After an automobile insurance policy has been in effect for sixty days it may be cancelled or nonrenewed for nonpayment of premium , fraud or material misrepresentation, or substantial increase in the hazard insured against.
Cancellation notices must be mailed or delivered to you at your last known address accompanied by the reason, at least ten days prior to the effective date of cancellation for nonpayment of premium, and twenty days for all other reasons. For Nonrenewal , notices must be forwarded to you at least thirty days before expiration. The nonrenewal notice will state that, upon your written request, the company will give you the reason for nonrenewal.
In the event that the company fails to send you a notice of nonrenewal as required by law, your policy will remain in effect for thirty days from the date the proper notice is sent. If you have already replaced the policy, coverage will terminate on the effective date of your replacement.
:
- To receive written notice before your policy will be cancelled or nonrenewed.
- To a statement of the reasons for the cancellation or nonrenewal.
After a residential property policy has been in effect for sixty days it can be cancelled for limited reasons specified in the California Insurance Code (CIC). The reasons include, nonpayment of premium, fraud, or material misrepresentation, or physical changes in the insured property that increase any hazard insured against.
The company must mail or deliver a notice of cancellation to you at your last known address based on the number of days stated on the policy. The reason for cancellation must be disclosed on the notice. Effective January 1, 2004, the insurance company must mail or deliver a notice of cancellation at least 20 days prior to the effective date of cancellation, and 10 days for nonpayment of premium or for fraud. However, it is important to know that companies may sometimes provide more generous cancellation notification in their policies. If the policy provides for a cancellation notice period of longer than 20 days, the policy language will apply.
A written notice of nonrenewal must be forwarded to you at least 45 days before the expiration date. If the company fails to give you the proper notice as required by law, your existing policy, with no change in its terms and conditions, will remain in effect for 45 days from the date the notice is sent.
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Can the Company Increase My Automobile or Residential Insurance Premium After the Policy Is in Effect?
The insurer has sixty days from the policy’s effective date in which to verify the rating and underwriting of a new policy. Within these sixty days, a company must notify you of any error and change in premiums. After sixty days, no notice of change of premium shall be effective.
If the premium revision results from an error made by the company or its agents, or from incomplete information provided by you, the insurance company is required to notify you of the error within sixty days and the higher premium shall be charged from the effective date of coverage. If you do not accept the increase in the premium, you may ask the company to cancel the policy. The earned premium must be calculated on a pro rata basis on the original quotation.
If the premium revision results from an error made by the company or its agents and you are not notified of the error within sixty days, the policy shall remain in force as written at the original premium.
After the sixty day period has expired, the insurance company may flat cancel the contract for misinformation and/or misstatement or other matters sufficiently serious to justify a flat cancellation.
In general, whenever the policyholder initiates a cancellation, the premium is calculated on a short rate basis whereby the company retains part of the unearned premium to cover administrative expenses. However, some companies may calculate the premium on a pro rata basis. You will need to review your policy contract to find out the cancellation provisions of the company.
In addition, if you have acquired the services of a broker and signed an agreement, the broker may be entitled to retain the broker fee. You may be entitled to a full refund of the broker fee if the broker acted incompetently or dishonestly. Unresolved disputes over non-refunded broker fees can be forwarded to the Department of Insurance for review.
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- To have liability coverage or a bond.
- To provide complete and accurate information on the application.
- To get a signed binder from the producer after you have signed the application.
- To get a receipt if paid by cash or money order.
- To get a copy of the broker fee agreement if applicable.
- To report any changes that affect your policy, including changes in names, addresses, drivers, or the use of your car.
- To r review the contract once the policy is received.
- To pay premiums by the due date.
- To report any losses promptly to your agent or company.
- To cooperate with the insurance company in investigation, settlement, and defense of any claim or suit.
- Not to file fraudulent claims.
Thank you for your interest in this consumer publication What Are Your Rights?. If we can be of any further assistance, please do not hesitate to contact us by using the information on page 15 entitled, "Talk to Us." We hope that this resource has been helpful to you in making informed and efficient decisions about you insurance needs.
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ADD - Additional Driver Discovery Report. This is a report of all potential drivers in the household.
Agent - A person authorized by, and acting on behalf of the insurer to transact all classes of insurance that the insurance company is licensed to sell.
Application - A written request for insurance coverage containing statements made by the applicant.
Broker - A licensed individual or organization that searches the marketplace in the interest of the clients, not the insurance companies.
Cancellation - Termination of insurance coverage during the policy period.
CLUE - Comprehensive Loss Underwriting Exchange. This is a claims history report that allows insurance companies to exchange their claims records on drivers and vehicles.
Earned Premium - That portion of a policy’s premium payment for which the protection of the policy has been provided.
Effective Date - The date on which the insurance policy begins.
Expiration Date - The date on which the insurance policy ends.
Flat Cancellation - The cancellation of a policy as of its effective date without any premium charge.
Fraud - Dishonest and willful act of obtaining money or value under false pretenses.
Hazard - Circumstances that increase the probability or severity of a potential loss.
Independent Adjuster - A person or organization that provides claim adjusting services to a variety of insurers.
Insurance - Mechanism for shifting a risk from a person, business, or organization to an insurance company in exchange for payment of premiums. The insurance company commits to be responsible for covered losses.
Insurer - The insurance company that agrees to indemnify for losses and provide benefits.
Material Misrepresentation - A false statement given by an applicant of any important fact that, had the insurance company known the truth, it would not have insured the risk.
Misquote - An incorrect estimate of an insurance premium.
Nonpayment of Premium - Failure by the policyholder to pay the premium on a policy or any installment of such premiums.
Nonrenewal - The insurance company’s option of not renewing a policy at the end of the policy period.
Policy - A contract that states the rights and duties of the insurance company and the insured.
Premium - The price of insurance paid to the insurance company for a policy.
Pro Rata Cancellation - Determination of the earned premium upon termination of the policy prior to the expiration date, initiated by the insurance company with no penalty to cover administrative expenses.
Provisions - Statement of conditions of an insurance policy.
Public Adjuster - A person or organization that represents the policyholder in property damage claims against insurers.
Quotation - An estimate of the cost of insurance, based on information supplied to the insurance agent or insurance company by the applicant.
Regulations - Requirements developed by the Department of Insurance that implement laws passed by the legislature.
Renewal - The continuation of coverage for another term, with the same insurance company that issued the policy, at the end of the policy period.
Short Rate Cancellation - Termination of the policy prior to the expiration date at the policyholder’s request, typically subject to 10% penalty of the unearned premium to cover administrative expenses.
SR1 - California Traffic Accident Report Form. This form is a traffic collision report form that must be filed by you within ten days of the accident date.
SR22 - Also referred to as the California Insurance Proof Certificate. This form is required by the DMV to confirm that financial responsibility policy is in force. Your company files this form.
Underwrite - The process to evaluate the insurance application and independent sources, to verify the information provided, and to determine the acceptability of the risk.
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