Finance company's cancellation of policy pre-empts insurer's
(Like insurance policies, premium finance contracts are almost never read by the parties to the agreement. Often, insureds authorize their agent or broker to sign the contract and bind them to terms of which the insureds are unaware. This practice is fraught with danger to the agent or broker.
The basic premium finance contract appoints the finance company attorney-in-fact for the insured. That allows it to exercise the insured's right to immediately cancel the policy by giving written notice to the insurer. When the insured fails to make payments on the premium finance contract, the finance company demands immediate cancellation and obtains a return of the unearned premium from the insurer.
An agent or broker who does not explain the terms and conditions of the premium finance contract to an insured can be liable if a loss occurs after a premium finance cancellation. The following case illustrates why every agent or broker who arranges premium financing for clients should have a detailed procedure for explaining the implications of the finance company's power to act as the insured's attorney-in-fact. Whenever a notice of intent to cancel is issued by a finance company, the agent or broker should advise the insured that the finance company can and will cancel the policy if the payment is not made promptly. )
(Pacific Auto. Ins. Co. v. Wolff (1977), 72 Cal.App.3d 537, 540-541.)
Holland v. Sterling Casualty Ins. Co. (1994),
Pacific Business Connections Inc. v. St. Paul Surplus Lines Insurance Co., No. B188714 2007.CA.0002842 ( www.versuslaw.com ) (Cal.App. Dist.2 04/04/2007)
Agents must take care in describing clients' risks to insurance companies
(In Texas, a U.S. District Court held an insurance agent to account in a case that teaches every agent and broker to carefully review coverages with clients each year, and to inter-rogate the insured to determine the coverages needed and any changes in the insured's business that might affect the coverage.)
not,
Aspen Specialty Insurance Co. v. Muniz Engineering, Inc., No. H-05-0277 (S.D.Tex. 03/30/2007)
When is delay in reporting or denying a claim unreasonable?
Temple Construction Corp. v. Sirius America Insurance Co., No. 2006-07698 (N.Y.App.Div. 05/29/2007)
Barry Zalma, Esq., CFE is a California attorney. His practice emphasizes the representation of insurers and others in the business of insurance. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He provides expert witness testimony and consults with plaintiffs and defendants concerning insurance coverage, insurance claims handling and bad faith. He has qualified as an expert in state and federal courts in California, Mississippi, Texas and New Mexico, as well as in the Grand Caymans. He can be reached at zalma@zalma.com . His consulting practice's Web site is www.zic.bz .
(Like insurance policies, premium finance contracts are almost never read by the parties to the agreement. Often, insureds authorize their agent or broker to sign the contract and bind them to terms of which the insureds are unaware. This practice is fraught with danger to the agent or broker.
The basic premium finance contract appoints the finance company attorney-in-fact for the insured. That allows it to exercise the insured's right to immediately cancel the policy by giving written notice to the insurer. When the insured fails to make payments on the premium finance contract, the finance company demands immediate cancellation and obtains a return of the unearned premium from the insurer.
An agent or broker who does not explain the terms and conditions of the premium finance contract to an insured can be liable if a loss occurs after a premium finance cancellation. The following case illustrates why every agent or broker who arranges premium financing for clients should have a detailed procedure for explaining the implications of the finance company's power to act as the insured's attorney-in-fact. Whenever a notice of intent to cancel is issued by a finance company, the agent or broker should advise the insured that the finance company can and will cancel the policy if the payment is not made promptly. )
(Pacific Auto. Ins. Co. v. Wolff (1977), 72 Cal.App.3d 537, 540-541.)
Holland v. Sterling Casualty Ins. Co. (1994),
Pacific Business Connections Inc. v. St. Paul Surplus Lines Insurance Co., No. B188714 2007.CA.0002842 ( www.versuslaw.com ) (Cal.App. Dist.2 04/04/2007)
Agents must take care in describing clients' risks to insurance companies
(In Texas, a U.S. District Court held an insurance agent to account in a case that teaches every agent and broker to carefully review coverages with clients each year, and to inter-rogate the insured to determine the coverages needed and any changes in the insured's business that might affect the coverage.)
not,
Aspen Specialty Insurance Co. v. Muniz Engineering, Inc., No. H-05-0277 (S.D.Tex. 03/30/2007)
When is delay in reporting or denying a claim unreasonable?
Temple Construction Corp. v. Sirius America Insurance Co., No. 2006-07698 (N.Y.App.Div. 05/29/2007)
Barry Zalma, Esq., CFE is a California attorney. His practice emphasizes the representation of insurers and others in the business of insurance. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He provides expert witness testimony and consults with plaintiffs and defendants concerning insurance coverage, insurance claims handling and bad faith. He has qualified as an expert in state and federal courts in California, Mississippi, Texas and New Mexico, as well as in the Grand Caymans. He can be reached at zalma@zalma.com . His consulting practice's Web site is www.zic.bz .
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