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Denial or Loss of Coverage - What Are the Rules and Regulations?


On what grounds can a company refuse to insure a property, or cancel or not renew a home insurance policy? A large portion of the consumer calls received by the Minnesota Department of Commerce concern these questions.

Reasons for denial: Just as an insurance company cannot offer different rates based on any of the reasons cited above, neither can it refuse to offer or renew a policy for these reasons. In the case of the age of the house, a company can refuse to insure a property constructed before a certain date, but only if the electrical or other specified systems have not been renovated since that date. In other words, the age of the system or systems determine whether a company can refuse to insure a dwelling.

The property must also meet reasonable under writing standards; these include consideration of the property’s proximity to an extraordinary hazard; access to fire protection; physical condition, including state of the heating and wiring; present use, such as vacancy or overcrowding; and other characteristics such as storage of rubbish or flammable materials that increase risk.

Grounds for cancellation: Once a policy has been in effect for at least 60 days, or has been renewed, it can be cancelled (that is, terminated during the period in which the policy is in effect) only for the following reasons:

  • Nonpayment of the premium.
  • A false statement or misrepresentation by the insured in applying for the policy or in presenting a claim.
  • An increase in risk from what was originally accepted for coverage; the increase can be due to something the insured does or omitted to reveal in the application.
  • If a physical change occurs that increases risk to the property after the policy is in effect, and the change has not been corrected within a reasonable time.
  • Nonpayment of dues to an organization in which member- ship is required for the particular insurance policy.

Grounds for non-renewal: No insurance company can refuse to renew a policy at the end of its period except for the reasons for cancellation, cited above, and for the following reasons:

  • Using the property for an illegal activity.
  • Cancellation by the insurance company of its contract with an agent, unless the company assigns another agent to the
    policy. (The company must also transfer the policy to anoth- er agent if the insured requests it in writing before the non- renewal date; see notification required, below.)
  • Violation of laws that increase the possibility of loss.
  • Refusal of the insured to eliminate conditions  which increase risk after being notified by the insurance company that the conditions must be removed.
  • A change in the quality or availability of fire protection services.
  • Two or more losses by the insured within the past three years, unless the losses were caused by lightning or other storm-related phenomenon,  or they did not result in any payment by the insurance company, or 80 percent of the costs were recovered through another party.
  • The company stops writing homeowners’ insurance in Minnesota.
  • The insured homeowner fails to provide information relating to the insurability of the property when requested by the company.
  • Failure to pay property taxes on the insured property for two or more years.
  • The homeowner no longer owns that particular property or no longer lives there.

Notification requirements: If a policy is cancelled during the first 59 days it is in effect, the company must notify the insured in writing at least 20 days before the cancellation date. Once a policy has been in effect for 60 days, or if it is a renewal policy, the company must give a written notice at least 30 days before the date on which the policy will be cancelled. The exception to this rule is when the premium has not been paid: in this case, the company may cancel at any time with 20 days’ notice.

In some cases, two notices are required. If the nonrenewal is based on known conditions that increase risk, the company must send two notices notifying the homeowner that the policy will not be renewed unless the conditions are removed. If the company needs information about the property before it will renew the policy, it must send two written requests for the information and state why the information is needed. The second notice must inform the homeowner that the policy will not be renewed if the information is not received.

In all cases, a reason for the cancellation or nonrenewal must be stated in the notice and the homeowner advised of his or her right to send a letter of complaint to the Commissioner of Commerce. The homeowner must also be notified of the right to apply to the Minnesota FAIR Plan for coverage.

Opportunity for coverage through the FAIR Plan. A home- owner who has been denied insurance or had a policy cancelled or nonrenewed can apply for coverage  hrough the FAIR Plan, or Minnesota Property Insurance Placement Facility.

The Minnesota FAIR Plan Act was passed to assure access to property and liability coverage for those who cannot obtain insurance through normal insurance markets. Anyone who has been rejected for coverage can apply for coverage through the FAIR Plan. All insurance companies authorized to sell property or liability insurance in the state must participate. If the Plan sustains an operating loss in any one year, the companies are assessed a dollar amount based on their share of the market. The FAIR Plan is administered by a board whose members include representatives elected by the insurers and members appointed by the Commissioner of the Department of Commerce.

FAIR Plan homeowner policies provide the coverage described under Actual Cash Value coverage (HO-8) on page 3. Applicants for the FAIR Plan must meet reasonable under writing standards, which means that the condition of the property must not expose it to a high fire risk or other type of loss. The neighborhood or area in which the property is located, or any environmental hazard beyond the control of the owner, cannot be a factor in declining coverage.