It’s fairly easy to miss an insurance premium payment. You buy your policy online, set up monthly auto pay through your debit card, and forget about it. But then you have to replace your card, or get a new card number or bank, or the account is overdrawn, or something else happens. Or, maybe you’re paying manually each month and just plain get behind on your mail. You get a notice from the insurer that your policy’s been canceled for premium nonpayment. You call them and explain the problem and offer to pay, but they won’t let you do it.
Can they do that? Like most insurance questions, the answer is “it depends.”
The general rule is that insurers are free to cancel policy coverage without notice when the insured fails to timely pay premiums. Courts are traditionally unforgiving when policyholders miss premium payments. They emphasize that the basic insurance exchange is the insurer provides coverage in exchange for premium payments; since this is the heart of the bargain, insurers are within their rights to insist on timely premium payments and cancel coverage without notice if premiums aren’t paid on time.
There are exceptions to this rule, but they depend on the specific factual details and the language of the insurance policy:
- Grace Periods: Sometimes the policy explicitly provides a grace period or lets the insured reinstate coverage after missing a payment. This is a common feature of life insurance policies in particular. Or, sometimes the policy doesn’t have a grace period but some applicable law requires the insurer to give you a grace period for missed premium payments. One prominent example is the federal Affordable Care Act (a/k/a “Obamacare”). The ACA provides for a grace period for certain covered health insurance plans, with the length of the grace period depending on whether the insured is receiving subsidies.
- Insurer Misrepresentations. Courts may be receptive to insurer’s rights to collect premiums, but they don’t like it when insurers lie. Where the insurer misled the insured about whether premiums were outstanding, or lied about the availability of a grace period before coverage would be canceled, courts often allow the insured to reinstate coverage.
- Insurer Errors. Even where the insurance company doesn’t lie, if the insurer’s own conduct prevents you from paying premiums on time then courts often bar the insurer from canceling coverage. For instance, sometimes insurers misapply or lose a payment, or don’t allow the insurer to make a payment because the company’s website or telephone is down.
- Past Practices. Sometimes the insurer routinely accepts late payments, leading the insured to conclude that the premium deadline isn’t a big deal. In those cases, courts sometimes determine the insurer waived its right to cancel coverage for late payments.
- Insurer Promises. In cases where the insurer’s agents promise the insured that they will “let it slide” and not cancel coverage for a missed premium payment, courts sometimes hold the insurer to its agent’s promise and deny the insured the right to cancel coverage.
It’s important to remember that, if the insurer cancels coverage improperly, the insured typically has recourse, including a claim for additional damages and attorneys’ fees, under Washington’s Insurance Fair Conduct Act and/or Consumer Protection Act.