Cedric E. Stephens, Contributor

Question: Can an insurer cancel a contract before settling a claim? My vehicle is comprehensively insured. It met in an accident on June 12 of this year. I reported it to my brokers the following day. Eleven days later, I sent them all the relevant documents. On July 4, my loans officer contacted me. He said that the insurers told him that my policy would be cancelled on July 24.

The reason was "unfavourable claims experience". My brokers were aware of this but failed to inform me. When I asked if my claim would be settled within 30 days, I was told no. It would take another six to eight weeks to conduct an investigation. I was also asked to return the cover note even though to my premium is paid up for the year. Will my claim be dealt with within 30 days, or is it likely that the company will come up with an excuse not to pay?

- renei83@yahoo.com.

Answer: The insurer's decision to show you the door after you filed a claim is most unusual. After all, the company exists to pay claims. Have you given me all of the facts about your case? 'Unfavourable claims experience' suggests that your accident history is above average. Did you file any other claims in the last 12 months? Most 'fender-bender' type accidents are not investigated - except in cases where fraud is suspected. It is quite likely that your problems only have just started.

Terminating contracts

Insurance contracts can be terminated at any time by either party. Where an insurer exercises its right to end an agreement with the buyer of a motor policy, the first step is usually to give notice in writing.

The period of notice is always stated in the contract. It may be as short as seven days but could be as long as 30 days.

Nothing is said about what happens when notice of cancellation is given and the claim remains unsettled. This means that the insurers have no contractual duty to settle your claim within 30 days.

If you are expecting a premium refund, forget it. Insurers usually retain the entire premium when there is a claim. The cancellation clause of a leading insurer says: "The policy may be cancelled at any time ... and provided no occurrence which may give rise to a claim during the current period of Insurance has occurred."

The aim is clear. Premium refunds are granted when policies are cancelled only in cases where there are no claims.

Some insurers notify the police and the tax collectorate when they cancel a motor policy. Particulars of the owner, the vehicle and the date of cancellation are supplied in writing. What these organisations do with the information continues to remain a mystery.

Long-term effects

The termination of an insurance contract by an insurer can have long-term effects. Consumers have a duty to tell other insurers about it.

Applications for motor insurance usually ask: 'Has any company refused to renew, cancelled your policy or that of any driver?' This is one of those questions which, if it is answered yes, is likely to be viewed as a red flag by other insurers.

Refuse proposal

It could cause them to refuse your proposal at worst or, at best, result in higher premiums.

If the response was untrue and this was discovered, you would be up the creek without a paddle. The new insurers could completely avoid any future claim that you had.

When I contacted you by phone to get more details, you promised to return my call. You have not done so. This is the best that I can do under the circumstances.

Cedric E. Stephens provides free, independent information and advice about risk and insurance. Email: aegis@cwjamaica.com