Can an insurance company sue for an unpaid premium on a cancelled account with no claims against it?

We had a commercial auto policy for our business. The company notified us that they were dropping our policy, so when our next payment didn’t clear the bank we just didn’t send them another payment. They cancelled our policy 1 month earlier than originally stated due to the missed payment but we closed our business and didn’t need it anyway. Now they’re trying to sue for the missed premium payment. There were no claims against the policy, and they cancelled it. Could they actually sue for that?

Asked on November 8, 2011 under Insurance Law, Texas

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

There  are a few issues here and really someone needs to review the paperwork involved - all the paperwork  involved - including the cancellation notices.  The insurance policy is a contract and we all know that if you enter in to a contract freely and with out coercion, etc., that it is binding and valid.  So can they sue you for the remainder of the contract?  Theoretically yes, they can.  You agreed to pay it and you did not.  In fact, you breached by bouncing the check.  I would take a look at your policy with an eye as to fees, etc, that may be incurred from the bounced check and from any collection and attorneys fees too.  Now, the time frame here as to cancellation seems awfully close to the end date of the policy so it is hard to determine (with out reading the documents) the validity.  Please seek help.  Good luck.


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