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

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Nov 8, 2011

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Insurance Question from Canyon Lake, TX

Asked on 11/08/2011

Can an insurance company sue for an unpaid premium on a cancelled policy with no claims against it? We had a commercial auto policy for our business, and received notice that the company was dropping our policy at the end of our term. We had a premium payment fail to clear the bank, and since the company had already told us they were cancelling our policy before that occured, we opted to just not send another payment. The company cancelled our policy one month later, and we closed our business. Now they're trying to sue us for not making the payment. Why would we owe them that payment if there were no claims against our policy? They cancelled our coverage.

Answer given on November 10, 2011

Insurance policies are a contract between you or your company and the insurance company. You agree to pay a specified premium in exchange for protection against certain losses, whether they be auto or property insurance. The insurance company is required to notify you within a certain period of time before the expiration date if they intend to cancel or nonrenew your insurance policy. That does not void the current contract or policy and the coverage is intended to remain as written until the expiration date.Your failure to make the payment due on the policy is a breaking of the contract. The policy was still in force and if there were a loss it would have been paid. The fact that there was no loss does not mean you do not owe the premium.If you closed your business prior to the cancellation of the policy, you can ask the company to cancel the policy as of that date. If not, then the company does have to right to seek payment for the earned premium, including collection proceedings.

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