38.2-231 - Notice of cancellation, refusal to renew, reduction in coverage or increase in premium of certain liability insurance policies.
§ 38.2-231. Notice of cancellation, refusal to renew, reduction in coverageor increase in premium of certain liability insurance policies.
A. 1. No cancellation or refusal to renew by an insurer of (i) a policy ofinsurance as defined in § 38.2-117 or 38.2-118 insuring a business entity;(ii) a policy of insurance that includes as a part thereof insurance asdefined in § 38.2-117 or 38.2-118 insuring a business entity; (iii) a policyof motor vehicle insurance against legal liability of the insured as definedin § 38.2-124 insuring a business entity; or (iv) a policy of miscellaneouscasualty insurance as defined in subsection B of § 38.2-111 insuring abusiness entity, shall be effective unless the insurer delivers or mails tothe named insured at the address shown on the policy a written notice ofcancellation or refusal to renew; however, if the written notice is a noticeof refusal to renew, it may be delivered electronically to the addressprovided by the named insured. Such notice shall:
a. Be in a type size authorized under § 38.2-311;
b. State the date, which shall not be less than 45 days after the delivery ormailing of the notice of cancellation or refusal to renew, on which suchcancellation or refusal to renew shall become effective, except that sucheffective date may not be less than 15 days from the date of mailing ordelivery when the policy is being cancelled or not renewed for failure of theinsured to discharge when due any of its obligations in connection with thepayment of premium for the policy;
c. State the specific reason or reasons of the insurer for cancellation orrefusal to renew;
d. Advise the insured of its right to request in writing, within 15 days ofthe receipt of the notice, that the Commissioner of Insurance review theaction of the insurer; and
e. In the case of a policy of motor vehicle insurance, inform the insured ofthe possible availability of other insurance which may be obtained throughits agent, through another insurer, or through the Virginia AutomobileInsurance Plan.
2. Nothing in this subsection shall apply to any policy of insurance if thenamed insured or his duly constituted attorney-in-fact has notified orally,or in writing, if the insurer requires such notification to be in writing,the insurer or its agent that he wishes the policy to be canceled or that hedoes not wish the policy to be renewed, or if, prior to the date ofexpiration, he fails to accept the offer of the insurer to renew the policy.
3. Nothing in this subsection shall apply if an affiliated insurer hasmanifested its willingness to provide coverage at a lower premium than wouldhave been charged for the same exposures on the expiring policy. Theaffiliated insurer shall manifest its willingness to provide coverage byissuing a policy with the types and limits of coverage at least equal tothose contained in the expiring policy unless the named insured has requesteda change in coverage or limits. When such offer is made by an affiliatedinsurer, an offer of renewal shall not be required of the insurer of theexpiring policy, and the policy issued by the affiliated insurer shall bedeemed to be a renewal policy.
B. No insurer shall cancel or refuse to renew a policy of motor vehicleinsurance against legal liability of the insured as defined in § 38.2-124insuring a business entity solely because of lack of supporting business orlack of the potential for acquiring such business.
C. No reduction in coverage for personal injury or property damage liabilityinitiated by an insurer and no insurer-initiated increase in the premiumgreater than 25 percent of (i) a policy of insurance defined in § 38.2-117 or38.2-118 insuring a business entity; (ii) a policy of insurance that includesas a part thereof insurance defined in § 38.2-117 or 38.2-118 insuring abusiness entity; (iii) a policy of motor vehicle insurance against legalliability of the insured as defined in § 38.2-124 insuring a business entity;or (iv) a policy of miscellaneous casualty insurance as defined in subsectionB of § 38.2-111 insuring a business entity, and which in the case of areduction in coverage is subject to § 38.2-1912, shall be effective unlessthe insurer delivers or mails to the named insured at the address shown onthe policy, or delivers electronically to the address provided by the namedinsured, a written notice of such reduction in coverage or premium increasenot later than 45 days prior to the effective date of same. The increase inpremium shall be the difference between the renewal premium and the premiumcharged by the insurer at the effective date of the expiring policy. Suchnotice shall:
1. Be in a type size authorized under § 38.2-311;
2. State the date, which shall not be less than 45 days after the delivery ormailing of the notice of reduction in coverage or increase in premium, onwhich such reduction in coverage or increase in premium shall becomeeffective;
3. Advise the named insured of the specific reason for the increase and theamount of the increase, or, if in the case of a reduction in coverage, thespecific reason for the reduction and the manner in which coverage will bereduced, or that such information may be obtained from the agent or theinsurer;
4. Advise the insured of its right to request in writing, within 15 days ofreceipt of the notice, that the Commissioner of Insurance review the actionof the insurer.
D. If an insurer does not provide notice in the manner required in subsectionC, coverage shall remain in effect until 45 days after written notice ofreduction in coverage or increase in premium is mailed or delivered to theinsured at the address shown on the policy, or delivered electronically tothe address provided by the named insured, unless the insured obtainsreplacement coverage or elects to cancel sooner in either of which casescoverage under the prior policy shall cease on the effective date of thereplacement coverage or the elected date of cancellation as the case may be.If the insured fails to accept or rejects the changed policy, coverage forany period that extends beyond the expiration date will be under the priorpolicy's rates, terms and conditions as applied against the renewal policy'slimits, rating exposures, and additional coverages. If the insured acceptsthe changed policy, the reduction in coverage or increase in premium shalltake effect upon the expiration of the prior policy.
E. Notice of reduction in coverage or increase in premium shall not berequired if:
1. The insurer, after written demand, has not received, within 45 days aftersuch demand has been mailed or delivered to the insured at the address shownon the policy, or delivered electronically to the address provided by thenamed insured, sufficient information from the insured to provide therequired notice;
2. Such notice is waived in writing by the insured;
3. The insurer delivers or mails to the named insured a renewal policy or arenewal offer not less than 45 days prior to the effective date of the policyor, in the case of a medical malpractice insurance policy, not less than 90days prior to the effective date of the policy;
4. The policy is issued to a large commercial risk as defined in subsection Cof § 38.2-1903.1 but excluding policies of medical malpractice insurance; or
5. The policy is retrospectively rated, where the premium is adjusted at theend of the policy period to reflect the risk's actual loss experience.
F. No written notice of cancellation, refusal to renew, reduction in coverageor increase in premium that is mailed, or delivered electronically whenauthorized for a notice other than a notice of cancellation, by an insurer toan insured in accordance with this section shall be effective unless:
1. a. It is sent by registered or certified mail,
b. At the time of mailing the insurer obtains a written receipt from theUnited States Postal Service showing the name and address of the insuredstated in the policy,
c. At the time of mailing the insurer (i) obtains a written receipt from theUnited States Postal Service showing the date of mailing and the number ofitems mailed and (ii) retains a mailing list showing the name and address ofthe insured stated in the policy, or the last known address, to whom thenotices were mailed, together with a signed statement by the insurer that thewritten receipt from the United States Postal Service corresponds to themailing list retained by the insurer, or
d. If delivered electronically, the insurer retains evidence of electronictransmittal or receipt of the notification for at least one year from thedate of the transmittal; and
2. The insurer retains a copy of the notice of cancellation, refusal torenew, reduction in coverage or increase in premium.
3. a. If the terms of a policy of motor vehicle insurance insuring a businessentity require the notice of cancellation, refusal to renew, reduction incoverage or increase in premium to be given to any lienholder, then theinsurer shall mail such notice and retain a copy of the notice in the mannerrequired by this subsection. If the notices sent to the insured and thelienholder are part of the same form, the insurer may retain a single copy ofthe notice. The registered, certified or regular mail postal receipt and thecopy of the notices required by this subsection shall be retained by theinsurer for at least one year from the date of termination.
b. Notwithstanding the provisions of subdivision 3 a, if the terms of thepolicy require the notice of cancellation, refusal to renew, reduction incoverage or increase in premium to be given to any lienholder, the insurerand lienholder may agree by separate agreement that such notices may betransmitted electronically provided that the insurer and lienholder agreeupon the specifics for transmittal and acknowledgement of notification.Evidence of transmittal or receipt of the notification required by thissubsection shall be retained by the insurer for at least one year from thedate of termination.
4. Copy, as used in this subsection, shall include photographs,microphotographs, photostats, microfilm, microcard, printouts or otherreproductions of electronically stored data, or copies from optical disks,electronically transmitted facsimiles, or any other reproduction of anoriginal from a process which forms a durable medium for its recording,storing, and reproducing.
G. Nothing in this section shall prohibit any insurer or agent from includingin a notice of cancellation, refusal to renew, reduction in coverage orpremium increase any additional disclosure statements required by state orfederal laws.
H. For the purpose of this section the terms (i) "business entity" shallmean an entity as defined by subsection A of § 13.1-543, § 13.1-603 or13.1-803 and shall include an individual, a partnership, an unincorporatedassociation, the Commonwealth, a county, city, town, or an authority, board,commission, sanitation, soil and water, planning or other district, publicservice corporation owned, operated or controlled by the Commonwealth, alocality or other local governmental authority; (ii) "policy of motorvehicle insurance" shall mean a policy or contract for bodily injury orproperty damage liability insuring a business entity issued or delivered inthis Commonwealth covering liability arising from the ownership, maintenance,or use of any motor vehicle, but does not include (a) any policy issuedthrough the Virginia Automobile Insurance Plan, (b) any policy providinginsurance only on an excess basis, or (c) any other contract providinginsurance to the named insured even though the contract may incidentallyprovide insurance on motor vehicles; and (iii) "reduction in coverage"shall mean, but not be limited to, any diminution in scope of coverage,decrease in limits of liability, addition of exclusions, increase indeductibles, or reduction in the policy term or duration except a reductionin coverage filed with and approved by the Commission and applicable to anentire line, classification or subclassification of insurance.
I. Within 15 days of receipt of the notice of cancellation, refusal to renew,reduction in coverage or increase in premium, the insured shall be entitledto request in writing to the Commissioner that he review the action of theinsurer. Upon receipt of the request, the Commissioner shall promptly begin areview to determine whether the insurer's notice of cancellation, refusal torenew, reduction in coverage or premium increase complies with therequirements of this section. Where the Commissioner finds from the reviewthat the notice of cancellation, refusal to renew, reduction in coverage orpremium increase does not comply with the requirements of this section, heshall immediately notify the insurer, the insured and any other person towhom such notice was required to be given by the terms of the policy thatsuch notice is not effective. Nothing in this section authorizes theCommissioner to substitute his judgment as to underwriting for that of theinsurer. Pending review by the Commission, this section shall not operate torelieve an insured from the obligation to pay any premium when due; however,if the Commission finds that the notice required by this section was notproper, the Commission may order the insurer to pay to the insured anyoverpayment of premium made by the insured.
J. Every insurer shall maintain for at least one year records ofcancellation, refusals to renew, reductions in coverage and premium increasesto which this section applies and copies of every notice or statementrequired by subsections A, C, F and L of this section that it sends to any ofits insureds.
K. There shall be no liability on the part of and no cause of action of anynature shall arise against (i) the Commissioner of Insurance or hissubordinates; (ii) any insurer, its authorized representative, its agents, orits employees; or (iii) any firm, person or corporation furnishing to theinsurer information as to reasons for cancellation, refusal to renew,reduction in coverage or premium increase, for any statement made by any ofthem in complying with this section or for providing information pertainingthereto.
L. Notwithstanding anything in this section to the contrary, if an insurercancels or refuses to renew a policy of medical malpractice insurance asdefined in § 38.2-2800, or if, as a result of an insurer-initiated increasein premium, the premium increases for a medical malpractice insurance policyby more than 25 percent of the previous policy's premium, the insurer shallprovide no fewer than 90 days notice prior to the renewal effective date, or,if such policy is being cancelled or non-renewed for failure of the insuredto discharge when due any of its obligations in connection with the paymentof premium for the policy, the effective date of cancellation or refusal torenew shall not be less than 15 days from the date of mailing or delivery ofthe notice. The increase in the premium shall be the difference between therenewal premium and the premium charged by the insurer at the effective dateof the expiring policy.
M. As used in this section, an "insurer-initiated increase in premium"means an increase in premium other than one resulting from changes in (i)coverage requested by the insured, (ii) policy limits requested by theinsured, (iii) the insured's operation or location that result in a change inthe classification of the risk, or (iv) the rating exposures including, butnot limited to, increases in payroll, receipts, square footage, number ofautomobiles insured, or number of employees.
(1986, c. 376, § 38.1-43.01; 1987, c. 697; 1988, c. 189; 1989, c. 728; 1992,c. 160; 1996, c. 237; 1998, c. 142; 2000, c. 529; 2003, cc. 387, 678; 2005,cc. 290, 635; 2006, c. 554; 2008, cc. 58, 221; 2009, c. 215.)