Can Your Car Insurance Company (Cancel) Nullify Your Auto Policy?

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We have all heard horror stories of insurance companies refusing payment to certain insurance claims due to certain ‘discovery’ about the insured. This question is frequently asked: Does an insurance company have the authority to cancel a car policy? If so, under what circumstances can a company cancel an auto policy? Before we can answer this question, let’s review a fundamental principle in the insurance industry: The Principle Of Utmost Good faith. Latin for this principle, it is called “uberrimae Fidei”.

The Principle of Utmost good faith is related to financial contracts that require the parties (client and insurance company) to act honestly towards each other, not mislead and not withhold crucial information. For example, the insurance company must disclose financial data, claims procedures, and other pertinent information. The insured is also required to provide all relevant information about himself or about the subject matter of insurance, and answer any questions honestly.

If someone violates this doctrine or acts in a devious manner, the other party can nullify, rescind, or cancel the contract as if it never happened. Nullifying an insurance policy following a loss could be disastrous not only for the person insured but also for other victims who might have been affected by the accident.

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This question can be answered by stating that an insurance company has the right to cancel a policy as soon as it is in place (or the date the car insurance began). Insurance companies could do so for the following reasons:

1. Fraud. Fraud. Fraud can be committed if a person purchases full coverage car insurance policies on a vehicle that is severely damaged in the intention of later making claims. The insurance company could also report the incident to the local authorities for investigation. Fraud could be considered if you deliberately conceal facts.

2. Misrepresentation. Representations refer to statements made by the applicant for car insurance in the process of getting the policy. Many questions are asked about the applicant’s age, gender, marital status, driving records, and marital status. The company could have the right to cancel the contract if it is material. What is a “material representation”? Material misrepresentations are when the insurance company knows the truth and would have cancelled the policy or issued different terms and conditions to the customer, most likely charging higher premiums. This definition means that failure to disclose modifications to an insured vehicle or failure to disclose young drivers living in the same household are material misrepresentations. Also, failures to disclose motor vehicle activities related to driving history of all those listed on the application is material.

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Fronting: It is well-known that younger drivers (generally, operators under 25 years old) are charged higher premiums. Fronting is when an insurance policy is purchased under the parent’s name and the operator is a young driver. Companies under such circumstances can nullify the policy. Although many companies cover claims due to undisclosed young drivers, other companies (especially if the claim involves a substantial amount of money) may decide to cancel policy or declare it null and void.

It is better to be truthful when getting car insurance quotes. Otherwise, you could end up paying for damages.