The short answer to the question posed in the headline is yes. Insurance companies can and do cancel policies for a number of reasons we examine below.
Understand, though, that there are laws in place that specify when a policy can be cancelled and what insurance companies must do in order to properly cancel the policy. Any violations of these laws, including improper cancellation, can be grounds for a bad faith claim.
Reasons an insurance company can cancel a policy
Cancellation of a policy is prohibited, with a few exceptions. According to Texas laws, insurance companies can rightfully cancel a policy if:
- A policyholder obtained coverage through fraud
- A policyholder fails to pay premiums
- A policyholder becomes a higher hazard through his or her own actions, requiring a rate increase
- The insurer loses its insurance covering the policy
If a policy is cancelled for reasons beyond those listed above, or if an insurance company wrongfully claims that one of these reasons is why it cancelled a policy, then the policyholder may take legal action.
What is required when insurance companies cancel a policy
Under the law, insurance companies must provide to a policyholder written notice of the cancellation. This notification must come no later than 10 days before the policy cancellation goes into effect.
If you believe your policy is at risk of cancellation or if you feel it was wrongfully cancelled, then legal guidance could prove to be valuable. Filing a claim to challenge a cancellation can help you protect your rights under the law and avoid the costly consequences of not having insurance coverage.