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TDI Adopts Notice of Auto Policy Cancellation to lienholders

The Texas Department of Insurance, TDI, recently adopted a rule requiring insurers to give lienholders at least 10 days notice before canceling personal auto insurance policies. TIADA provided written comments in support of the rule adoption.

 
Senate Bill 1450, 85th Legislature, Regular Session (2017), enacted Insurance Code §551.1041, which requires the Commissioner "to adopt rules under which an insurer that cancels a personal automobile insurance policy that provides comprehensive or collision physical damage coverage for an automobile that is subject to a purchase money lien is required to notify the lienholder, if known, that the coverage will be canceled." New §5.7018 is necessary to implement the statute.

The rule requires insurers to give lienholders at least 10 days' written notice of cancellation of a policy. Ten days is a reasonable period for a lienholder to act to protect its interests. Insurance Code §551.103 and §551.104 describe when an insurer may cancel a personal auto policy.   Insurance Code §35.003 provides that a "regulated entity may conduct business electronically to the same extent that the entity is authorized to conduct business otherwise if before the conduct of business each party to the business agrees to conduct the business electronically." Therefore, the rule allows the written notice to be given electronically.

Visit the TDI website for a copy of the rule: https://www.tdi.texas.gov/rules/2019/documents/20196008.pdf#adoption order

TDI received comments on an informal draft of the rule that was posted on TDI's website on April 24, 2018, and on the proposal published in the Texas Register on January 25, 2019.

REASONED JUSTIFICATION. The new section is necessary to implement Insurance Code §551.1041, which requires the Commissioner "to adopt rules under which an insurer that cancels a personal automobile insurance policy that provides comprehensive or collision physical damage coverage for an automobile that is subject to a purchase money lien is required to notify the lienholder, if known, that the coverage will be canceled." TDI revised §5.7018(b) from the text as proposed to clarify the language.

§5.7018. Notice to Lienholders.  (a) For a personal automobile policy that includes comprehensive or collision physical damage coverage for an automobile that is subject to a purchase money lien, insurers must give written notice to the lienholder, if known, at least 10 days before the insurer:   (1) cancels coverage; or 
(2) nonrenews the policy.  (b) Cancellation or nonrenewal of a policy may not take effect earlier than the 10th day after the insurer sends written notice of the cancellation or nonrenewal to the lienholder.   (c) Notice may be given by mail, hand delivery, or electronically if the notice complies with Chapter 35 of the Texas Insurance Code.  (d) A lienholder may opt out of the notice requirement or agree to different notice requirements with an insurer.

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