Insurance Carrier Cancellation Notice Requirements in New Jersey

In New Jersey, an insurance carrier is not required to provide notice of cancellation to it’s insured when an insurance premium finance company agreement is involved.

When an insurance carrier cancels an insured’s policy due to default, it must comply with the statutory requirements provided in N.J.S.A. 17:29C-8, including providing at least fifteen days notice prior to cancellation and proof of mailing of notice of cancellation to the named insured.  However, what happens when the insurance carrier is requested to cancel an insured’s policy by an insurance premium finance company pursuant to a premium finance agreement?  Do the same rules apply?  According to New Jersey law, the answer is “no.”

What is an Insurance Premium Finance Company?

The Insurance Premium Finance Agreement Company Act (“IPFCA”) defines an insurance premium finance company as an organization involved in entering into or acquiring premium finance agreements by which an insured or prospective insured promises to pay the premium finance company the amount advanced or to be advanced under the agreement in payment of premiums on an insurance contract.  (N.J.S.A. 17:16D-2). 

IPFCA Policy Cancellations Under an Power of Attorney Provision

These insurance premium finance agreements often have power of attorney provisions that allow the company to step into the shoes of the insured when default occurs, enabling the company to cancel the policy listed in the agreement.  These power of attorney provisions are expressly authorized in the IPFCA.  (N.J.S.A. 17:16D-13(a)).  As such, the Appellate Division in New Jersey has determined that a power of attorney provision expressly authorized by the IPFCA does not have to comply with the technical power of attorney requirements of the power of attorney statute.  (ABM Property, LP v. Penn American Ins. Co., 418 N.J. Super. 441, 4522 (App. Div. 2011)).  In Carreon v. Hospitality Linen Services of New Jersey, 386 N.J. Super. 504 (App. Div. 2006), the Appellate Division acknowledged that when an insurance premium finance company sought cancellation of a policy under it’s power of attorney provision, the company had the power to act as though it had legally stepped into the shoes of the insured, thereby transforming the request to cancel as if it had originated from the insured pursuant to the IPFCA. 

Notice of Cancellation Requirements

When an insurance premium finance company through it’s power of attorney provision requests cancellation, the Appellate Division has discussed whether a carrier is then required to provide notice of cancellation.  (Auger v. Gionti Agency, 218 N.J. Super. 360, (App. Div.), certif. granted, 109 N.J. 504 (1987), appeal dismissed, 113 N.J. 348 (1988)).  In Auger, an insurance agent who was found negligent for not taking appropriate action to assure coverage for plaintiff appealed the trial court’s grant of summary judgment in favor of the automobile insurance carrier. The trial court held, in pertinent part, that the policy had been cancelled by the carrier at the request of the premium financing company, in conformity with N.J.S.A. 17:16D–13. 

In the appeal, the defendant insurance agent argued that the carrier’s failure to give plaintiff notice of cancellation as required by N.J.S.A. 17:29C–8 invalidated the purported cancellation.  The Appellate Division rejected this argument stating:

[T]he provisions of N.J.S.A. 17:29C–8 have no application where it is the insured, or the premium finance agency acting in his place pursuant to a power of attorney authorized by statute, who requests cancellation of his policy. The power of attorney given to the premium finance company by an insured allows that company to cancel the policy “as if such notice of cancellation had been submitted by the insured himself….” N.J.S.A. 17:16D–13(c). Hence, we conclude that the two statutory schemes are complementary rather than in conflict and must be construed harmoniously. Because the premium finance agreement signed by plaintiff included a provision giving [the premium finance company] the power of attorney to cancel the policy, the provisions of N.J.S.A. 17:16D–13 control.

Accordingly, when an insurance premium finance company requests cancellation as the power of attorney for the insured, an insurance carrier is not required to provide notice of cancellation to the insured.

We do note, however, that the premium finance company must comply with the IPFCA’s notice of cancellation requirements in order for the cancellation to be effective.  Specifically, the Appellate Division has determined that unless a legally sufficient notice of intent to cancel was sent to the insured before the notice of cancellation, a premium finance company cannot cancel a defaulting insured’s policy.  (Kende Leasing Corp. v. A.I. Credit Corp, 217 N.J. Super. 101 (App. Div. 1987)).  Therefore, if an insurance premium finance company does not properly comply with the IPFCA cancellation requirements, a subsequent cancellation by the insurance carrier will be ineffective.

By Melissa Mudry