Nevada cancellation, nonrenewal and temporary binders

Introduction

An insurance policy runs for a set period. Nevada law limits three things an insurer might want to do with that policy. It limits ending the policy early, declining to continue it, and continuing it on different terms. Nevada law also controls binders, which are short-term coverage that can exist before the actual policy is issued.

For any set of facts, you will learn to ask three questions:

1. What is the insurer actually doing?
2. Which Nevada rule governs that action?
3. Did the insurer meet that rule, and if not, what happens?

What you will be able to do

• Classify an insurer's action as midterm cancellation, anniversary cancellation, nonrenewal or renewal with changes.
• Decide whether a midterm cancellation is allowed, using the 70-day line and the seven permitted reasons.
• Check whether a notice was mailed or delivered on time and contained what Nevada requires, and state the result when it did not.
• Identify who may issue a binder, how long it may last and how it can be extended.
• Apply the binder rules for paperwork, replacement policies and acceptance as proof of insurance.

Before you start: You should know how a policy's term, expiration and renewal work in general. That is covered in Policy endings, empty buildings and coverage territory. You should also know what it means for an agent to be licensed and appointed. That is covered in From application to renewal: a producer's licensing lifecycle.

The Commissioner is Nevada's Commissioner of Insurance, the state's insurance regulator. See Nevada's Commissioner: authority, examinations and hearings.

Which policies these protections cover

Nevada's cancellation and nonrenewal sections are NRS 687B.310 to 687B.420. They apply to two things:

• every binder
• every insurance contract whose general terms must be approved by the Commissioner, or can be disapproved by the Commissioner

There are limits and additions to that coverage:

• Exemptions: Another statute can create an exception. The Commissioner can also exempt, by rule, classes of contracts whose policyholders do not need protection against arbitrary termination. Arbitrary termination means being dropped without a proper reason.
• Better terms: A policy may give the policyholder better terms than these sections require.
• Other rights: These rights add to the policyholder's other legal rights. They do not replace them.

Standing assumption for this lesson's examples: Unless an example says otherwise, assume three things:

• The policy is covered by these sections.
• The policy is not exempt.
• The policy contains no terms more favorable than the law requires.

Each example also says whether the policy is commercial (business) or personal, because some deadlines depend on that.

Three different actions: cancellation, nonrenewal and renewal with changes

These terms are easy to mix up. Each one answers a different question about the insurer's action:

• Cancellation asks: is the insurer ending coverage before the policy's scheduled end date? Ending it partway through the term is called midterm cancellation.
• Nonrenewal asks: is the insurer letting the policy run to its scheduled end and then declining to offer another term?
• Renewal with changes asks: is the insurer offering another term but with different provisions or a different price?

Here is how the three look for one fictional 12-month homeowners policy:

• The insurer writes in month 5: "Your coverage ends next month." Coverage stops early, so this is cancellation.
• The insurer writes in month 11: "We will not offer you a policy after your expiration date." The policy runs its full term and then stops, so this is nonrenewal.
• The insurer writes in month 11: "Your next term will cost more and have a higher deductible." Coverage continues on different terms, so this is renewal with changes.

Each action has its own Nevada rule. Classifying the action correctly is always the first step.

Check: A business's 12-month commercial property policy is in month 11. The insurer tells the owner it will keep insuring the building next year, but water damage will no longer be covered. Which action is this?

Midterm cancellation (ending a policy before its term is over): the 70-day line

The rule in plain English: A brand-new policy becomes protected once it has been in effect for at least 70 days. A renewed policy is protected from the start of the renewal. While a policy is protected, the insurer may cancel it only for one of seven listed reasons.

The protection lasts until whichever of these comes first:

• the end of the agreed term
• one year after the policy's (or renewal's) effective date, which is the date coverage begins

The seven permitted reasons, grouped so they are easier to remember:

The policyholder's conduct

1. The premium was not paid when it was due.
2. The insured was convicted of a crime arising from acts that increased the hazard insured against. That means the danger the policy covers, such as fire.
3. The insurer discovered fraud or material misrepresentation in obtaining the policy or in presenting a claim. A material misrepresentation is a false statement about something important enough to matter.

The risk became worse after the current policy first took effect

4. The insurer discovered an act, an omission (a failure to act) or a violation of a policy condition. It must have occurred after the current policy's first effective date. It must also substantially and materially increase the hazard insured against.

5. There was a material change in the nature or extent of the risk after that same date. The change must substantially and materially increase the risk of loss beyond what was expected when the policy was issued or last renewed.

The Commissioner's decisions

6. The Commissioner determines that continuing the insurer's current volume of premiums would do either of the following: - threaten the insurer's solvency, meaning its ability to meet its financial obligations - be hazardous to policyholders, creditors or the public

7. The Commissioner determines that continuing the policy would violate the Nevada Insurance Code, or put the insurer in violation of it.

Notice period: A cancellation cannot take effect until a minimum time after the notice is delivered or mailed to the policyholder:

• at least 10 days when the reason is nonpayment of premium
• at least 30 days for any other listed reason

Worked example

A household's 12-month personal homeowners policy is new, not a renewal. On day 110, the insurer discovers that the application falsely denied an earlier fire claim. Assume that false answer was material. On day 110 the insurer mails a notice saying coverage ends on day 118.

• Step 1: Classify the action. Coverage would end before the term is over, so this is midterm cancellation.
• Step 2: Check whether the policy is protected. Day 110 is past 70 days and within the term. The policy is protected.
• Step 3: Check the reason. Material misrepresentation in obtaining the policy is reason 3. The reason is permitted.
• Step 4: Check the notice period. The reason is not nonpayment, so at least 30 days are required. Eight days is not enough.

Result: Coverage does not end on day 118. A cancellation for this reason cannot take effect until at least 30 days after the notice was mailed.

Change one fact at a time

• The reason becomes unpaid premium. The notice is mailed on day 110 and says coverage ends on day 122. That is 12 days of notice, and nonpayment requires at least 10. The timing passes.
• The reason becomes a business choice. The insurer cancels on day 200 because it wants fewer homes in that neighborhood. This is not one of the seven reasons. Reasons 6 and 7 require a Commissioner's determination, not the insurer's own preference. The cancellation is not allowed, no matter how much notice is given.
• The policy is younger. The same neighborhood reason is used on day 40 of a new, non-renewed policy. The seven-reason list does not apply yet. But that only means this section does not block the cancellation. It does not mean anything goes. The policy's own terms and other rules can still limit the insurer.

Tempting mistake: "If the insurer gives enough notice, any reason works." This is wrong. The reason and the notice period are two separate tests, and a protected policy must pass both.

One qualification: This midterm-cancellation section states that it does not apply to industrial insurance policies. Industrial insurance is a category defined elsewhere in Nevada law and is outside this lesson.

Check: A commercial property policy was renewed 20 days ago. The insurer learns that, after the policy first took effect, the owner began storing large quantities of fireworks in the building. Assume this substantially and materially increases the fire hazard. The insurer mails a cancellation notice with an effective date 35 days later. Does the 70-day line stop the insurer? Does the cancellation pass the reason and timing tests?

What a notice must contain and how it must be sent

A cancellation or nonrenewal notice under these sections must meet all of these requirements:

• Delivery: It must be delivered to the insured in person, or mailed first-class or certified to the insured's address last known by the insurer.
• Effective date: It must state the date the cancellation or nonrenewal takes effect.
• Reasons: It must include a written explanation of the specific reasons.

Two more requirements can make a notice ineffective, meaning it has no legal effect:

• The right to request the facts. A notice may not state the facts behind the decision with reasonable precision. In that case, the insurer must supply those facts within 6 days after receiving the policyholder's written request. Any notice under these sections is ineffective unless it tells the policyholder about this right.
• Risk-sharing plan instructions. Any notice under these sections is ineffective unless it gives adequate instructions for applying to any risk-sharing plan. This means a plan set up under other parts of Nevada law that the policyholder may be eligible to apply to for coverage. It must be a plan that exists when the notice is sent. In plain terms, the notice must point the policyholder to another possible place to get coverage. This requirement has one exception: a cancellation for failure to pay premium.

Reasons versus facts: These two are easy to confuse, and they answer different questions.

• The reason says why, using the rule's category. Example: "a material increase in hazard."
• The facts say what happened. Example: "the inspection on day 95 found an unvented wood stove in the garage."

A notice must give specific reasons. If it does not state the facts precisely, the policyholder can ask for them.

Check: Two cancellation notices omit the risk-sharing plan instructions. Notice A cancels for unpaid premium. Notice B cancels for fraud in presenting a claim. Assume a qualifying risk-sharing plan exists at the time of each notice and both policyholders may be eligible for it. Which notice is ineffective because of that omission?

Anniversary cancellation (for policies written for more than one year)

An anniversary date is the yearly repeat of the date the policy began.

If a policy's term is longer than one year, the insurer may cancel it by giving notice before an anniversary date:

• Commercial or business policies: notice 60 days before the anniversary date
• All other policies: notice 30 days before the anniversary date

Example: A 3-year commercial property policy is involved. The insurer sends a cancellation notice 45 days before the second anniversary. This fails, because a commercial policy requires 60 days. If the same 45-day notice were sent on a 3-year personal policy, it would meet the 30-day requirement.

Nonrenewal (declining to offer another term): the renewal right

Start with the policyholder's right. A policyholder has a right to have the policy renewed:

• on the terms the insurer is then applying to similarly situated people, meaning people in comparable circumstances
• for a period equal to the expiring term, if that term is one year or less
• for one year, if the term is longer than one year

How the insurer avoids renewal: The insurer must mail or deliver to the policyholder a notice that it intends not to renew. The insurer must mail or deliver the notice at least this long before the policy's expiration date:

• 60 days for commercial or business policies
• 30 days for all other policies

The deadline is measured from when the insurer mails or delivers the notice, not from when the mailed notice actually reaches the policyholder.

If the notice is late: The insurer must provide the insured with a policy on terms identical to the expiring policy.

When this section does not apply:

• The policyholder has accepted replacement coverage.
• The policyholder requested or agreed to the nonrenewal.
• The policy is expressly designated as nonrenewable by a clause approved, or deemed approved, by the Commissioner.

Worked example

A print shop has a 12-month commercial property policy. The insurer mails a nonrenewal notice 45 days before the expiration date.

• Classify the action: The policy runs to its end and is not continued. This is nonrenewal.
• Check for exceptions: None of the three exceptions applies.
• Check the timing: A commercial policy requires at least 60 days. Forty-five days is late.
• Result: The insurer must provide a policy on terms identical to the expiring one.

Change the policy type: The same 45-day notice goes to a personal renters policy. The 30-day requirement is met, so the timing passes. The notice must still meet the content rules from the earlier section.

Change the history: The print shop owner had already accepted replacement coverage from another insurer. The nonrenewal section does not apply at all.

Two tempting mistakes:

• Using one deadline for every policy. The 30-day nonrenewal period is for non-commercial policies. Commercial and business policies need 60.
• Borrowing the seven cancellation reasons. The nonrenewal section does not limit the insurer to a list of reasons. Its central test is timely, properly prepared notice. Other rules can still forbid specific reasons, such as the dog-breed rule later in this lesson.

Check: A personal homeowners policy contains a clause, approved by the Commissioner, expressly designating the policy as nonrenewable. The insurer tells the policyholder 20 days before expiration that it will not renew. Does the 30-day nonrenewal rule give the policyholder a renewal right?

Renewal with changes (continuing the policy on different terms or price)

The rule: An insurer may not renew a policy with a change in policy or coverage provisions unless it gives the insured written notice of the change at least 30 days before the policy expires. Changes in rates or premiums count as changes under this rule.

The 30-day period is the same for commercial and personal policies.

If the notice is late or inadequate: The insurer must renew using the expiring provisions:

• for a period equal to the expiring term, if that term is one year or less
• for one year, if the term is longer than one year

When no notice is required under this section. The rule does not apply to a renewal whose change consists only of one of these:

• a premium decrease: a lower total premium for the renewal
• a date shift: new effective and expiration dates, with the policy's duration unchanged
• a purely favorable change: one or more changes meant to make coverage more favorable, with no change that makes any part of coverage less favorable

There is also a separate exception for certain rate changes on industrial insurance policies. That exception is outside this lesson.

Worked example (fictional amounts)

A 12-month personal homeowners policy is renewing with two changes:

• The premium rises from $1,800 to $2,050.
• The deductible rises from $1,000 to $2,500.

The insurer sends written notice 18 days before expiration.

Both changes are covered changes, and 18 days is less than 30. The insurer must renew for 12 months using the expiring provisions. That means the $1,000 deductible stays. The premium change is also a covered change, so the late notice does not authorize the increase at this renewal either.

Change one fact: The only change is a premium decrease to $1,700. This falls within an exception, so no notice is required under this section.

The mixed case: The renewal adds water-backup coverage, which is more favorable. It also raises the deductible, which is less favorable. The "purely favorable" exception does not apply, because a favorable change is accompanied by an unfavorable one. The insurer needs the 30-day written notice.

Tempting mistake: "Overall it's a better deal, so no notice is needed." The exception does not weigh good changes against bad ones. Any less favorable change brings back the notice requirement.

Check: A commercial property policy renews with a premium increase. The insurer sends written notice 35 days before expiration. Is that notice timely under the renewal-with-changes rule?

Related rights: claims information, Division review and class withdrawals

Claims-paid information. A policyholder may request information to help with renewal. The insurer must then provide information about claims paid on the policyholder's behalf.

• It must do so within 30 working days after receiving the policyholder's written request.
• It may charge a reasonable fee.
• Compare the 6-day period for supplying the facts behind a notice. The statute says "working days" for the claims information and simply "days" for the facts.

Withdrawing from a class of insureds. An insurer may intend to stop insuring a particular class (group) of insureds. It must notify the Commissioner at least 60 days before it delivers or mails cancellation or nonrenewal notices to those insureds.

Review by the Division. The same section gives insureds a right to review by the Division, meaning Nevada's Division of Insurance.

• The request: The insured must ask for review in writing within 30 days after receiving the cancellation or nonrenewal notice.
• The review: The Division must review the grounds within 15 days after receiving the request.
• The standard: The insurer must be able to show its grounds by clear and convincing evidence. This is a demanding standard of proof. The evidence must be strong and persuasive, not merely slightly favorable.
• The outcome: If the Division does not find that the insurer meets that standard, the cancellation or nonrenewal is treated as withdrawn. The policy is then reinstated or renewed.

Check: An insured receives a nonrenewal notice and mails a written review request 40 days later. Does the Division review right apply?

A specific Nevada protection: dog breed

This rule applies only to certain policy types:

• homeowners
• renters
• manufactured-home or mobile-home
• multi-family residential dwelling
• umbrella policies, as defined elsewhere in Nevada law

What the insurer may not do. For those policies, an insurer may not base any of these actions on the specific breed, or mix of breeds, of a dog kept or owned at the property:

• refusing to issue a policy
• cancelling
• refusing to renew
• raising the premium or rate

The exception. The insurer may refuse, cancel, nonrenew or impose a reasonable increase if two conditions are met:

• The action is based on sound underwriting and actuarial principles.
• A particular dog is known to be dangerous or vicious, or has been declared dangerous or vicious under Nevada law.

Limits on questions. The insurer may not ask about a dog's breed. It may ask only whether the dog is known or declared to be dangerous or vicious.

Example: A renters insurer refuses to renew solely because the tenant's dog is a particular breed. That is not allowed. If that specific dog had been declared vicious, a nonrenewal based on sound underwriting would fit the exception.

The key fact: What changes the answer is this particular dog's known or declared behavior, not its breed. The rule also covers only the listed policy types. A commercial property policy on a warehouse, for example, is not on the list.

Binders (temporary insurance until the policy is issued)

Meaning: A binder is an oral or written contract for temporary insurance. It is used when the policy is not issued right away. It shows that coverage begins at a specified time and continues until one of two things happens:

• the policy is issued
• the insurer declines the risk

In plain terms, a binder is "you're covered starting now, while the real policy is being prepared." The cancellation and nonrenewal sections also apply to binders.

Who may issue a binder, and for how long

• Who may issue it. Only a resident or nonresident agent appointed by the insurer that will issue the policy may issue a binder. Appointed means officially authorized to represent that specific insurer. Holding a license is not enough by itself.
• How long it lasts. A binder may not be effective for more than 90 days.
• How it can be extended. The binder period may be extended 30 days at a time, with the Commissioner's written approval. The insured's agreement does not extend a binder.

Rules for written binders

• Approved forms. A written binder must be on a form approved by the Commissioner.
• The bold-type warning. Some binders must include a printed statement in at least 10-point bold type. This applies when the binder relates to a policy providing coverage of less than $1,000,000. The statement warns that anyone who refuses to accept the binder as proof of insurance faces the penalties described below.
• Delivering copies. One copy must go to the insured and one to the insurer. Each copy must be delivered in person or mailed first-class, within 24 hours after the binder becomes effective.

When the policy replaces the binder

• Limits: The policy's limits must equal the binder's limits.
• Effective date: The policy's effective date must be the same as the effective date of the initial binder.
• Premium: The premium must include a charge for the period the binder covered. That charge must follow the rates filed with the Commissioner.
• No discount: An insurer may not use a binder to lower the premium. The binder period is not free coverage.

Binders as proof of insurance

A binder issued in compliance with these binder rules is treated as a policy for the purpose of proving that someone has coverage.

The penalty for refusing. The penalty applies to a party to a contract or agreement that requires proof of insurance. If that party refuses to accept a compliant binder as that proof, the party:

• may be fined up to $500
• is liable to the person who presented the binder for the actual damages that person suffers

The $1,000,000 cutoff. This proof-and-penalty rule does not apply to a binder related to a policy providing coverage of at least $1,000,000. A policy of exactly $1,000,000 falls outside the rule.

What the other party can still reject. The binder rules do not stop a lender, seller, lessor or other service provider from disapproving the insurer or its representative based on any of these:

• the adequacy and terms of the coverage, as it protects that party's interest
• the insurer's financial standards
• the insurer's or representative's ability to service the policy

In other words, the other party cannot reject a binder for being a binder. It can still reject one for these specific reasons.

Worked example

A buyer's lender requires proof of insurance before closing. Here are the facts:

• An agent appointed by the issuing insurer prepares a written binder on Friday.
• The binder gives $400,000 of dwelling coverage.
• The binder is effective at noon on Monday.

Apply the rules step by step:

• Who issued it: The agent is appointed by the insurer that will issue the policy, so the agent may issue the binder.
• Paperwork: The binder must be on an approved form. Coverage is below $1,000,000, so it needs the bold-type warning statement.
• Copies: The copies to the buyer and the insurer are due within 24 hours after the binder takes effect. That means by noon Tuesday, not 24 hours after Friday's paperwork.
• The lender: The lender's agreement requires proof of insurance. If the lender refuses the compliant binder simply because it is a binder, the lender risks a fine of up to $500 and liability for the buyer's actual damages. If the lender instead rejects it because the insurer fails the lender's financial standards, that rejection is permitted.
• The policy: The later policy must show $400,000 in limits and Monday's effective date. Its premium must include the binder period at filed rates.

Change one fact: The agent holds a Nevada license but is not appointed by that insurer. The agent may not issue the binder.

Check: A binder has been in effect for 90 days and the policy has not been issued. The insured and the agent both sign a letter agreeing to extend the binder another 30 days. Is the binder extended?

Practice on your own

1. A new 6-month personal dwelling policy is on day 75 and has not been renewed. The insurer cancels because its underwriter now considers the area "undesirable." The notice gives 45 days and meets every content requirement. Is the cancellation allowed?

2. A 12-month commercial property policy's insurer mails a nonrenewal notice 50 days before expiration. No exception applies. What must the insurer do?

3. A personal homeowners renewal has two changes. Theft coverage for jewelry increases, and the coverage for detached structures decreases. The insurer gives no advance notice. Is notice required?

4. A cancellation notice for material misrepresentation includes several things. It states the effective date. It explains the specific reason. It includes risk-sharing plan instructions. It is mailed first-class to the insured's last known address. But it says nothing about the policyholder's right to request the facts behind the decision. Is the notice effective?

5. A tenant's lease requires proof of renters insurance. The tenant presents a compliant written binder for a $50,000 renters policy. The landlord refuses it, saying only, "I accept policies, not binders." The tenant suffers actual damages as a result. What are the consequences for the landlord? Would your answer change if the binder related to a $1,000,000 policy?

6. A binder for $300,000 of coverage took effect on day 1. The policy is issued on day 25 with these terms:

• $280,000 in limits
• an effective date of day 25
• a premium that charges nothing for days 1 to 24

List every problem.

What to remember

Classify the action first:

• Coverage ending early is cancellation.
• Coverage not continued after it expires is nonrenewal.
• Coverage continued on different terms is renewal with changes.

Midterm cancellation:

• Once a policy has been in effect 70 days, or has been renewed, the insurer needs one of seven reasons.
• Notice must be at least 10 days for nonpayment and at least 30 days for any other reason.
• Reason and timing are separate tests.

Notices:

• Deliver in person, or by first-class or certified mail, to the last known address.
• State the effective date and the specific reasons.
• Tell the policyholder about the right to request facts (supplied within 6 days of a written request).
• Include risk-sharing plan instructions, except for nonpayment cancellations.

Notice deadlines at a glance:

Exceptions to check before counting days:

• Nonrenewal: replacement coverage accepted; nonrenewal requested or agreed to; or an approved nonrenewable clause.
• Renewal with changes: the only change is a premium decrease, a date shift with the same duration, or purely favorable changes.

Related rights:

• Claims-paid information within 30 working days of a written request.
• Division review if requested within 30 days of receiving the notice. The Division reviews within 15 days, and the insurer must show clear and convincing grounds.
• An insurer withdrawing from a class must notify the Commissioner 60 days before notifying insureds.
• No breed-based actions on the listed residential and umbrella policies, unless a particular dog is known or declared dangerous or vicious.

Binders:

• Issued only by an agent appointed by the issuing insurer.
• 90 days maximum, extendable 30 days at a time with the Commissioner's written approval.
• Written binders: approved forms, the bold-type warning for coverage under $1,000,000, and copies to the insured and insurer within 24 hours after the binder takes effect.
• The replacement policy matches the binder's limits and initial effective date and charges for the binder period at filed rates.
• A compliant binder is proof of coverage. A party required to accept proof who refuses faces a fine of up to $500 plus actual damages. This does not apply at $1,000,000 or more.