Keeping Washington Auto Coverage in Force: Cancellation, Renewal and Financial Responsibility

Keeping Washington Auto Coverage in Force: Cancellation, Renewal and Financial Responsibility

The Big Idea

Washington law protects personal auto coverage in two ways. First, for most personal auto policies, an insurer must give written warning before it ends coverage. After a policy has been running a while, it may cancel only for a few specific reasons. Second, with a few narrow exceptions, anyone driving a vehicle subject to Washington registration must be able to pay for harm they cause. Insurance is the usual way to do that, but it is not the only way.

As a producer, you will use these rules to tell a customer whether a notice is valid, whether a policy must be renewed, and what options exist when ordinary insurance is hard to get.

By the end of this lesson, you should be able to:

• Decide whether a policy gets Washington's private-auto cancellation and renewal protections.
• Choose the correct notice period for a cancellation and decide whether its reason is allowed.
• Decide whether an insurer may refuse to renew, including the rule about certain claims.
• Explain who the assigned-risk plan serves and who can appeal its decisions.
• Identify who must show financial responsibility and tell apart the four permitted methods.

Words You Need First

• Premium: the price paid for the insurance.
• Named insured: the person named in the policy as the policyholder. Notices go to this person.
• Cancellation: ending a policy before its term is over.
• Nonrenewal: declining to continue a policy when its term ends. Nothing is cut short; the insurer just doesn't offer the next term.
• Binder: temporary written proof of coverage, used until the full policy is issued.
• Liability coverage: pays others for injuries or property damage the insured is legally responsible for. It does not pay for the insured's own car.
• Assigned-risk plan: a state-approved route to liability insurance for people who qualify for it but can't buy it the ordinary way.

Step 1: Does the Policy Get These Protections?

The cancellation and renewal rules below apply to a policy based wholly or partly on a private passenger automobile. Washington defines that narrowly. A vehicle counts if it is:

1. An individually owned private passenger car or station wagon that is not used to carry the public for hire and not rented to others, or
2. Any other individually owned four-wheel motor vehicle with a load capacity of 1,500 pounds or less that is not used in the insured's occupation, profession or business.

Even then, the protections do not apply to:

• Contracts issued under the assigned-risk plan
• Policies covering garage, auto sales agency, repair shop, service station or public parking place operation hazards
• Insurance obtained under chapter 48.15 RCW

Worked example: Someone owns a sedan and uses it to commute. It is individually owned, a passenger type, and not for hire or rented out, so the protections apply.

Change one fact: The owner starts renting the sedan out to others. It no longer fits the definition, so these protections no longer apply to it.

Tempting mistake: Assuming these rules cover all auto insurance. They cover a defined personal category. Do not carry them over to commercial auto in general.

Check yourself: An individually owned pickup has a load capacity under 1,500 pounds. The owner uses it every day to haul equipment for a plumbing business. Does the policy get these protections?

Answer: No

Under the second part of the definition, a four-wheel vehicle qualifies only if it is not used in the insured's business. Daily business hauling disqualifies it. Low load capacity alone is not enough; every condition must be met.

Step 2: How Much Notice Before Cancellation?

Before an insurer can cancel, it must mail written notice, with the reason, to the named insured at the latest address on file. Coverage cannot end until the notice period has run:

• 20 days is the standard notice.
• 10 days is enough if the cancellation is for nonpayment of premium, or if it happens within the first 30 days the policy has been in effect.

Two related points:

• If coverage is shown by a written binder that was delivered to the insured and clearly states an expiration date, no additional notice is needed when the binder ends.
• Adding a physical damage deductible of $100 or less is not a cancellation. Physical damage coverage is coverage for damage to the insured's own car.

Tempting mistake: Saying "20 days, always." The 10-day period applies in two situations: nonpayment, or the first 30 days.

Step 3: After 60 Days, Only Certain Reasons Are Allowed

This is a separate rule from Step 2. A cancellation notice sent more than 60 days after the policy took effect is not valid unless the reason is one of these:

• Nonpayment: the named insured did not pay premium or an installment when due. This includes payments to the agent or through a premium finance plan.
• License action: the driver's license of the named insured, or of any other person who customarily drives an insured car, was suspended, revoked or canceled. For a new policy, this means during the policy period. For a renewal, it means during the policy period or the 180 days before the renewal took effect.

A cancellation limited this way is not effective unless the reason comes with the notice.

Keep the two thresholds apart, because they answer different questions:

• 30 days answers: How much notice is needed?
• 60 days answers: Which reasons are allowed?

The 60-day limit applies only when notice is sent more than 60 days in.

Worked contrasts. In each case, the insurer sends notice with a stated reason.

• Day 12, insurer's underwriting concern. This is within the first 30 days, so 10 days' notice is enough. It is not past 60 days, so this section does not restrict the reason.
• Day 45, same reason. It is past the first 30 days and not for nonpayment, so 20 days' notice is required. It is still not past 60 days, so this section does not restrict the reason.
• Day 90, same reason. The notice is invalid. The reason is neither nonpayment nor a license action.
• Day 90, nonpayment. The reason is valid, and 10 days' notice is enough.
• Day 90, a customary driver's license was suspended this term. The reason is valid. Notice must be 20 days, because this is neither nonpayment nor the first 30 days.

Tempting mistake: "An insurer can cancel any time for any reason." After 60 days, it cannot.

Narrow exception: The commissioner may order a cancellation or nonrenewal in a statutory delinquency proceeding. The commissioner may also permit one when continuing the coverage could reasonably be expected to create a hazardous condition in the company for policyholders, creditors, owners or the public. This is the commissioner's decision, not the insurer's.

Check yourself: A policy has been in effect for 70 days. The named insured is current on payments. A son who regularly drives the insured car had his license revoked last month. The insurer mails 10 days' notice with the reason. Is that valid?

Answer: The reason is allowed, but the notice period is too short

A license action by a customary driver is a permitted reason after 60 days. However, 10-day notice applies only to nonpayment or the first 30 days, and this case is neither. The insurer needs 20 days' notice. Notice length and allowed reasons are separate questions, so check both.

Step 4: Renewal

An insurer must renew a covered policy unless one of three situations applies:

1. Refusal notice: It gives the named insured at least 20 days' written notice that it will not renew, stating the actual reason.
2. Offer, then no payment: At least 20 days before expiration, it offers in writing to renew. The offer must state the premium required, how much the premium or deductibles changed, and the payment due date. The insured then fails to pay on time.
3. Replacement coverage: The insured's producer obtained other coverage that the insured accepts before the policy period ends.

So renewal is not guaranteed forever. An insurer can decline with proper notice and an actual reason. One reason is specifically barred: an insurer may not refuse to renew liability or collision coverage because an insured filed claims under comprehensive, road service or towing coverage. It may nonrenew those coverages themselves based on such claims.

Other renewal rules:

• Renewing does not cancel out grounds for cancellation that existed before the renewal.
• These policies cannot be written for less than six months. For these protections, a term of six months or less is treated as six months. A term longer than a year, or one with no fixed end date, is treated as a series of one-year terms.

Worked example: A customer filed two towing claims. The insurer sends a 25-day written notice that it will not renew the liability coverage because of those claims. That is not allowed. Change one fact: The notice instead drops only the towing coverage, for the same reason. That is allowed.

Step 5: The Assigned-Risk Plan

Some people are in good faith entitled to liability insurance but cannot get it through ordinary methods. For them, the commissioner, after consulting insurers licensed to write motor vehicle liability insurance in Washington, approves a reasonable plan to share these applicants equitably among those insurers. Every such insurer must participate.

If the plan's manager or committee makes a ruling, an appeal goes to the commissioner. Any of these can appeal:

• the applicant,
• a person insured under the plan, or
• an affected insurer.

The plan is not automatic acceptance for everyone, and this lesson's sources set no price for it.

Tempting mistake: Assuming assigned-risk policies follow the Step 2–4 rules. They don't. Contracts issued under the assigned-risk plan are specifically excluded from those protections.

Step 6: Who Must Show Financial Responsibility, and How

Financial responsibility means a legally accepted way of being able to pay for harm caused while driving.

Who: No one may drive a vehicle that is subject to Washington registration in this state unless that person is covered by one of four methods.

1. Liability insurance policy with at least $25,000 for injury or death of one person, $50,000 for injury or death of two or more people in one accident, and $10,000 for damage to others' property in one accident.
2. Liability bond with at least those same amounts.
3. Certificate of deposit. This is a certificate from the department showing the person deposited $60,000 in cash, or qualifying securities with a market value of $60,000. It must come with evidence that there are no unsatisfied judgments against the depositor in the county where the depositor lives. It is not a bank CD, and money in a private account does not count.
4. Self-insurance. A person with more than 25 vehicles registered in Washington in their name may apply for a self-insurance certificate. The department may issue it, at its discretion, when satisfied the person can and will continue to be able to pay judgments. Self-insurance is not "having savings," and reaching 26 vehicles does not qualify a person automatically.

Do not mix up the dollar figures. The $25,000/$50,000/$10,000 minimums apply to policies and bonds. The $60,000 figure applies to the deposit.

Vehicles registered in another state: If that state requires insurance or financial responsibility, the driver must, when an officer asks, show the evidence that state's law requires. This depends on the other state's requirement. It is not a blanket exemption, and it is not a blanket Washington requirement.

Step 7: Proof and Narrow Exceptions

When a law enforcement officer asks, the driver must show proof of financial responsibility. Insurers must provide an ID card when they issue or renew a liability policy, and a card for each vehicle on request. The card can be paper or electronic, such as an image on a phone.

If a driver shows proof on a phone, the officer may view only the proof. Handing over the phone is not permission to look at anything else. The driver accepts the risk of any damage to the device. Failing to provide proof is a traffic infraction.

These requirements do not govern:

• motor-driven cycles, mopeds and wheeled all-terrain vehicles, as each is defined in Washington law
• vehicles covered by RCW 46.16A.170
• common or contract carriers registered with the Washington Utilities and Transportation Commission

"Motor-driven cycle" is a specific defined category. Don't assume every motorcycle falls into it.

Independent Practice

1. An individually owned station wagon is used only for family trips. The insurer sends a cancellation notice on day 20 of the policy. The stated reason is that the insurer has stopped writing policies in that ZIP code. What notice is required, and is the reason allowed?

Answer: 10 days' written notice with the reason; the reason is not restricted here

The vehicle qualifies as a private passenger automobile. Day 20 is within the first 30 days, so 10 days' notice is enough. The notice was not sent more than 60 days in, so this section does not limit the reason. Requiring 20 days would be the "20 days always" error.

2. Same policy, but the same notice is sent on day 120. Is it valid?

Answer: No

After 60 days, only nonpayment or a qualifying license action is allowed. A ZIP-code withdrawal is neither. The only way around this is the commissioner's narrow exception, which requires action by the commissioner.

3. Thirty days before expiration, a customer's producer finds a new policy with another insurer, and the customer accepts it. Must the original insurer renew?

Answer: No

Producer-procured coverage that the insured accepts before the policy period ends is one of the three situations that remove the duty to renew.

4. A customer's covered private-auto policy includes liability, collision, comprehensive and road service coverage. This term, the customer filed one comprehensive claim for a cracked windshield and two road-service claims. Thirty days before expiration, the insurer mails two written notices, each stating the actual reason:

• Notice A: the insurer will not renew the liability and collision coverage because of those claims.
• Notice B: the insurer will not renew the road service coverage because of those claims.

Which notice is allowed?

Answer: Notice B can be allowed; Notice A is not

The claims rule depends on which coverage is being dropped. Claims under comprehensive, road service or towing coverage cannot be the basis for refusing to renew liability or collision coverage, so Notice A fails no matter how much notice is given.

Notice B drops the road service coverage itself, and the law permits nonrenewing comprehensive, road service or towing coverage based on claims under it. The usual renewal requirements still apply: at least 20 days' written notice stating the actual reason. Here the notice was mailed 30 days ahead and stated the reason, so that requirement is met. If it had been mailed only 15 days ahead, it would not meet the refusal-notice requirement.

Two tempting mistakes: treating these claims as grounds to drop the whole policy, or assuming such claims can never affect renewal at all.

5. An applicant was turned down by several insurers. The applicant then applies through the assigned-risk plan, and the plan's committee rejects the application. Can the applicant challenge that decision, and to whom?

Answer: Yes, to the commissioner

The applicant can appeal the committee's ruling to the commissioner. An insured under the plan or an affected insurer could also appeal. Being rejected by several insurers doesn't guarantee acceptance; the plan serves people in good faith entitled to coverage.

6. Each driver below is driving a vehicle subject to Washington registration. Name the financial-responsibility method each one is using, and the fact that makes it qualify.

• A. Priya has a motor vehicle liability policy with limits of $50,000 per person, $100,000 per accident for injuries, and $25,000 for property damage.
• B. Marcus is covered by a liability bond of $25,000 per person, $50,000 per accident for injuries, and $10,000 for property damage.
• C. Dana holds a certificate from the department showing $60,000 in qualifying securities on deposit. The deposit was accepted with evidence of no unsatisfied judgments against Dana in Dana's county of residence.
• D. A delivery company has 40 vehicles registered in Washington in its name. The department reviewed its application and issued it a certificate of self-insurance.

Answer: A is an insurance policy, B a liability bond, C a certificate of deposit, D self-insurance

• A — Liability insurance policy. The law sets minimums of $25,000/$50,000/$10,000 ("at least"). Priya's limits are higher than each minimum, so they qualify. Higher limits are allowed; lower ones are not.
• B — Liability bond. A bond is a separate method from a policy, but it uses the same 25/50/10 minimums. Marcus's bond meets them exactly.
• C — Certificate of deposit. This method uses a different number: $60,000 in cash or qualifying securities, deposited with the department. What counts is the department's certificate, backed by evidence of no unsatisfied judgments in the county where Dana lives. The same $60,000 sitting in Dana's own bank account would not qualify.
• D — Self-insurance. Two conditions are both met: more than 25 vehicles registered in Washington in the company's name, and a certificate the department chose to issue after being satisfied of the company's ability to pay judgments.

Tempting mistake: applying the $60,000 figure to policies or bonds, or applying 25/50/10 to the deposit. The 25/50/10 limits belong to policies and bonds; $60,000 belongs only to the deposit certificate.

7. A business owner has 26 vehicles registered in Washington and $500,000 in the bank. They tell their drivers, "We're self-insured." Are they?

Answer: Not unless the department has issued a certificate

Having more than 25 vehicles only makes the owner eligible to apply. The department must issue a certificate after being satisfied of the owner's ability to pay judgments. Money in the bank is neither self-insurance nor a $60,000 certificate of deposit. With 25 vehicles, the owner could not even apply.

8. During a stop, a driver shows an electronic ID card on a phone. The officer starts scrolling through the driver's photos. Is that allowed?

Answer: No

The officer may view only the proof of financial responsibility. Showing the phone does not give consent to look at other content.

Recap

• The protections cover individually owned private passenger vehicles as defined. Assigned-risk plan contracts, garage-type operation policies and chapter 48.15 placements are excluded.
• Cancellation requires written notice with the reason: 20 days normally, or 10 days for nonpayment or within the first 30 days.
• If notice is sent more than 60 days in, only nonpayment or a qualifying license action is allowed. The 30-day mark sets notice length; the 60-day mark limits reasons.
• Renewal is required unless there is a 20-day nonrenewal notice with the actual reason, an unpaid 20-day renewal offer, or accepted replacement coverage. Comprehensive, road service or towing claims can't justify nonrenewing liability or collision, though those coverages themselves may be nonrenewed on their claims.
• The assigned-risk plan shares eligible applicants among insurers. The applicant, an insured or an affected insurer can appeal to the commissioner.
• To drive a vehicle subject to Washington registration, you need one of four methods: a 25/50/10 policy, a 25/50/10 bond, a $60,000 department certificate of deposit, or department-certified self-insurance (more than 25 vehicles, and not automatic). Exceptions are narrow and named.