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Car Insurance Cancellation For Non-Payment in Michigan: What You Need To Know

September 12, 2019 by Steven M. Gursten

Car Insurance Cancellation For Non-Payment: What You Need To Know

Michigan’s law for car insurance cancellation for non-payment provides important protection for drivers who may be at risk of being denied No-Fault insurance coverage due to nonpayment.

Specifically, under Michigan law regarding car insurance cancellation for non-payment, if an insurer doesn’t provide the legally required 10-day notice of cancellation after the nonpayment has occurred, then it cannot lawfully cancel a person’s policy and coverage will continue either until the person pays his or her premium or until the insurer issues a proper notice.

This protection is invaluable for a driver who have been injured in a car accident and his or her insurer is trying to avoid paying No-Fault benefits by claiming that it does not have to provide coverage because the driver’s policy had been cancelled due to nonpayment of premiums.

Below I will discuss this important rule for cancellation notices and how it is applied by Michigan courts.

UPDATE ON MICHIGAN’s CAR INSURANCE CANCELLATION FOR NON-PAYMENT LAW: On June 10, 2021, the Michigan Supreme Court ruled unanimously in Yang v. Everest National Insurance Company (the case discussed below in this blog post) that MCL 500.3020(1)(b) of the Insurance Code does not allow an auto insurance company to cancel a driver’s policy for non-payment of premiums by mailing “its customer a letter purporting to be a notice of cancellation for nonpayment of insurance premiums before any nonpayment actually occurred.” The justices added: “We hold that under MCL 500.3020(1)(b), a cancellation notice is effective only if it is peremptory, explicit, and unconditional. In this case, because Everest’s letter provided that cancellation was conditioned on Yang’s failure to pay his insurance premiums, the letter was ineffective as a notice of cancellation.”

What  is Michigan’s car insurance cancellation for non-payment law?

A Michigan No-Fault auto insurance company can cancel an insured’s policy for No-Fault coverage due to non-payment of premiums, but only if the policy contains – and the insurer complies with – the following cancellation requirements:

“[T]he policy may be canceled at any time by the insurer by mailing to the insured at the insured’s address last known to the insurer or an authorized agent of the insurer, with postage fully prepaid, a not less than 10 days’ written notice of cancellation . . .” (MCL 500.3020(1)(b))

Significantly, the Insurance Code also provides further clarification on the law regarding car insurance cancellation for non-payment stating that cancellation due to nonpayment of premiums “is without prejudice to any claim originating before the cancellation.” (MCL 500.3020(5))

How  is Michigan’s law on car insurance cancellation for non-payment  applied when a person hasn’t paid her insurance bill?

Michigan courts are very particular about the law regarding car insurance cancellation for non-payment, specifically as to how and when auto insurers can use the “notice of cancellation” provision to avoid paying No-Fault benefits to a car accident victim who may have inadvertently missed paying an insurance premium on time.

In Yang v. Everest National Insurance Company, the Michigan Court of Appeals slammed the brakes on Everest’s attempt to use this tactic to save money by avoiding paying out No-Fault benefits it owed.

On October 9, 2017, Everest had sent Wesley Yang a notice of cancellation, informing Yang that if he didn’t pay his premium by October 26, 2017, then his policy and coverage would be cancelled the next day.

Yang didn’t make the payment. Subsequently, Yang and his wife were injured in a car crash on November 15, 2017, for which they filed a claim for No-Fault benefits with Everest.

Everest denied the claim, insisting that Yang’s policy had been cancelled before the crash and thus there was no coverage in effect at the time of the crash because Yang had failed to make the payment by the date specified in what Everest called a “notice of cancellation.”

The Court of Appeals rejected Everest’s argument and logic as being at odds with the specific language of Michigan’s car insurance cancellation for non-payment law:

  • “Everest’s primary argument on appeal is that neither MCL 500.3020 or its policy required it to wait for nonpayment of premium before it could properly send a notice of cancellation. We disagree. For the reasons discussed below, Everest’s preemptive cancellation notice to Yang did not constitute a notice of cancellation under MCL 500.3020(b)(1).”
  • “The majority of appellate courts [in other states] that have addressed this issue have held that a notice of cancellation is ineffective when sent before the premium payment is due.”
  • “For a cancellation to take place, the event triggering the right to cancel must have taken place first. In this case, the event that allowed for cancellation occurred on the date of nonpayment. Therefore, it is only after the nonpayment that the insurer may properly notify the insured of cancellation. In other words, the law for car insurance cancellation for non-payment  states it is not sufficient that the insurer warn the insured that a future failure to pay the premium will result in cancellation; rather, it must advise the insured that, because of an already-occurred failure to pay, the policy will be cancelled in ten days.”
  • “In sum, issuance of a notice of cancellation necessarily requires that the grounds for cancellation have occurred before the notice is issued. That is the most natural reading of that phrase, as confirmed by the vast majority of appellate courts that have addressed this issue. We see no basis to conclude that the Legislature intended to depart from that ordinary meaning and to allow insurers to provide the statutorily required notice on the mere possibility that the insured might not make a premium payment. For those reasons, we hold that a notice of cancellation sent before the time for making the premium payment has passed does not satisfy MCL 500.3020(1)(b).”

What’s the takeaway lesson?

Everyone needs to remember that when it comes to car insurance cancellation for non-payment, an auto insurer must follow the law.

This means waiting until nonpayment has actually occurred before sending a “notice of cancellation” in an effort to cancel a policy and, thus, leave a person without coverage in the event of a crash.

This also means that a threatened cancellation for non-payment is not valid unless the person has received a written notice of “not less than 10 days.”

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