08/25/2020
Suspending Auto Coverage
David Thompson, CPCU, AAI, API, CRIS
A few years back, I wrote a blog titled, “Suspending Auto Insurance – Penny Wise and Pound Foolish.” It’s reproduced below.
The same problems with suspending auto insurance continue to come up, maybe even a bit more when the COVID-19 pandemic came into play.
Below, you’ll see a post made by a consumer to a social media site about his problem when he suspended coverage. As the TV host, Dr. Phil, might ask the consumer, “How’s that working out for you?”
Suspending coverage is still a dangerous (and in my view, foolish) thing to do. Consumers will often fail to contact agency to reinstate coverage. There is also a misconception by some of, “I’m not driving as much as I used to so I don’t need t keep my liability limits high anymore
Consumer Post About Suspending Insurance
I have an auto insurance policy with However in April of this year, I reduced coverage since I was not driving the vehicle at all. My vehicle was marked as not being driven, which I believe means I don’t have liability coverage.
As fate may have it, I decide to drive for the first time in 3 months to a grocery store hardly a mile away. I stopped at a traffic light and proceed to accelerate as a green light was on. The vehicle in front of me stopped abruptly and I had hardly any time to react; I hit the car in front of me on the bumper. There was no damage to my car and the other car had probably a bumper scratch. No visible damages to both cars. The police gets called in and a police report is filed. We both state there's no damage to car and no one is injured and I get home. I also call up insurance to put back my liability and all others back on the policy.
Today 3 days later, the other party files for injury claim. I get a call from my insurance company today asking the details and I provided them. I am wondering as to how will this be handled by insurance, as I may not have liability insurance at the time of the incident. Will there be any out of pocket expense?
Also the police report will only be available after a few days.
To add salt to the injury, I have dashcam on my car for this exact reason, but it stopped recording that day and I don’t have evidence of the light accident.
“Suspending Auto Insurance – Penny Wise and Pound Foolish.”
I admit that I’ve never had any sympathy for people who want to make the foolish decision (in my view) to suspend coverages on their auto policy, typically when they “go north” for the season and leave a car “down south.” I’ve always taken the position that if you can afford to own multiple cars and multiple homes in multiple states, then you can afford to insure multiple cars and multiple homes. In fact, during my days in the agency we were able to convince our lead auto carrier to discontinue the practice of allowing coverage to be suspended.
An email just a few weeks ago illustrates the danger in suspending coverage on any auto policy. The customer contacted the agency to advise that he had struck a rather large brick mailbox with his car, causing damage to both the mailbox and the car. The agent reminded the customer that he (the customer) had signed a form to suspend coverage several months back. The customer replied with, “I thought I had contacted you to add coverage back on.” The response from the agent was simply, “No sir, you did not do that.” The agent’s email to me said, “He is real lucky that all he hit was a mailbox and not some kid on a bicycle.”
A nearly identical situation happened about a year ago in Monroe County. During a class there, an agent advised me that a customer had requested that all coverage except PIP, property damage liability, and comprehensive be suspended while the customer was north for the season. The customer flew back to Monroe County on the weekend. Needing groceries for the house, the customer drove to the grocery store and, while backing out of a parking space, he hit a parked car. Fortunately, the other car was not occupied and damage to the both vehicles was not severe.
In a more tragic situation, another insured had a pickup truck that had several cracked pistons. He parked it in his yard for several months, used his motorcycle instead, and suspended coverage on the pickup truck. He finally purchased a new engine and got some friends to help him remove the old engine. They looped a chain over a tree limb, connected the chain to the old engine, and used a “come-along” winch to raise the old engine out of the truck. Somehow, the chain came loose and struck one of the friends in the face, causing him to lose an eye. There was no coverage under the PAP because coverage had been suspended and the court agreed with the insurer that the homeowners policy did not apply due to the motor vehicle exclusion.
I did a quick Internet search about suspending auto insurance and, as suspected, I found many articles touting the benefits of suspending. The common theme was, “Save money.” I’d prefer to think of it as, “If you reduce your coverage you can reduce your premium.” Not one article cautioned about the possibility of an accident taking place while coverage had been suspended.
When a customer suspends coverage under an auto policy, does that action present a possible E&O situation against the agency? I think we know that answer! Such being the case, how should requests to suspend coverage be handled by the agency?
The obvious answer and best risk management approach is to advise the customer that it is an agency policy that coverage cannot be suspended. This is the risk management concept of “avoidance.” No doubt, the customer may not like that response, but I equate it to the days when my father would s***k me and say, “This is for your own benefit.” (I never understood that until I used the same line with my daughter!) Not suspending coverage reduces the possibility of a denied claim due to suspended coverage to zero.
Suppose, however, that the agency (for some reason) wants to allow a customer to suspend coverage. My speculation is that the line may go something like, “If we don’t do it, we will lose the account.” My “ivory tower” response would go something like, “This is an account that you don’t need anyway.” What is the best course of action here? Three words sum it all up: “Documentation, documentation, documentation.” Certainly, the request to suspend and the request to reinstate should not be taken verbally. Signatures of all named insureds should be required to suspend and to reinstate. The request to suspend should state that the agency has explained the dangers of this action and has recommended against suspending coverage. It should also state that the customer understands that no coverage will be reinstated until all named insureds sign the request to reinstate, the request is sent to the agency, and the request to reinstate is confirmed in writing by the agency.
What do you think? How does your agency handle requests to suspend automobile insurance?
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