An Agent’s Right to Request Cancellation for Non-Payment
Every time I think I know something about insurance, something always happens to teach me, I don't know as much as I thought I did. One of those times occurred a couple of weeks ago. An agent called me with a problem. He explained he had a customer for whom he had advanced the premium on an agency bill policy. The customer failed to pay, and the agent requested the company cancel the policy. The company refused to do so. The company told the agent that if the insured fails to pay the agent’s only recourse is against the insured. In other words, the company told the agent he did not have the authority to request the cancellation of the policy for non-payment by the insured. The agent asked me what he could do.
I initially told the agent I wasn’t sure the agent had the right to request a cancellation under these circumstances. We talked about various ways the agent might be able to protect himself, such as always getting the money upfront, having the insured execute a power of attorney giving the agent the authority to request cancellation of the policy, and so forth. I was pretty sure there was no law in Kansas on this issue. Nevertheless, I decided to do a little more research to be positive. It turns out there is a statute right on point.
K.S.A. 40-282 provides an agent may request cancellation of the policy “for non-payment of the policyholder’s accounts," where the agent has extended credit to the insured:
“(1) If credit is extended to policyholders for a period of not more than 30 days from the date the premium is due, and such credit is not evidenced by a written instrument, there shall be no interest charged for such credit; or
(2) if credit is extended to policyholders for a period of more than 30 days from the date the premium is due, and such credit is not evidenced by a written instrument, interest may be charged for credit extended after 30 days at a rate not exceeding 1 1/2 per month on the unpaid balance; or
(3) if the extension of credit to a policyholder is evidenced by a written instrument setting forth the terms, and signed by the policyholder, any interest charged for such credit shall be clearly stated in the instrument, but it shall not exceed the legal rate of interest authorized in K.S.A. 16-207 and amendments thereto.”
The statute goes on to provide:
“(b) Any insurance agent extending credit to policyholders as provided in subsection (a)-0(1) or (2) of this section may request the company to cancel such insurance according to the terms of the policies for non-payment of the policyholders' accounts, except as provided in K.S.A. 40-277 and amendments thereto, and except for policies paid by an escrow agent, or paid direct by an insured to an insurance company, or where the insured specified that payment apply to a specific policy and all premiums due on that policy have been paid, or where the unearned premium is collateral for a loan under K.S.A. 40-2601et seq., and amendments thereto.
The insurance agent shall notify the policyholder of the requested cancellation in writing at the time the request is made to the insurance company.
Such insurance agent shall have a lien on any return premium for all policies of the same policyholder to the extent of amounts owed by the policyholder.”
K.S.A. 40-277 pertains to the cancellation of auto liability policies. Those policies can only be canceled for specific reasons.
I hope you'll find a statute helpful if you're ever in a position to have to request cancellation of an agency bill policy because the insured fails to pay.
Will Larson is an attorney who has practiced E&O defense work in Kansas for 36 years. Over the course of his career, he has represented insurance companies and agents throughout the state.
He is a consultant for KAIA on legal and policy issues.