Insurance company clarifies policy cancellation procedures

Feb. 27, 2007
By JOSEPH M. DELEON News-Post Staff
jdeleon@fredericknewspost.com

   FREDERICK — When insurance premiums go unpaid, an insurance company has no choice but to cancel the policy.
That's what happened to Pam and Danny Knight, owners of Soft Images hair salon, who lost their shop to a fire Feb. 19 at Antietam Village Center that destroyed more than a dozen businesses.
When the couple tried to file a claim with Erie Insurance Group the day after the fire, they were told their policy had been canceled.
     Mark Dombrowski, spokesman for Erie Insurance Group, declined to comment specifically about the Knights but said before a policy is canceled, several attempts are made to notify the policy holder.
     Danny said their agent told the couple the policy had been canceled because they missed a payment in June. For years, the Knights made monthly payments March through June for a policy that covered the business for the whole year, he said.
     The Knights said they had not made any payments this year because the policy did not expire until March.
     Danny said the agent never told them they had missed a payment and no longer had insurance. Pam said the agent told her the notices were sent to Daniel Knight Enterprises at Soft Images' address. Daniel Knight Enterprises is the umbrella under which Soft Images does business.
     Because the couple only received mail addressed to Soft Images at the store, Pam believes a postal worker would not have delivered mail addressed to Daniel Knight Enterprises.
     The Knights' business has been in the Antietam Village Center for 19 years.
     Pam said she asked Frederick County Bank for her bank statements, but the process has been slow. The bank also lost an office in the shopping center fire that destroyed the Knights' records.
     Erie Insurance Group instructed the Knights' local agent not to talk to the press.
     “As a general practice,” Dombrowski said, “we will send a late notice to the policy holder and a notice of cancellation before the policy is canceled. We also have procedures in place to notify the policyholder if the policy is canceled.”
     Dombrowski said independent agents consult with underwriters to determine which poli cy fits a prospective client's needs.
     “The whole basis of insurance is to return (businesses) to the way they were prior to the loss,” he said. “The value of the discussion you have with your agent is paramount. Make sure there is full disclosure of what the business is made up of in terms of physical items.”
     Agents consider many factors, including the need for business interruption policies, which ensure cash flow when disasters, such as a fire, temporarily halt operations.
     Insurance companies won't decide to pay a claim until after police and fire officials finish their investigations.
     “But we will also conduct our own investigation, and bring in whatever experts are necessary to understand what happened,” Dombrowski said. “It's important because if (officials) specified what caused the fire, like a faulty piece of equipment, it could be the responsibility of another company.”
     Dombrowski declined to comment about the Knights' policy, but said Erie's procedure is common practice in the insurance industry.
     Each state regulates insurance to help protect consumers, investigate complaints, license insurance companies and make sure insurance companies comply with state laws.
     Darlene Frank, director of public affairs for Maryland Insurance Administration encourages consumers who have problems with insurance companies to file a complaint.
     If the Knights missed even one payment, the policy could be canceled, she said.
     The Knights did not say whether they have filed or plan to file a complaint.
     Frank said some insurance companies offer a grace period if customers don't pay on time, but others do not.
     “Nonpayment is automatic grounds for cancellation,” Frank said. “In order to maintain coverage, you have to have paid for your policy.”
     The Knights said they didn't know about the insurance administration before the fire, but they plan to file a complaint this week.
     “If I already paid three quarters into an investment for the year, I would be foolish to throw that away,” Danny said. “It's just sad because the timing left us high and dry.”