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Canceling Automobile Insurance Under California Law For Failing To Provide Requested Information

In Mills v. AAA Northern California, Nevada and Utah Insurance Exchange (2016) 3 Cal.App.5th 528, the California Court of Appeal recently clarified when an insurance company may cancel an automobile policy under California Code of Regulations § 2632.19(b)(1).

California statutory law provides that an insurance company may cancel an automobile policy when there is a substantial increase in the hazard insured against. (Cal. Ins. Code §1861.03(c)(1)(c).)  Under the regulations, a substantial increase in the hazard occurs when the insured failed to provide information necessary to accurately underwrite the risk within 30 days after a reasonable written request.  (Cal. Code Regs. §2632.19(b)(1).)

In Mills, the defendant insurance company, AAA, had been providing automobile insurance to three members of the Fields family, Jeff Fields, Denise Fields, and their daughter, Krystal Fields.  Patrick Fields, the son of Jeff and Denise was not on the policy.  In February 2005, Patrick, while driving a vehicle covered by the insurance policy, collided with a parked car.  Shortly after the accident, on March 23, 2005, AAA sent a written letter to the Fields family informing them that if they wanted to exclude Patrick from the policy they could fill out and return the enclosed form.  However, if they wished to add Patrick to the coverage or had any questions, they should contact AAA.  The letter further provided notice that if the Fields family did not respond by April 22, 2005, AAA would cancel the policy.

After receiving the letter the Fields family took no action and neither excluded Patrick from the policy nor contacted AAA.  AAA then sent another letter on April 28, 2005 informing the Fields family that AAA was cancelling the policy effective May 28, 2005.

Shortly thereafter, on July 6, 2005, Krystal Fields was involved in a car accident while driving one of the vehicles previously covered by the AAA insurance policy.  Krystal and her passenger, Trent Mills, suffered serious brain injuries as a result of the crash.  Mills brought suit against Krystal, which she subsequently tendered to AAA.  However, AAA denied the claim because the Fields’ policy had been terminated.  AAA also denied Mills’ request for uninsured motorist benefits on the same basis.  In response, Mills and Fields brought suit against AAA.

The insureds challenged the cancellation in a civil action, arguing the information requested of the Fields family in the March 23, 2005 letter was not reasonable.  In particular, the insureds argued that the request was not reasonable because it did not request specific information nor information necessary to determine risk.

The Court of Appeal rejected this argument, holding that for a request for information to underwrite risk to be “reasonable,” the request must be rational, appropriate for the circumstance, and necessary to the insurer’s ability to evaluate risk.  Applying this standard, the Court of Appeal in Mills held that a written request need not contain specific information requested to be reasonable.  AAA’s March 23, 2005 letter was a reasonable written request because if the Fields family was willing to exclude Patrick, no further information would be needed as the policy would not change.  However, if the Fields family was not willing to exclude Patrick from the insurance policy, AAA would need more information to analyze the risk involved in adding Patrick to the policy.  Thus, the Court upheld the trial court ruling finding that AAA made a reasonable written request for information necessary to underwrite the risk of the Fields family’s automobile insurance policy.

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