Commercial Cancellation Law
The Commercial Cancellation law may be found at Tennessee Code §56-7-1801 et seq. The text of the law is below for ease of reference.
The Commercial Cancellation law does not apply to personal lines insurance, which includes farm coverages, nor to fidelity and surety coverages or surplus lines carriers. It does apply to workers' compensation insurance and any commercial policy issued through an assigned risk plan.
The law permits cancellation of a new policy within the first sixty (60) days for any reason. A policy may be non-renewed for any reason by giving sixty (60) days notice. After the sixty (60) days have expired or after the policy has been renewed the company may cancel only for the specific reasons listed in the law. These reason are so restrictive that in most all cases a policy cannot be canceled after the sixty (60) days have past. Section 1805 requires a sixty (60) day notice for non-renewable or reduction of limits or elimination of coverage.
If the non-renewal notice is not given sixty (60) days in advance the policy must be extended until the full sixty (60) day notice is given. Mailing of notice shall be sufficient proof of notice. (Section 56-7-1804) If the rates and/or factors included in the definition of "supplementary rate information" increase more than 25% at least sixty (60) days' notice must be given and the percentage increase must be specified. If the sixty (60) notice of increase is not given the policy must be extended at the current rates until the full sixty (60) day notice is given.
The definition in the code of "Supplementary rate information" in T.C.A. 56-5-302(13) includes any manual or plan of rates, classification, rating schedule, minimum premium, policy fee, rating rule, and any other similar information needed to determine the applicable rate in effect or to be in effect.
Both the non-renewal notice (section 1805) and the notice of a rate/factor increase (section 1806) of more than 25% must be given to both the named insured and the agent.
Important Point: The non-renewal or 25% notice may not be issued after the expiration/renewal date and be valid. Once the policy renews the company may only cancel for the limited specific reasons stated in the law.
56-7-1801. Short title.
This part shall be known and may be cited as the "Cancellation of Commercial Risk Insurance Act."
As used in this part, unless the context otherwise requires:
(1) (A) "Commercial risk insurance" means insurance within the scope of this part which is not "personal risk insurance," as defined in § 56-5-302, and subject to the exclusions set out in § 56-5-301; and
(B) "Commercial risk insurance" does not include fidelity and surety bonds, or insurance written by a surplus lines insurer; and
(2) "Nonpayment of premium" means failure of the named insured to discharge when due any of its obligations in connection with the payment of premiums on a policy of commercial risk insurance or any installment of such premium, whether the premium is payable directly to the insurer or its agents or indirectly under any premium finance plan or extension of credit.
56-7-1803. Prerequisites for effective notice of cancellation.
After a commercial risk insurance policy has been in effect for sixty (60) days, or, if the policy is a renewal, effective immediately, no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one (1) or more of the following:
(1) Nonpayment of premium, including nonpayment of any additional premiums, calculated in accordance with the current rating manual of the insurer, justified by a physical change in the insured property or a change in its occupancy or use;
(2) Conviction of the named insured of a crime having as one of its necessary elements an act increasing any hazard insured against;
(3) Discovery of fraud or material misrepresentation on the part of either of the following:
(A) The insured or the insured's representative in obtaining the insurance; or
(B) The named insured in pursuing a claim under the policy;
(4) Failure to comply with written loss control recommendations;
(5) Material change in the risk which increases the risk of loss after insurance coverage has been issued or renewed;
(6) Determination by the commissioner that the continuation of the policy would jeopardize a company's solvency or would place the insurer in violation of the insurance laws of this state or any other state;
(7) Violation or breach by the insured of any policy terms or conditions; or
(8) Such other reasons that are approved by the commissioner.
56-7-1804. Prerequisites for effective notice of cancellation - Contents of notices of cancellation - Delivery of notice.
(a) No notice of cancellation of a commercial risk insurance policy shall be effective unless mailed by the insurer, its authorized agent, or employee, to the named insured as shown in the policy declarations at the address shown in such declarations.
(b) If the cancellation is due to any of the items set forth in § 56-7-1803, or if the policy has been in effect less than sixty (60) days and is not a renewal policy, such cancellation shall be effective not less than ten (10) days after the date of mailing.
(c) The mailing of notice shall be sufficient proof of notice. The effective date and hour of cancellation stated in the notice shall become the end of the policy period unless the insured shall surrender the policy and request cancellation prior to the date and hour specified in the cancellation notice.
(d) Delivery of such written notice either by the agent or by the company shall be the equivalent of mailing.
(e) All notices of cancellation shall state which of the grounds set forth in § 56-7-1803 are relied upon, and that upon written request of the named insured, the insurer shall furnish the facts on which the cancellation is based.
(f) There shall be no liability on the part of, and no cause of action of any nature shall arise against, any insurer, its authorized representative, its agents, its employees, or any firm, person or corporation furnishing to the insurer information as to reason for cancellation, for any statement made by any of them in any written notice of cancellation, for the providing of information pertaining thereto, or for statements made or evidence submitted at any hearings conducted in connection therewith.
56-7-1805. Failure to comply with notice requirements - Policy extension - When notice of non-renewable not required.
(a) Unless the insurer, at least sixty (60) days in advance of the end of the policy period, mails or delivers to the named insured and agent at the address shown in the policy, notice of its intention not to renew the commercial risk policy or to condition its renewal on reduction of limits or elimination of coverages, the insurer is required to extend the existing policy sixty (60) days from the date such notice is provided. The premium for the policy provided in such circumstances shall be no more than a pro rata basis of the existing policy. Any commercial risk policy written for a term of less than one (1) year shall be considered as if written for a term of one (1) year. Any commercial risk policy written for a term longer than one (1) year, or any commercial risk policy with no fixed expiration date, shall be considered as if written for specific policy periods or terms of one (1) year.
(b) Notice of non-renewable is not required if:
(1) The insurer has offered to issue a renewal policy; or
(2) Where the named insured has obtained replacement coverage or has agreed in writing to obtain replacement coverage.
(c) If an insurer provides the notice described in this section, and thereafter the insurer extends the policy for ninety (90) days or less, an additional notice of non-renewable is not required with respect to the extension.
56-7-1806. Revision of rates.
(a) In the event an insurance company intends to increase the premiums of a commercial risk policy by an amount which is more than twenty-five percent (25%) and the increase in premium is the result of comparing policies of equivalent exposures, the insurance company shall mail or deliver to the named insured and producer at the address shown on the policy not less than sixty (60) days prior notice of its intention to increase the premiums specifying the percentage of the increase.
(b) Unless notice is provided as described above, the insurer is required to extend the existing policy sixty (60) days from the date such notice is provided.
(c) The premium for the policy provided in such circumstances shall be not more than a pro rata basis of the existing policy.
56-7-1807. Noncompliance with provisions.
Failure to comply with the provisions of this part shall be considered to be an unfair trade practice under § 56-8-104.
56-7-1808. Promulgation of rules and regulations by commissioner.
(a) The commissioner may, after notice and hearing, promulgate rules and regulations to carry out the provisions of this part.
(b) The rulemaking authority includes the power to increase or decrease the time within which notice is required by this part.
Furnishing Loss Run History
All Commercial Lines Insurance carriers are required under Tennessee law to provide the insured or the insured's designee a copy of the insured's three (3) year loss run history within 30 days of the written request.
TCA § 56-5-323. Commercial lines insurer's obligation to furnish loss run history to insured.
(a) Within ten (10) business days of receipt of a written request from an insured or an insured's designee, a commercial lines insurer shall furnish directly to the person designated in the request, a copy of the insured's loss run history for up to the previous three (3) years, or complete loss run history with the insurer if the history is less than three (3) years. A written request includes communications made by email or fax. For the purposes of this section, “receipt” means receipt by an individual or entity designated by an insurer to receive loss run history requests.
(b) If the insurer fails to provide the requested information within the time allowed in this section, the failure shall be a violation of the Tennessee Unfair Trade Practices and Unfair Claims Settlement Act of 2009, compiled in chapter 8, part 1 of this title, and any requestor may seek enforcement and any remedies allowed pursuant to that chapter. The commissioner may take action in accordance with § 56-2-305 for the violation of subsection (a).
(c) Notwithstanding this part to the contrary, no insurer shall charge any fees to prepare and furnish one (1) three-year loss run history. However, if the insurer provides the loss run history via electronic means, then the insurer may charge a reasonable fee to provide a hard copy of the same report.
Ruling on Crime Policy Covering Data Breach
In 2012, the Sixth Circuit Court of Appeals held that the expenses resulting from the cyber theft of customer data were recoverable under a commercial crime policy in a case filed by the retail store DSW Shoe Warehouse. Retail Ventures, Inc. v. Nat’l Union Fire Ins. Co., 691 F.3d 821 (6th Cir. 2012).
In the case, hackers used a wireless network at a DSW Shoe Warehouse store to obtain unauthorized access to DSW’s computer systems and downloaded credit card and bank account information from over 1.4 million customers. Subsequently, fraudulent transactions using the stolen customer payment information occurred. DSW incurred millions of dollars of expenses for customer communications, public relations, customer claims and lawsuits, and attorney fees in connection with investigations. The important distinction here is that the losses were not direct financial losses from money taken from DSW, but expenses resulting from the remediation due to the theft of the information.
DSW submitted a claim for coverage under a computer fraud rider to a “blanket Crime Policy” for losses related to the computer hacking. The rider provided coverage for Computer and Funds Transfer Fraud Coverage; specifically, any loss resulting from the theft of any insured property by computer fraud. DSW filed an action to determine whether the losses were covered by the commercial crime policy, and DSW prevailed with respect to its claim that the hacking damages were covered under the policy. The Company appealed arguing that the expenses incurred were not a loss resulting directly from the theft of insured property by computer fraud.
The 6th Circuit held that the loss and damages for remediation to customers was caused by the hacking. DSW did not have a specific cyber insurance policy yet was still able to obtain coverage based on language in its commercial crime policy.
Businesses should review their existing coverage carefully and may find that coverage for data breach is not expressly covered. Although we do not recommend relying upon a crime policy to cover cyber theft, if a business has a cyber loss and does not have a cyber theft policy, there may be coverage elsewhere.