3-YEARRULE

The first area of confusion with these statutes is the time frame upon which the protection for cancellation and nonrenewal. Most people in the insurance industry refer to these statutes as the “3-year rule.” This incorrectly leads people to believe that when the second renewal (third policy) is issued that the policy is protected. However, the statute reads, “that has been in effect and renewed for more than three years,” so it is actually the effective date of the third renewal (fourth policy) that establishes protection under these statutes. IIABL is trying to rebrand these statutes as the “ more than 3-year rule” to help reduce the confusion and misperceptions in the industry.

Once a policy has been in effect for “ more than 3years” an insurer may not cancel or nonrenew a policy except for very limited reasons. Exceptions that allow an insurer to cancel or nonrenew include:

The prohibition to cancel or nonrenew a policy also extends to the increase of individual policy deductibles, including various wind & hail, named storm, and hurricane deductibles. Insurers may establish a statewide minimum deductible (including wind deductibles) and increase all policies statewide to the new minimum deductible, but they may not increase an individual policy deductible on a protected policy.

2

Continuation

There is also an exception for an insurer that withdraws from the homeowners insurance market in Louisiana. This provision has created much confusion in recent years as a number of insurers have left the state. An insurer is able to nonrenew protected “ more that 3year” Homeowners policies if they are leaving the state.

Cancellation or nonrenewal for 2 or more claims with a continuous three-year period within the last 5 years may not include “acts of God” and must be formal demand for payment of a claim by an insured, it may not include questions about claims or coverage or an “incident report” that does not seek payment by the insurer.

The exception for “material change in the risk” is a tricky provision as such material change is somewhat in the eye of the beholder. Insurers may look at a homeowners risk and based on age of the roof, electrical, plumbing, etc. or based on their inspection which may find housekeeping or maintenance not up to their standards as a “material change in the risk” which would justify a cancellation or nonrenewal. A policyholder might see it very differently. The Louisiana Department of Insurance (LDI) has historically taken a very conservative approach to this exception. Generally, LDI has not considered age by itself to be a material change without some physical manifestation of significant deterioration and risk of loss. Insurers and agents are advised to be very careful with cancellations or nonrenewals based on “material change in the risk.”