94-04: Asking Insurance Applicants About Prior Cancellations

From:      Jay Angoff, Director

Re:          Asking Insurance Applicants About Prior Cancellations or Nonrenewals

Date:       June 28, 1994

Over the past few months, the Missouri Department of Insurance (MDI) has had several complaints which stem from insurance companies asking on applications whether a person (or company) has been cancelled or non-renewed by another insurance company. This bulletin will provide the applicable state law and clarify the MDI's enforcement of that law.

Asking about prior insurance cancellations and nonrenewals is forbidden in Missouri. The unfair trade practices act includes asking questions about cancellations and nonrenewals as unfair discrimination. An insurance company or its agent or representative, may not ". . . require any applicant or policyholder to divulge in a written application or otherwise whether any insurer has canceled or refused to renew or issue to the applicant or policyholder a policy of insurance. . ." Section 375.936(11)(f), RSMo Supp. 1993. Thus, the policy of this state is to stop insurers and their agents from asking such questions, whether in a written application or orally.

Please note that the "business purpose" and "required by law or regulatory mandate" exceptions to acts of unfair discrimination do not apply to the prohibition on prior cancellation and nonrenewal questions. (Under section 375.936(11)(i), RSMo Supp. 1993, the exceptions may apply to any "refusal, cancellation, termination or modification". Requiring an applicant or policyholder to divulge whether any insurer has cancelled or refused to renew or issue is neither a refusal, cancellation, termination nor modification.)

The only partial exception to the ban on prior cancellation or nonrenewal questions exists where the insurer requires "the name of the prior carrier in order to verify the applicant's previous claims or medical history". Section 375.936(11)(h). To monitor whether this exception is actually applicable in any given case, the MDI will require (1) the question not include reference to prior cancellation or nonrenewal but only require the name of the prior carrier and (2) the underwriting file to contain evidence that in fact the insurer asked the prior carrier only to disclose the applicant's previous claims or medical history.

This department is aware that in the past it may have overlooked violations of this law by allowing prior cancellation, nonrenewal or declination questions on application forms which have been filed for approval. Although the department recognizes it would be unfair to penalize insurers or agents who used approved insurance applications, the department must enforce the law and disallow continued use of applications which violate insurance laws. Therefore, no insurer may use after August 1, 1994, a currently-approved application which contains a question regarding prior cancellations, nonrenewals or refusals. In addition, the department will not penalize any insurer or its agent which uses such a currently-approved application before August 1, 1994.

Finally, the department will not charge its usual filing fee if the insurer files an application form which is intended to replace an application containing illegal questions, provided the insurer informs the department of the form which the newly filed form is intended to replace.