Section 631.36. Termination of insurance contracts by insurers.

 

(1)   Scope of application.

(a) General. Except as otherwise provided in this section or in other statutes or by rule under par. (c) , this section applies to all contracts of insurance based on forms that are subject to filing under s. 601.58 or 631.20 .

(b) Contracts more favorable to policyholder. The contract may provide terms more favorable to policyholders than are required by this section.

(c) Exemption by rule. The commissioner may by rule totally or partially exempt from this section classes or parts of classes of insurance contracts if the policyholders do not need protection against arbitrary or unannounced termination.

(d) Other rights. The rights provided by this section are in addition to and do not prejudice any other rights the policyholder may have at common law or under other statutes.

(e) Rescission or reformation. This section does not apply to the rescission or reformation of any insurance contract.

(2)   Midterm cancellation.

(a) Permissible grounds. Except as provided by par. (c) and sub. (3) and s. 655.24 (2) (b) , no insurance policy may be canceled by the insurer prior to the expiration of the agreed term except for failure to pay a premium when due or on grounds stated in the policy, which must be comprehended within one of the following classes:

1. Material misrepresentation;

2. Substantial change in the risk assumed, except to the extent that the insurer should reasonably have foreseen the change or contemplated the risk in writing the contract;

3. Substantial breaches of contractual duties, conditions or warranties; or

4. Attainment of the age specified as the terminal age for coverage, in which case the insurer may cancel by notice under par. (b) accompanied by a tender of a proportional return of premium.

(b) Notice. No cancellation under par. (a) is effective until at least 10 days after the 1st class mailing or delivery of a written notice to the policyholder.

(c) New policies. Paragraphs (a) and (b) do not apply to any insurance policy that has not been previously renewed if the policy has been in effect less than 60 days at the time the notice of cancellation is mailed or delivered. No cancellation under this paragraph is effective until at least 10 days after the 1st class mailing or delivery of a written notice to the policyholder. Subsections (6) and (7) do not apply to such a policy.

(3)   Anniversary cancellation or alteration. A policy may be issued for a term longer than one year or for an indefinite term with a clause providing for cancellation by the insurer in the manner provided in sub. (4) (a) for nonrenewals, except the notice must be given at least 60 days prior to any anniversary date and an insurer may not cancel a policy solely because of the termination of an insurance marketing intermediary's contract with the insurer unless the insurer complies with sub. (4m) . The clause may also provide for alteration of the terms or premium by the insurer as provided in sub. (5) (c) , except the clause must then permit cancellation by the policyholders as provided in sub. (5) (c) .

(4)   Nonrenewal.

(a) Notice required. Subject to subs. (2) and (3) , a policyholder has a right to have the policy renewed, on the terms then being applied by the insurer to similar risks, for an additional period of time equivalent to the expiring term if the agreed term is one year or less, or for one year if the agreed term is longer than one year, unless at least 60 days prior to the date of expiration provided in the policy a notice of intention not to renew the policy beyond the agreed expiration date is mailed or delivered to the policyholder, or with respect to failure timely to pay a renewal premium a notice is given, not more than 75 days nor less than 10 days prior to the due date of the premium, which states clearly the effect of nonpayment of premium by the due date.

(am) Prohibited nonrenewals. Notwithstanding par. (a) an insurer may not refuse to renew a policy solely because of the termination of an insurance marketing intermediary's contract with the insurer unless the insurer complies with sub. (4m) .

(b) Exceptions. This subsection does not apply if the policyholder has insured elsewhere, has accepted replacement coverage or has requested or agreed to nonrenewal, or if the policy is expressly designated as nonrenewable.

(4m)   Policy cancellation. An insurer may refuse to renew or may cancel a policy under sub. (3) or (4) solely because of the termination of an insurance marketing intermediary's contract with the insurer only if the notice of nonrenewal or cancellation contains an offer to continue or renew the policy with the insurer if the insurer receives a written request from the policyholder prior to the cancellation or renewal date. The insurer shall continue or renew the policy if a timely request is received unless the policyholder does not meet normal underwriting criteria.

(5)   Renewal with altered terms.

(a) General. Subject to pars. (b) and (d) , if the insurer offers or purports to renew the policy but on less favorable terms or at higher premiums, the new terms or premiums take effect on the renewal date if the insurer sent by 1st class mail or delivered to the policyholder notice of the new terms or premiums at least 60 days prior to the renewal date. If the insurer notifies the policyholder within 60 days prior to the renewal date, the new terms or premiums do not take effect until 60 days after the notice is mailed or delivered, in which case the policyholder may elect to cancel the renewal policy at any time during the 60-day period. The notice shall include a statement of the policyholder's right to cancel. If the policyholder elects to cancel the renewal policy during the 60-day period, return premiums or additional premium charges shall be calculated proportionately on the basis of the old premiums. If the insurer does not notify the policyholder of the new premiums or terms as required by this subsection prior to the renewal date, the insurer shall continue the policy for an additional period of time equivalent to the expiring term and at the same premiums and terms of the expiring policy, except as permitted under sub. (2) or (3) .

(b) Exception. Paragraph (a) does not apply if the only change that is adverse to the policyholder is a premium increase and if either of the following applies to the premium increase:

1. The premium increase is less than 25 percent and is generally applicable to the class of business to which the policy belongs.

2. The premium increase results from a change based on action by the insured that alters the nature or extent of the risk insured against, including but not limited to a change in the classification or the units of exposure or increased policy coverage.

(c) Anniversary alteration. Subject to par. (d) , an insurer may alter the terms or premium of a policy issued for a term longer than one year or for an indefinite term on the anniversary date only if notice of less favorable terms or premiums is sent by 1st class mail or delivered to the policyholder at least 60 days prior to the anniversary date. If the insurer notifies the policyholder within 60 days prior to the anniversary date, the new terms or premiums do not take effect until 60 days after the notice is mailed or delivered, in which case the policyholder may elect to cancel the policy at any time during the 60-day period. The notice shall include a statement of the policyholder's right to cancel. If the policyholder elects to cancel the policy during the 60-day period, return premiums or additional premium charges shall be calculated proportionately on the basis of the old premiums. If the insurer does not notify the policyholder of the new premiums or terms as required by this subsection prior to the anniversary date, the insurer shall continue the policy until the next anniversary date or the renewal date, whichever is earlier, at the same premiums and terms as for the previous period, except as permitted under sub. (2) or (3) .

(d) Estimate. An insurer may give notice under par. (a) or (c) of a new premium by stating the actual amount or percentage increase to be charged. If the insurer cannot reasonably determine the actual amount or percentage increase 60 days prior to the renewal or anniversary date, the notice shall include a good faith estimate of the increase based on information that the insurer can reasonably obtain. If an estimate is stated, the insurer shall renew or continue the policy at a premium that does not exceed the increase stated in the notice except as permitted under sub. (5) (b) .

(6)   Information about grounds. A notice of cancellation or nonrenewal under sub. (2) (b) or (4) shall state with reasonable precision the facts on which the insurer's decision is based. No such notice is effective unless it so states the facts.

(7)   Cancellation or nonrenewal notice.

(a) Except as provided in par. (b) , notice of cancellation or nonrenewal required under sub. (2) (b) or (4) is not effective unless the notice contains adequate instructions to the policyholder for applying for insurance through a risk-sharing plan under ch. 619 , if a risk-sharing plan exists under ch. 619 for the kind of coverage being canceled or nonrenewed.

(b) Paragraph (a) does not apply to a notice of cancellation or nonrenewal issued by the mandatory health care liability risk-sharing plan established under s. 619.04 .

(8)   Cancellation for nonpayment of premium. Subsections (6) and (7) do not apply if the ground for cancellation or nonrenewal is nonpayment of the premium and if the notice so states.

(9)   Immunity. There is no liability on the part of and no cause of action of any nature arises against any insurer, its authorized representatives, its agents, its employees, or any firm, person or corporation furnishing to the insurer information relating to the reasons for cancellation or nonrenewal, for any statement made by them in complying or enabling the insurer to comply with this section, or for the provision of information pertaining thereto.

1975 c. 375 , 421 ; 1977 c. 444 s. 11 ; 1979 c. 102 ; 1979 c. 110 s. 60 (11) ; 1981 c. 83 ; 1985 a. 335 ; 1989 a. 187 , 332 , 359 ; 1991 a. 315 ; 1995 a. 259 ; 1997 a. 27 ; 1999 a. 9 ; 2007 a. 168 ; 2013 a. 20 . Cross-reference: See also s. Ins 6.77 , Wis. adm. code. Sub. (2) (c) applies to cancellation of a binder. Terry v. Mongin Insurance Agency, 105 Wis. 2d 575 , 314 N.W.2d 349 (1982). A policy did not lapse as the result of the insured's failure to pay a renewal premium before the policy's expiration date when the insurer failed to notify the insured of the nonrenewal or of the premium due. Sausen v. American Family Mutual Insurance Co. 121 Wis. 2d 653 , 360 N.W.2d 565 (Ct. App. 1984). This section governs cancellation and recision of insurance contracts. WHEDA v. Verex Assurance, Inc. 166 Wis. 2d 636 , 480 N.W.2d 490 (1992). The state was the policyholder of its employee group health policy and it, not the insureds, was entitled to notice of policy changes under sub. (5). Schaefer v. Physicians Plus Insurance Corp. 174 Wis. 2d 488 , 497 N.W.2d 776 (Ct. App. 1993). Sub. (5) requires notice of policy changes effected by the insurer, not changes effected by the legislature or the courts. Roehl v. American Family Mutual Insurance Co. 222 Wis. 2d 136 , 585 N.W.2d 893 (Ct. App. 1998), 98-1207 . Under sub. (5), if an insurer offers to renew a policy on less favorable terms within 60 days of the renewal date, the insurer must inform the insured that the terms do not become effective until 60 days after the renewal is sent and that the insured has the same 60 days to cancel. Failure to comply requires the insurer to continue the prior policy terms for an additional period equal to the term of the expiring policy. Hanson v. Prudential Property & Casualty Insurance Co. 224 Wis. 2d 356 , 591 N.W.2d 619 (Ct. App. 1999), 98-0692 . Sub. (5) does not apply to reducing clause changes that are not initiated by the insurer but come into effect by statutory change, even when the insurer gratuitously sends a renewal notice discussing the altered terms. Sukala v. Heritage Mutual Insurance Co. 2000 WI App 266 , 240 Wis. 2d 65 , 622 N.W.2d 457 , 99-1339 . An insurer may effectively eliminate the policyholder's right to renewal if it provides valid notice of nonrenewal. If notice is not provided, the policyholder retains this right, and barring any application of an exception under sub. (4) (b), it may exercise its right to a renewal. Magyar v. Wisconsin Health Care Liability Insurance Plan, 2001 WI 41 , 242 Wis. 2d 491 , 625 N.W.2d 291 , 98-3289 . Sub. (2) (c) contemplates 2 separate and distinct forms of notifying an insured of cancellation: postal mailing or personal delivery other than mailing. When the insurer informed the insured of its cancellation by mail, the trial court correctly measured the effective date of cancellation from the date of mailing. Schmitz v. Fire Insurance Exchange, 2005 WI App 76 , 280 Wis. 2d 560 , 696 N.W.2d 238 , 04-1545 .