These may be a questions for r/legal, but it’s fairly in the weeds insurance-wise, so I thought I’d pose them here first.
Hypothetically…
Prior to opening, a business binds a Commercial General Liability Policy with a Surplus Lines Carrier. The premium is calculated per $1K of gross sales, and the policy is subject to revenue audit. The policy has a minimum earned premium (MEP) of 25% and a carrier fee that is fully earned at binding.
A few months in, the business has yet to open, and they cancel the policy. A revenue audit confirms zero sales. The policy does NOT specify any specific early-cancellation penalty (e.g. short rate) aside from the minimum earned premium (MEP) and fully earned carrier fee. The business expects a refund of the policy premium minus the MEP and the carrier fee.
Instead the carrier computes a substantially lower refund based on days of coverage minus a 10% penalty.
A couple questions…
1) If premiums are earned based on gross sales, and the policy language doesn’t specify a particular basis for pro rata calculations (sales vs days), is the carrier justified in using days, even though premiums are earned based on sales?
2) If the policy language doesn’t specifically disclose a penalty for early cancellation, is the carrier justified in charging it?
Posted by InterestCertain9827