673
INSURANCE CODE
SECTION 673
673. (a) As used in this section, "exercise the right to cancel"
means the act of formally electing to use the right of the insured to
cancel any insurance policy in accordance with and subject to the
provisions of that policy when the right to use that right of the
insured has been transferred or assigned by the insured in writing
executed by, or on behalf of, the insured to a lender who has
advanced to the insurer the premium for the policy. The transfer or
assignment may be by power of attorney or other document. The
transfer or assignment may, but need not, be accompanied by an
assignment of any unearned premium due the insured on cancellation.
(b) No lender shall exercise the right to cancel a financed
insurance policy because of the default of the insured under a
premium payment loan agreement except in accordance with this
section.
(c) Written notice of the exercise of the right to cancel shall be
mailed by the lender to the insurer and to the insured at the
address shown on the premium payment loan agreement or his or her
last known address, specifying a date five days or more after the
date of mailing of such notice as the effective date of cancellation.
Any insurer may, in writing delivered to the lender, waive,
generally or specifically, the right to receive such notice or
notices. A copy of such notice may be mailed to the producer of
record if known to the lender, but failure to do so shall not affect
any rights granted by this section. This subdivision shall not apply
to an industrial loan company.
(d) An industrial loan company shall, in giving the insured 10
days' notice of its intent to cancel pursuant to Section 18608 of the
Financial Code, furnish a copy of such notice to the insurance agent
or insurance broker indicated on the premium finance agreement.
After expiration of the 10-day period, the industrial loan company
may thereafter, in the name of the insured, cancel the insurance
contract or contracts by mailing to the insurer a written notice of
cancellation, and the insurance contract shall be canceled as if the
notice of cancellation had been submitted by the insured person, but
without requiring the return of the insurance contract or contracts.
The industrial loan company shall also mail a notice of cancellation,
setting forth the effective date of cancellation of the finance
insurance contract, to the insured at his or her last known address
and to the insurance agent or insurance broker indicated on the
premium finance agreement. For the purposes of this subdivision, the
words "premium finance agreement" shall have the same meaning as that
specified in Section 18564 of the Financial Code.
(e) A written exercise of that right containing a confirmation of
the effective date of cancellation shall be mailed by the lender to
the insurer within five days following that effective date of
cancellation specified in the notice described in subdivision (c)
unless the insured has cured any and all defaults. Cancellation shall
be effective on the financed insurance policy without requiring the
return of the insurance policy or insurance policies, except as
provided in subdivisions (f) and (g), on the confirmation date
specified in the written exercise of that right. This subdivision
shall not apply to an industrial loan company.
(f) All statutory, regulatory, and contractual restrictions
providing that the financed insurance policy may not be canceled
unless notice is given to a governmental agency, mortgagee, or other
third party shall apply where cancellation is effected under this
section. The insurer shall give the prescribed notice on behalf of
itself or the insured to any governmental agency, mortgagee, or other
third party on or before the fifth business day after the day it
receives the written exercise of cancellation right containing
confirmation of the cancellation date from the lender, as provided in
subdivision (e), or a written notice of cancellation from an
industrial loan company, pursuant to subdivision (d), and shall, for
the purpose of the notice, determine the effective date of
cancellation as to those persons mentioned in this subdivision only,
taking into consideration the number of days' notice required to
complete the cancellation.
(g) Whenever such a financed insurance policy is canceled by any
party for any reason:
(1) The insurer shall, in accordance with the written agreements
of which it has notice, return to the lender such unearned premiums
as are due to the lender. The amount of the return premiums shall be
based upon the confirmed date of cancellation specified in
subdivision (e), or upon the written notice of cancellation specified
in subdivision (d) in the case of an industrial loan company,
lessened by the amount, if any, to compensate equitably the insurer
for carrying the risk of loss as to any governmental agency,
mortgagee, or other parties specified in subdivision (f) from that
date to the effective date of cancellation as to those parties.
(2) When a financed insurance policy is canceled, or the insured
discontinues payments to a lender, the insurer shall calculate the
return premium on a pro rata basis. This paragraph shall not apply to
any policy issued under an assigned risk plan or to any policy with
respect to which the insurer has made a loan to the insured for the
purposes of payment of premiums for the policy.
(h) The commissioner may amend the rules and regulations of any
assigned risk plan, fair plan, or similar plan to provide for the
equitable assignment of insurance risks among insurers now in
existence or hereafter established, in such manner as may be
necessary to carry out the purposes of this section.
(i) A lender which sends a written exercise of cancellation right
or a written notice of cancellation to an insurer, as provided in
subdivision (c), or subdivision (d) in the case of an industrial loan
company, thereby represents that he or she has a valid right to do
so and to receive the unearned premium. If the lender thereby
accomplishes the cancellation and receives an unearned premium, such
representation shall be conclusive as between the insurer and the
lender. An insurer relying upon the written exercise of that right
containing a confirmation of cancellation date and giving, when
applicable, notice as required by subdivision (e), shall be relieved
from complying with any other duty or form of cancellation required
by this code.
(j) This section shall not apply where the insurer exercises its
own right to cancel the policy for nonpayment of premium, direct or
indirect, or otherwise. Such a cancellation shall be subject to all
applicable provisions of the policy, this code, except this section,
and any rights of the lender of which the insurer has written notice.
(k) Whenever a lender or industrial loan company cancels a policy
as described in this section and then requests the insurer to
reinstate the policy, the insurer shall provide written notice by
mail to the insured, agent/broker, and lender or industrial loan
company within 15 days that the reinstatement has been accepted or
rejected.
(l) This section shall apply only to contracts entered into
between an insured and a lender on or after January 1, 1974.