Louisiana Bill Banning Insurance Cancellation Penalties Goes to Governor Bobby Jindal

Jun 3, 2010


A bill prohibiting insurers from assessing monetary penalties against insureds who elect to cancel their policies has passed the Louisiana Legislature and was certified by Senate President Joel T. Chaisson, II and House Speaker Jim Tucker on June 1 and 2, respectively.  Sponsored by Senator Joe McPherson, SB 246 now must go to Louisiana Governor Bobby Jindal for action, otherwise it will become law on August 15 without his signature.

Under the provisions of SB 246, surplus lines insurers are excluded from the penalty assessment prohibition.

Additional provisions in SB 246 are summarized below, along with a Senate amendment synopsis:

Present law permits an insured to cancel and surrender any policy which can be canceled at the insured’s option.  Insurers are required to pay to the insured any unearned portion of any premium paid on the policy as computed on the customary short rate or as specified in the policy, and any unearned commission.

  • SB 246 would require that the payment be computed on the customary pro rata rate.

Present law provides that, if an automobile policy is canceled for nonpayment to a finance company, then the unearned premium and commission must be computed on a pro rata basis.

  • SB 246 would require that, if a personal line or commercial line policy is canceled, any unearned premium and commission be computed on a pro rata basis.

An amendment to SB 246 adopted by the Senate Committee on Insurance added a provision that payment on any unearned premium must be computed on the customary pro rata rate.

To view a final copy of SB 246, click here.

Louisiana Times-Picayune May 28, 2010 coverage of the bill’s progress through the Legislature is reprinted below.


Should you have any questions or comments, please contact Colodny Fass.


Bill banning insurance cancellation penalties goes to Gov. Bobby Jindal

By Ed Anderson, The Times-Picayune
May 28, 2010, 8:30AM

Legislation that would bar insurance companies from assessing a “monetary penalty” if a policyholder cancels the policy before it expires was approved Thursday and sent to Gov. Bobby Jindal for action.

Senate Bill 246 by Sen. Joe McPherson, D-Woodworth, won quick approval in the House, 92-0. It passed the Senate 36-0 in late April.

Jindal can now sign the bill into law, veto it or let it become law without signing it.

The bill drew the opposition of insurance companies who claimed it might be a violation of contractual relations between a company and the policyholder.

McPherson said that many insurance companies assess a 10 percent penalty, based on the value of the premiums paid, if a policyholder cancels to go to another company that has better rates.

Rep. Chris Roy, D-Marksville, who handled McPherson’s bill in the House, said the bill is simple: “If the policy is canceled, they (insurance companies) can’t keep it all” and have to refund the unused premium without a penalty.

McPherson said that the consumer should be charged only for the time the policy was in effect.

The bill says that within 30 days of a policyholder’s cancellation, the insurance company must refund the pro-rated share of the unused policy premium. McPherson said that the consumer should be free to shop around for the best insurance policy without having to worry about getting hit with a cancellation penalty.

“This will make a significant difference to some individuals and businesses,” McPherson said.

The bill affects personal lines of insurance, like homeowners and automobile coverage, and all commercial policies. The bill would not affect surplus line policies, those that are exposed to greater insurance risks than others. If Jindal signs the bill, it would take effect Aug. 15.

Ed Anderson can be reached at eanderson@timespicayune.com or 225.342.5810.



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