Cancellation Clause

Every insurance policy contains a cancellation clause that outlines how and when the policy can be terminated early. Carriers can typically cancel for specific reasons — non-payment of premium, material misrepresentation on the application, or a substantial change in the risk. Most states require carriers to provide 10 days' notice for cancellation due to non-payment and 30 or more days' notice for other reasons. You, as the policyholder, can usually cancel at any time with written notice.

For tree service companies, understanding cancellation provisions is critical because a coverage gap can be devastating. If your GL policy is cancelled for non-payment and a crew member drops a limb on a car the next day, you are personally liable for the damages. Many tree service contracts also include provisions that require you to notify the client of any policy cancellation — and the cancellation itself may trigger a breach of contract.

Return premium on a cancellation depends on who initiates it. If you cancel your own policy, the carrier typically applies a "short rate" calculation that includes a penalty — you get back less than the pro-rata unearned premium. If the carrier cancels (for reasons other than non-payment), you generally receive a full pro-rata refund of the unearned premium. The difference can be significant on a $15,000 or $20,000 GL policy.

Some commercial contracts require you to carry insurance with a cancellation notice provision — typically requiring 30 days' written notice to the certificate holder before cancellation. This is added to your policy via endorsement. Be aware that the standard ACORD certificate form includes a statement that the insurer will "endeavor to" provide notice, but this language does not create an obligation. If contractual cancellation notice is important to your client, a specific endorsement is required.