I owned a business that I closed in the middle of last year. I just got a call from the company that carried my liability insurance policy and they told me that they did an audit of my policy and decided that I owe them another $3,000 for 2004. Mind you, my YEARLY PREMIUM for the policy was only $800. I had the same policy for 3 years and I never filed a claim.
I asked my insurance agent to handle it (he placed my this policy through another carrier), as I figured I’d deteriorate to personal insults and threats if I tried to deal with it.
How can this be legal? Is there anything I can do?
Depending upon what you signed when you bought the policy, this might very well be appropriate and legal. Just about everything is negotiable, though, and you might be able to get out for less money.
Its very possible if the policy was on adjustment basis. Another words when the policy was placed with the insurer you (via your broker) told the insurer that your estmated annual revenue going forward was X$. On that basis a deposit premium is derived. But at the end of the policy term you then declare the actual revenue. If its over the initial estimate then you owe them and in some cases if its under they owe you. This only applies to liability. In property the same can be applied to stock levels. The reason for doing it this way is to a) pay less up front b) its regarded as more fair to all parties.
Now unless you made a declaration of revenue I am not sure how they could figure out what was owed. Note under the insurance contract (policy is the contract) the insurer has the right to carry out an audit, but it always occurs with the insureds knowledge.
Now if you cancel the policy there is usually some return premium back to you. I say usually, it depends on whether the premium paid was stated as minimum premium or not.
What does your agent say? Did he give you any insight as to why or how they could think you owe them that? He sold it to you, he should understand the policy right?
It was a service business, S-Corporation. I projected my payroll, and perhaps I exceeded my projections (I don’t remember what I projected). Even so, if I exceeded my projections, I know it couldn’t have been by much (maybe $20-$30k). Certainly, I would hope, not enough to warrant quadrupling my premiums.
Sad thing is, I work for an insurance company (as a software developer). Feels a bit odd to despise the industry that puts money in my bank account every couple weeks.
It might be worth a phone call to your state’s insurance commissioner’s office just to inquire about the situation without naming names. They might have a website with a FAQ’s page too. Just a thought.
SimpleS’s post explains how this happened, and Psycholist’s post explains how to decide if you pay or not. If you have potential liability for the period in which you did business under this policy, make sure you don’t give the insurer a reason to deny coverage or reserve rights in the event of a claim. $3K is a pittance compared to any legal proceeding you could be on the hook for.