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Karen Cano v. Markel Insurance Company
Docket No. INS-07-2018, Decision Issued April 9, 2007.

The insured requested a hearing following receipt of a notice of cancellation of general liability insurance coverage and accident and medical insurance coverage citing the use of disciplinary techniques that do not meet underwriting guidelines as the reason for cancellation of the two policies. At hearing, the company argued that a disciplinary tactic used by the insured in her daycare operation resulted in a claim and that the risk of loss has been increased as demonstrated by the claim. The insured disputed the use of any such tactic and stated that the company has not provided any evidence to demonstrate a change in the risk that increases the risk of loss.

Held: For the insured. A company may cancel such policies if it can demonstrate that its reason for cancellation fits into one or more of the cancellation grounds articulated in 24-A M.R.S.A. § 2908(2). Section 2908(2)(C) permits cancellation for a substantial change in the risk that increases the risk of loss. However, in order to prove the elements of section 2908(2)(C), a company must demonstrate a change in the risk that is substantial and then explain how that change increases the risk of loss.

In the present case, the company provided no information except to say that a recent claim revealed the use of a certain tactic as a disciplinary measure. It did not explain how it concluded that the incident leading to the claim was reflective of the insured’s disciplinary practices. The insured credibly maintained that the incident was not the result of a disciplinary measure and that it would not happen again. The company did not provide any argument or evidence to dispute her assertion. In addition, section 2908(5)(A) states that a cancellation notice is not effective unless received by the insured at least 10 days prior to the cancellation date. The evidence indicates that the company provided only eight days notice to the insured prior to its intended cancellation date. Therefore, the cancellation notices are ineffective.