Comstock Insurance, based in Los Angeles, is being sued by 500 California auto-repair shop owners and tire dealers for attempting to cancel their liability insurance policies before they expired.
The state Department of Insurance is closely watching the case, which is believed to have implications for other liability policyholders.
The Comstock insurance policies under dispute covered the repair shops and tire dealers for a three-year term, with premiums due annually. As the premiums became due over the last two months, however, Comstock has notified customers that the insurance was being canceled.
In doing so, Comstock defied the Department of Insurance, which had told Comstock that it could not cancel the policies before the three-year term ended.
Charles Fowler, Insurance Department operations branch chief, said Thursday that the lawsuit has rendered the department's opinion "moot."
Fowler said the outcome of the case would affect other insurance policies that extend for more than one year. "I think we will see a lot more commercial insurers trying to do this (cancel policies) as they try to get out of unprofitable risk classes," he said.