A commercial policy had several named insureds. The first named insured is now out of business and the policies have been cancelled, generating a return premium.

The agency sent the return premium check to the mailing address of the first named insured in its name. The owner then contacted the agency, saying that the entity is now dissolved and the bank accounts have been closed. He wants the insurer to reissue the check in his personal name, which was included as a named insured.

Q: The agent's understanding is that we can only issue the return premium in the name of the first named insured. Is there a workaround in an instance where the first named insured is now dissolved?

Response 1: Since you are acting as an agent, and premiums are handled in a fiduciary capacity, the answer needs to come from the insurance company. Ask how they want it handled and be guided accordingly. 

Without guidance from your attorney or the insurance company, the only safe course would be to issue the return premium to the named insured. Without direction from the courts, if that person is dead or if the entity no longer exists, you still need to make the check payable to the named insured.

Response 2: It is important to read the specific policy language regarding cancellations and return premiums. Was the cancellation initiated by the insured or by the insurer?

In any case, it sounds like you'll need to involve whatever attorney was instrumental in the process of the entity's dissolution and work with them on this matter. I hope that a knowledgeable attorney was involved.

Certainly don't issue a check in the name of the individual who's requesting it until you know what's what.

Response 3: There are legal issues at work here. An attorney needs to advise or you at least run this by the Department of Insurance. Why isn't the insurer directly involved in this? The rights and obligations under the insurance contract rest with the insured and insurer.

Report the information at your disposal and request that the carrier determine to whom the return premium should be directed as the proper legal entity. That is not your responsibility, as there may be other issues before the closure of the previous named insured.

Response 4: When we had to issue checks to a dissolved business in the claims department, we would ask to see the dissolution paperwork or check with the secretary of state to ensure the payment was going to the correct person. If we were in doubt, we put everyone's name on the check. 

Response 5: This is why being very sure the first named insured is the entity that should be first is so important. The individual will have to deal with his attorney to determine what he can do. Sending him a check that is made out to him is a very bad idea, since others may have been parties to the first named insured. 

This question was originally submitted by an agent through the Big “I" Virtual University's (VU) Ask an Expert service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.

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