Is it legal to let sister-in-law drive my vehicle in another state and have her on my insurance?

Question

This is about my wife's sister who is a single parent mom and lives in a different state. Not sure if it matters but I live in Massachusetts and she lives in Georgia.

Because of her life situation she has not been able to afford car payments and I for this reason have allowed her to use one of the two cars that are in my name. In this case this means I make the monthly payments on these cars and I also pay for the car insurance for both of them.

Both of my cars are insured from the same company. On the insurance, she is listed as a driver for the car that she has with her in Georgia, and that car is also listed as garaged in Georgia.

Can the car insurance company legally deny insuring the vehicle she is driving in this kind of case?

Update: The reason for my question is that the car was in an accident where parts of the body (side front bumper, and side rear panel) got scratched. This happened when the car was parked outside a shopping center (someone tried to squeeze into a parking space next to it), meaning that she was not driving the car, or even inside it, at the time. A police report was made about this incident but it is not yet known if the driver of that other car had insurance, as they had left the scene after bumping into this car (some passerby got the tag# of that other car and gave it to my sister-in-law).

When we asked the insurance company about this, we eventually received the reply that the insurance company "is not going to insure the [car] that is garaged in Georgia, they are going to issue legal notice to cancel the insurance since [my sister-in-law's] residence is there."

The insurance policy has listed her as the driver on the car garaged in Georgia for 3 years. So if there was an issue with this setup, I would have thought that we had been informed about it.

I am not particularly concerned about whether they are willing to cover the damage, as it is not major and the insurance in any case has a $500 deductible. The concern and question I have is about the "legal notice" from the insurance company, because that implies that this setup has been somehow illegal.

Answer 1

The insurer can absolutely deny paying any claims if they discover that you misrepresented something in obtaining your policy, or you failed to notify them of relevant changes in accordance with the policy's terms.

In fact, even changing the "garage" location within a state can affect your premium.

You should call your insurer and provide them an honest and complete description of the regular use of the car. It is up to their underwriters whether they will continue to provide insurance for that use, and whether they will change your premium accordingly.

Update regarding the question update: The insurer could not legally deny a claim for any insured damage prior to notice of cancellation, so long as there was no misrepresentation and you had paid your premiums.

As to when an insurer can legally cancel a policy: This is first a contractual question, and their policy should include terms and conditions that address this. (E.g., they might reserve the right in the policy to cancel it for any reason at any time, in which case it's almost certainly legal.) Note that all policy terms must be approved by a state's insurance commission. I happen to remember that Massachusetts has some very unusual terms and restrictions for car insurance, so I wouldn't be surprised if the Massachusetts entity discovered that their policy on the out-of-state car was non-compliant and they had to cancel it.

The great thing about the tight regulation of auto insurance is that if a claim on a policy is denied, or if a policy is improperly cancelled, then you can file a complaint with the state regulator, and those tend to get resolved quickly and in the insured's favor. Therefore, you should simply review your policy terms and the cancellation notice. If anything seems out-of-order you can call both the insurer and your state regulator.