Canceled auto insurance and went with another policy Now original insurance company demanding proof of insurance with new company Is this demand legal?

Yes, If you have a lien holder (basically another insured) on your policy. The terms of your contract require the insurer to notify your lien holder 30 days prior to cancellation. If you show the company you have purchased replacement coverage, then they can expedite the cancellation of your policy helping you to avoid double coverage and paying twice during the coverage over lap with the new policy.

Giving them a copy of your new policy, Saves "You" money.