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3/6 W01/March 2017 Award in General Insurance

F1 Insurer’s right to cancel

Most general insurance policies have a cancellation condition. This allows the insurer to cancel,
provided they give reasonable notice. In the event of this happening the insurer will only charge pro-rata
for the time they have been on cover.

F1A Fraudulent claims
The Insurance Act 2015 (IA 2015) clarifies an insurer’s position in the event of a fraudulent claim being
The Insurance Act
2015 provides made.
insurers with clear
3 statutory remedies The Act gives insurers a right to elect to terminate an insurance contract with effect from the time of a
when a policyholder
Chapter submits a fraudulent ‘fraudulent act’, without a return of premium.
claim
If a fraudulent claim is made the insurer:
• is not liable to pay the claim;
• can recover any amounts already paid for the claim; and
• can also choose to terminate the contract from the date of the fraudulent act.
If the insurer chooses to terminate the contract, it:
• can refuse liability for all matters occurring after the date of the fraudulent act; and
• does not have to return any premiums.

F2 Policyholder’s right to cancel

A policyholder has a right to cancel without penalty and without giving reason for most insurances
Consumer has a right
to cancel bought at a distance, for example over the internet or by phone. The main exception is travel and
baggage insurance and other policies for less than one month. Cancellation rights must be exercised
within 30 or 14 days, depending on the type of insurance.
It is less common for the policyholder to have cancellation rights where cover has been bought face to
face. Some insurers permit this in their wordings, even allowing a proportionate return of premium. Reference copy for CII Face to Face Training
However, it is much more common for the policyholder to have a right to cancel but for the insurer to be
entitled to charge a fair rate for the cover already provided.

F3 Other means of terminating contracts of insurance

As with any other contracts, termination may be as a result of the fulfilment of the contract or as a result
of some problem in relation to the contract.

F3A Fulfilment
In insurance this would mean the total loss of the subject-matter. For example, if a car insured under a
motor insurance policy is burnt out so that it effectively ceases to exist, the policy is automatically
terminated. An insurer could choose to allow a substitute vehicle to be insured and will usually do so
within a reasonable period. If not, the policy is terminated.
F3B Voidable contracts

There are circumstances in which one party may void a contract. This may arise under insurance policies
where the insured person is in breach of a policy condition. An example would be where the insured
person is required to maintain equipment in efficient working order, and where this has not been done
the insurer may treat the policy as void.
However, you must distinguish this type of situation from one in which the policyholder fails to fulfil a
condition relating to a claim. In this case the insurer may have the right to avoid paying the particular
claim, but the policy will remain in force.
An insurer may be able to avoid the contract entirely setting it aside ab initio (from the beginning) as a
consequence of non-disclosure or misrepresentation of information by the policyholder.
There may also be situations where the policy has never been in force. This would arise where there was
no recognised insurable interest at the outset, in which case the policy is automatically void. This does
not really amount to a termination since the contract has never been in force.