Cancellations of policies
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Cancellations of policies
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By:
loanil
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Normally a contract can only be cancelled by one party in the event of a fundamental breach of the contract by the other.As we have seen many article of Cancellations of policies but the breach must be in respect of a major point in the contract and not some minor point. So far as insurance contracts are concerned the breach would require to be concerned with a lack of insurable interest or a major breach of utmost good faith in which case the contract would be void ab initio. If this were the case the insured would be entitled to a full return of premium unless fraud or wilful deception was involved.
In other cases, once the company are on risk the premium is generally regarded as fully earned, since a total loss could have occurred, and therefore no return is legally enforceable. Insurers take a lenient view when property is sold and in several other instances. In many types of policy the insurers have inserted a cancellation clause giving them the right to cancel, and to return a portion of the premium to the insured.
Summary of the instances of when a return of premium is given is Shown below.
Total return
A total return is given if:
(a) The insurer acted "ultra vires". i.e. if they purported to issue a class of policy for which they were not authorised in their memorandum of association;
(b) there was no "consensus ad idem". i.e. the parties were under a misapprehension or misunderstanding regarding the details of the contract;
(c) the nature of the contract was illegal. unless the insured was aware of this fact or should have been aware of it at inception;
(d) there has been a breach of one of the conditions precedent to the contract. If the breach was wilful or fraudulent there would be no legal entitlement to a return.
Partial return
A partial return is given if:
(a) the policy contains a cancellation clause and the insurer exercises his right to cancellation: these conditions usually allow for a "pro rata" or proportioned return to be made;
(b) there has been double insurance: this would apply where the insured innocently covered more than the total value of his property with two or more insurers; a return premium in respect of the excess value above the amount of insurable interest would be agreed among the insurers;
(c) the insurer goes into liquidation, in which case a pro rata return is given, but it is unlikely that the liquidator will have funds to pay 100 per cent in the £ of the return due;
(d) there is mutual agreement to do so: this could arise in the following circumstances-
(/) if the insurer agrees to a request from the insured to cancel the insurance, or reduce the sum insured;
(ii) where the policy is written on an adjustable premium basis.
Short-period premiums
The comments made previously relate to annual contracts, but occasionally a policy is required for a period of less than twelve months, If the normal rating structure is used, the insurers will not receive the full loading for expenses if a pro rata premium is charged, and yet their costs will be more or less the same as for a twelve-month policy.
In some instances, e.g. fire department policies, the insurers calculate the annual premium, the pro rata premium, and 5 per cent of the difference between the two is added to the pro rata premium to arrive at the short period premium.
For example:
Annual premium
Pro rata for three months
£20.00 5.00
Difference 15.00
5% thereof 0.75
The short-period premium would therefore be £5.75.
In other cases a certain proportion of the annual premium is charged for a month or three months or whatever. For risks of six or nine months it could be that the full year's premium is charged. This is usually where there may be seasonal increases in risk, e.g. the number of motor vehicles on the road in summer months, or where experience has shown that the incidence of claims on short-period policies is proportionately higher than that on annual policies.
Minimum premiums
It is usual for a company to have a minimum premium for each class of business which reflects the cost of putting the case in the books.We can see more articles directory of Minimum premiums but In recent years there has also been a trend to attempt to force more realistic sums insured to be fixed by having a fairly substantial minimum premium, e.g. several companies now have a minimum of £10.00 for house contents insurance and the same for the buildings.
CLAIMS PROCEDURE
The purpose of an insurance contract is to provide an indemnity or compensation in the event of the insured event taking place, and just as the insurers have devised proposal forms and an underwriting system to ensure a convenient and competent method of initiating contracts, they have set up claims departments to negotiate and process.
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