REFORMING INSURANCE LAW: - Law Commission

Cancellation of policies
8.44 The Insurance Contracts Act 1984 contains detailed provisions relating to the cancellation
of policies by insurers. Section 59, 537 as amended, precludes terms which permit cancellation of
a policy without notice, although the section appears not to preclude reliance on a term providing
for automatic termination on a given event. 538 Instead, the insurers must give at least 14 days’
notice of cancellation of a non-life policy, and at least 20 days’ notice of cancellation of a life
policy. 539 Cancellation of a non-life policy is permitted under s 60 where the assured is in breach
of any of his fundamental duties under the legislation, in particular the duty of disclosure or the
duty not to make fraudulent claims, 540 and cancellation is also permitted for non-payment of
premiums. 541 Any cancellation which does not conform to these provisions is of no effect, 542 and
even where cancellation is operative the assured is entitled to written reasons for the cancellation
under s 75 of the 1984 Act. The right of cancellation extended to general insurers under s 60 in
respect of breach of duty by the assured does not apply to life insurance. Treasury Review II,
2004, considered whether general and life insurance should be brought into line on this point, but
the ultimate conclusion was that life insurers could rely upon the common law and specific
cancellation clauses in their policies to replicate s 60 and accordingly that no change in the law
was required. 543
8.45 There is no equivalent requirement in English law, and it is standard practice to include in
certain classes of cover – in particular marine and aviation policies – a right of cancellation on
notice by the insurer whether or not there is a reason to do so: such clauses have been challenged
but found to be valid, 544 a concept heavily criticised by the ALRC. These policies also include
automatic termination provisions in circumstances where the risk has been altered in some
significant fashion. It might be thought that the Australian solution is half-hearted in its attempts
to protect the assured: the right to cancel on notice for no reason – although likely to be exercised
if the insurer anticipates an increased risk – is wholly unjustifiable by any standards, although
equally there is no real objection to automatic termination or termination on notice if the assured
fundamentally alters the insured risk (a concept in any event recognised by the common law 545
and possibly not affected by the 1984 Act 546 ).
537 Implementing ALRC 20, paras 246-249.
538 Waterman v Gerling Australia Insurance Company P/L [2005] NSWSC 1066 (late payment of premium). This
case is contrary to the recommendations of ALRC 20, and has the effect of validating premium warranties. Any
adoption of s 59 in England should make it clear that automatic termination clauses are void.
539 Other than in cases where the life policy has been forfeited for non-payment of premiums. Treasury Review II,
2004, saw no need to change these time limits: see para 7.59.
540 The operation of s 60 is discussed below. An insurer in liquidation may, under s 61, cancel its policies.
541 S 62: see supra.
542 Insurance Contracts Act 1984, s 63.
543 Para 7.55.
544 Sun Fire Office v Hart (1889) 14 App Cas 98
545 Swiss Reinsurance Co v United India Insurance Co Ltd [2005] Lloyd’s Rep IR 341.
546 QBE Mercantile Mutual Ltd v Hammer Waste Pty Ltd [2003] NSWCA 356, in which the common law authorities
were considered but distinguished on the facts.
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