The premium is the consideration which the insurers receive from the assured in exchange for their undertaking to pay the sum insured in the event insured against.
Any consideration sufficient to support a simple contract may constitute the premium in a contract of insurance. Thus, in the case of mutual insurance association, the assured is, by the terms of the contract, liable to contribute towards making good any losses which his fellow-members may sustain, either instead of or in addition to a fixed periodical payment, and is entitled in his turn to have his own losses made good by them. His liability towards his fellow-members is therefore the premium for his own insurance.
In the usual course of business, however, premiums are payable in money, and it is unnecessary to consider in detail any other form of premium in framing these tables they are guided, as far as possible by experience. The premium is usually charged at the rate of so much per £100 of the sum insured.
The rates ordinarily charged may be increased where the assured seeks a protection wider than that which the insurers usually agree to give in respect of property similar to that sought to be insured, and may be diminished if he is willing to accept a narrower protection or to comply with any special requirements imposed by them.
The premium must be fixed by the insurers and agreed to by the proposed assured before there can be a concluded contract of insurance. It does not, however, appear to be necessary that the precise amount of the premium should have been fixed and agreed to, provided that there is a definite agreement to postpone the fixing of the amount and to enter into the contract notwithstanding. Thus, the insurance may be in consideration of a premium to be arranged.
In liability insurance, in particular, the policy usually prescribes the basis on which the amount of premium is to be calculated and provides for an immediate payment on account of premium and for and adjustment at the end of the year of the insurance, the amount ultimately payable depending on the circumstances giving rise to liability, such as, for instance, the number of staff employed or vehicles used by the insured.
provision may be made in the policy for increasing or reducing the premium. Thus, if, during the currency of the policy, the risk is increased, an additional premium may become payable; if the risk is diminished, a proportion of the premium paid may be returned. The policy may also contain a statement relating to reduction of the premium on renewal in the event of the risk having been diminished or of no claim having been under the policy during the period of the insurance.
Whether in such a case the insurers are bound to reduce the premium if a specified event has happened depends on the language used. Thus, where the question of reduction is left entirely to their judgment, the Court cannot interfere if, in the bona fide exercise of their judgment, they decline to reduce the premium.
B. THE PAYMENT OF THE PREMIUM
The premium may be paid by the assured, or his agent acting within the scope of his authority, or, in the case of his death, by his personal representatives. Sometimes the premium is payable by a third person. Thus, in the case of fidelity or solvency insurance, the premium may be payable by the person whose fidelity or solvency in insured.
Payment by a stranger will, apparently, not be sufficient unless ratified by the assured.
1. Mode of payment
The premium is payable in money, and payment in any other form may be refused. But the insurers may, if they think fit, accept payment otherwise than in money. If they have agreed, either expressly or impliedly, from the course of dealing between the parties to a particular form of payment, as, for instance by cheque, bill of exchange, promissory note, or settlement in account, they are bound by a payment in that form.
If the form of payment adopted never results in a payment in fact, e g where the cheque or promissory note is dishonoured, the premium is to be regarded as remaining unpaid, unless the insurers elected to take the cheque or promissory note in preference to cash.
If, however, the cheque or note is duly honoured, the payment relates back and the premium is deemed to have been paid on the day when the cheque or note was given and not on the day when it was actually honoured.
Similarly, in the case of a settlement in account, if there is a running account between the parties and the course of business is that the balance is struck periodically, whereupon the party appearing to be due, the premium is deemed to have been paid on the day when it was debited in account to the assured, and not on the day when the actual payment of the balance is made.
If the insurers authorize the assured to remit the premium by post, and it is lost or stolen in transmission, the loss falls on them, provided that the remittance is sent in the usual way.
The premium may, by agreement, be made payable by instalments, as, for instance, where it is a lump sum payable for an insurance extending over a period of years. In this case, payment of the first instalment is a performance of a condition that the insurance is not to attach until the premium is paid. The effect of the payment of the subsequent instalments is not to renew the policy but to continue a subsisting insurance.
The policy continues in force throughout the period fixed for its duration, unless allowed to lapse in the meanwhile by the failure to pay a further instalment of the premium when it falls due or within any ‘days of grace’ that may be allowed. A loss happening during the ‘days of grace’ is, therefore, covered even the instalment falling due has not been paid, provided that it is paid before the ‘days of grace’ expire.
2. Time for payment
It is not necessary, apart from an express condition in the policy, for the assured to pay the premium at any particular time. As soon as there is a completed contract the insurers become liable, and the assured at the same time becomes bound to pay the premium, and is, therefore, liable in an action at the suit of the insurers if he fails to do so.
In practice, the policy usually contains a stipulation to the effect that the insurance is not to come into force until the premium has been paid. The payment of the premium is thus made a condition precedent to the liability of the insurers, and they are not responsible for any loss happening before payment. When the premium is paid and accepted after the due date, its effect is retrospective, in the absence of any agreement to the contrary.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 52, provides:
‘Unless otherwise agreed, the duty of the assured to pay the premium, and the duty of the insurer to issue the policy to the assured or his agent are concurrent conditions, and the insurer is not bound to issue the policy until payment or tender of the premium.’
There are certain cases, however, in which the insurers are, by their conduct, precluded from relying upon the non-payment of the premium and are, therefore, notwithstanding the stipulation, liable to the assured although the premium is not paid until after the loss or never paid at all. These cases are:
a. Where the insurers issue a policy under seal reciting that the premium has been paid.
b. Where the insurers by their conduct discharge the assured from the necessity of complying with the condition.
(a) Where the insurers issue a policy under seal reciting that the premium has been paid
If the policy is under seal, the recital may create an estoppels against the insurers and prevent them from relying upon the circumstance that the premium has not, in fact, been paid.
The language in which the stipulation is framed must be carefully scrutinized, since the effect of the recital appears to vary according to the particular stipulation used. A stipulation providing that the liability of the insurers is not to arise until the premium is ‘actually paid’, overrides the recital, qualifying and restricting the engagement of the insurers and converting what would otherwise be an absolute engagement into a conditional one. In this case the words of the recital are merely common, from words or words of style for expressing the consideration for the insurers’ engagement, which will become accurate when that engagement becomes effected; and the insurers accordingly are not liable for any loss happening before the premium is paid.
On the other hand, where the condition provides that no liability is to arise until the premium is ‘paid’, omitting the word ‘actually’ or any word of similar effect, the language of the condition has been held not to be strong enough to prevail against the estoppels created by the recital. The insurers are, therefore, liable immediately on the execution of the policy, and it is immaterial that at the time of the loss the policy is still in their hands, provided that has been completely executed.
If the policy is not under seal, the recital that the premium has been paid does not, expect in the case of a Lloyd’s policy, preclude the insurers from relying on the non-payment of the premium.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 54, provides that:
‘Where a marine policy effected on behalf of the assured by a broker acknowledges the receipt of the premium, such acknowledgement is, in the absence of fraud, conclusive as between the insurer and the assured, but not as between the insurer and broker.’
(d) Discharging the assured from compliance with the condition
The insurers may have wrongfully refused to accept payment of the premium when tendered to them, or may have otherwise repudiated the contract contained in the policy. By such refusal or repudiation, as the case may be, the assured is discharged from the obligation of performing the condition, and the insurers cannot, therefore, rely on its non-performance.
By their conduct the insurers may have waived the performance of the condition. What acts on the part of the insurers are to be regarded as a waiver will depend upon the circumstances of each particular case. There is no waiver unless, at the time when the act was done, the insurers knew, or had the opportunity of knowing, the true state of facts. The act must further show an intention on their part to waive the condition, or must be calculated to mislead the assured into thinking that such is their intention.
Waiver is to be implied where the insurers agree to give the assured credit for the premium, or to take a negotiable instrument in payment, If, however, the premium is not paid at the expiration of the period of credit or the negotiable instrument is not paid at maturity, the condition precedent becomes operative.
On the other hand, no waiver is to be implied from the mere delivery of the policy to the assured. Nor are the insurers precluded from replying upon the non-payment of a renewal premium by reason of the fact that they have not given the assured notice that the renewal premium has become due, or that on a previous occasion they had waived payment.
Where the premium is payable by a third person, and insurers have acted in such a manner as to lead the assured to believe that the premium has been paid, this may amount to a waiver on their part.
3. Effect of payment
The acceptance of the premium by the insurers, in the absence of circumstances pointing to a contrary conclusion, leads to the inference that there is a concluded contract of insurance. The assured thereupon becomes entitled to receive a policy from the insurers; and even though no policy has been issued, the insurers may be precluded from denying the existence of the contract and from repudiating their consequent liability.
The making of a demand for the premium leads to the same inference, unless the demand is refused, in which case there is a repudiation of the contract by the assured which releases the insurers from liability.
Where the insurers issue a policy to the assured or renew an existing policy, the acceptance of the premium or renewal premium, as the case may be, estops them from repudiating liability on the ground that the policy has already been avoided by reason of a breach of condition. They must, however, be aware of the breach at the time when they accepted payment. Thus, if the insurers, knowing that the policy was procured by the fraud, misrepresentation, or non-disclosure on the part of the assured, subsequently accept the premium, they have decided to affirm the policy, and cannot afterwards contend that the policy was voidable by reason of his breach of duty. Similarly, if they accept the premium with knowledge that the assured has broken a condition subsequent, as, for instance, by increasing the risk, they cannot insist that the policy has been avoided by the breach.
4. Payment to the agent of the insurers
The payment of the premium is often made by the assured to an agent of the insurers. Whether such a payment is a payment binding on the insurers, so that they are precluded from afterwards asserting that the premium has not been paid, depends on the following considerations:
a. The agent must have authority to receive payment of the premium on behalf of the insurers.
b. The agent must have authority to receive payment of the premium on behalf of the insurers in the mode in which it has been made to him.
(a) The authority to receive payment
It is not necessary, in order to bind the insurers, that the assured should establish the existence of an express authority to receive payment on their behalf. An authority to do so may be implied from their conduct, and a person may, therefore, in the circumstances of the particular case, bind them by the receipt of premium from the assured, although he has already ceased to be their agent, or is, in fact, for other purposes connected with the insurance, the agent of the assured.
Where an existing policy is renewed, the payment of the premium to the agent through whom the insurance was originally effected, is, as a general rule, and in the absence of circumstances pointing to a contrary conclusion, a good payment to the insurers.
In the case of a new insurance, though the agent may have no authority to bind the insurers, by his acceptance of the premium, to issue a policy, he may have, and usually has, authority to receive payment of the whole or part of the premium on their behalf. If he is supplied with official receipts to be exchanged for premiums or deposits on account of premiums, his authority to receive payment cannot be contested, though the effect of the receipt may vary according to the circumstances. Further, an agent who has authority to issue a cover note, or who has a duly completed policy in his possession to deliver to the assured, has authority to receive payment of the premium. Even though he omits to give a receipt strictly in accordance with the official form, the payment, if duly made, may be good, as against the insurers; and the same principle applies in the case of payment to a sub-agent, who is duly appointed by an agent of the insurers to receive payment on their behalf.
Where the agent has authority to receive payment of premiums on behalf of the insurers, the effect of the payment is the same as if it had been made to the insurers themselves, and the fact that the premiums thus received by the agent have been misappropriated by him, or have not reached the insurers owing to his bankruptcy, affords them no defence against a claim by the assured on the contract.
(b) The form of payment
An agent who is authorized to receive payment of premiums on behalf of the insurers, may be expressly prohibited from accepting payment otherwise than in money, and a payment in another form is, therefore, not binding upon the insurers. An express prohibition is not, however, necessary, since the effect of the form in which the payment is made to the agent will be governed by the ordinary rule that an agent, who is authorized to receive payment on a principal’s behalf, has prima facie authority to receive payment in money only. Unless, therefore, the agent is, in fact, authorized to accept payment in some other form, a payment of premium to bind the insurers must be made to him in money. Authority to receive payment in any other form must be proved by the person alleging payment.
Where payment is made by cheque, the cheque is regarded as mere machinery, and when the cheque is duly honoured, the payment relates back to the date when the cheque was given and is equivalent to a payment in money at that date. If the cheque is dishonoured, there is no payment as against the insurers.
On the other hand, an agreement by the agent to take from the assured in respect of the premium a bill of exchange or promissory note payable at a future date or a post-dated cheque, is not of itself a good payment, since the transcation amounts to a giving of credit, and is, therefore, in excess of the agent’s ordinary authority, which does not extend to giving of credit.
Such a mode of payment may, however, be authorized by the insurers. In this case, there is no payment unless the bill or note or cheque is honoured. If the bill, or note, or cheque is duly paid, the insurers are bound, and it is immaterial that the agent never accounts to them for the proceeds.
The agent may, however, as between himself and the assured, agree to give the assured credit for the amount of the premium and to pay it himself to the insurers on the assured’s behalf. The agent then becomes the agent of the assured for the purpose of paying the premium, and acquires the right after paying it to sue the assured personally for the debt thus created.
In this case a bill of exchange or note given by the assured to the agent is merely given either to be held by the agent as security for the debt or to be discounted for the purpose of raising money to pay the premium. It cannot, therefore, be regarded in any way as a valid payment as against the insurers, since an agreement of this kind does not itself affect the position as between the insurers and the assured, and the insurers are not bound until the premium has been paid to them by their agent.
If the agent, acting in pursuance of the agreement, pays over the amount of the premium to the insurers, that is a good payment as regards the assured.
An agreement by the agent to give credit to the assured and to pay the premiums on his behalf must be strictly proved, the onus of proving it resting upon the assured.
Thus, where the agent has authority to receive payment by bill or note, the fact that the bill or note given to the agent by the assured was made payable to the agent personally, and not to the insurers, as is required by his authority, does not prove that such an agreement has been made. Nor is it any proof of an agreement to the effect that the agent is to discount the bill or note and apply the proceeds in payment of the premium, especially in a case where the amount payable under the bill or note is the exact amount of the premium, without any allowance for discount. The agent must, therefore, be regarded as receiving the bill or note on behalf of the insurers, and in the event of its dishonor they are not precluded from relying upon the non-payment of the premium.
It is equally a good payment where, although no money actually passes, there is a settlement of accounts between the insurers and their agent in which the agent is debited with the premium in question. A settlement of accounts is not, however, necessary; the mere fact that the agent, in accordance with his agreement with the assured, debits himself with the premium in his accounts with the insurers is a sufficient payment.
On the other hand, if there is no agreement between the agent and the assured by which the agent is to become responsible for the premiums, the fact that the agent debits himself with the premium, or is debited with it in the insurers’ books, cannot be regarded as a payment. In such a case, a settlement of accounts with the agent is equally insufficient to bind the insurers; and even an actual payment by the agent cannot be treated by the assured as a valid payment on his behalf, unless it is, in fact, so made, since the dealings between the insurers and their agent cannot affect the position as between the insurers and himself.
Difficult questions may arise when the assured is also the agent of the insurers. If the course of business is that the agent is debited with the premium in the books of the insurers, but there is an agreement for credit and periodical settlement of accounts, the policy takes effect or is renewed on the due date, even if the premium, less commission, has not actually been transmitted to the insurers.
Apart from any such special arrangements, the agent must do some act to show that he holds the amount of the premium as trustee for the insurers, and the mere signing of the renewal receipt is not sufficient evidence of this.
C. RIGHT TO CLAIM A RETURN OF PREMIUM
The right to a return of premium depends on the fact that the risk contemplated is never run, and there is, in consequence, a failure of consideration in that the assured obtains no benefit from the protection for which he has paid. If, therefore, no part of the risk is ever run, the whole of the premium must be returned. The assured may be entitled to a return of part of the premium where there has been a partial failure of consideration. The policy, however, may specify that the premium will not be returned in any event.
The right to claim a return of premium is enforceable by an action for money had and received, and not by an action on the policy. The Court may also, in an action for the cancellation of the policy, order the premium to be returned.
As far as marine insurance is concerned, the Marine Insurance Act 1906, provides by s 82:
‘Where the premium, or a proportionate part thereof, is by this Act, declared to be returnable—
(a) If already paid, it may be recovered by the assured from the insurer; and
(b) If unpaid, it may be retained by the assured or his agent.’
Section 83 further states:
‘Where the policy contains a stipulation for the return of the premium, or a proportionate part thereof, on the happening of a certain event, and that event happens, the premium, or, as the case may be, the proportionate part thereof is thereupon returnable to the assured.’
Section 84(1) enacts:
‘Where the consideration for the payment of the premium totally fails, and there has been no fraud or illegality on the part of the assured or his agents, the premium is thereupon returnable to the assured,’
In addition, s 84(2) states:
‘Where the consideration for the payment of the premium is apportionable and there is a total failure of any apportionable part of the consideration, a proportionate part of the premium is, under the like conditions, thereupon returnable to the assured,’
Finally, s 84(3)(b) provides:
‘Where the subject-matter insured, or part thereof, has never been imperiled, the premium, or, as the case may be, proportionate part thereof, is returnable: Provided that where the subject-matter has been insured “lost or not lost” and has arrived in safety at the time when the contract is concluded the premium is not returnable unless, at such time, the insurer knew of the safe arrival.’
A Right to a return of the whole of the premium
The right to return of premium depends on the fact that the risk contemplated is never run, in consequence, a failure of consideration in that the assured obtains no benefit is from the protection for which he has paid. If, therefore, no part of the risk is ever run, the whole premium where there has been a partial failure of consideration. The policy, however, may specify that the premium will not be returned in any event.
The right to claim a return of premium is enforceable by an action for money has and received, and not by an action on the policy. The Court may also, in an action for the cancellation of the policy, order the premium to be returned.
As far as marine insurance, The Marine Insurance Act 1096, provides by s 82:
‘Where the premium or a porportionate part thereof, is, by this act, declared to be returnable—
(a) If already paid it may be recovered by the assured from the insurer; and
(b) If unpaid, it may be retained by the assured or his agent.’
Section 83 further states:
‘Where the policy contains a stipulation for the return of the premium, or a proportionate part thereof, on the happening of a certain event, and that event happens, the premium, as the case may be, the proportionate part thereof is thereupon returnable to the assured.’
Section 84 (1) enacts:
‘Where the consideration for the payment of the premium totally fails, and there has been no fraud or illegality on the part of the assured or his agents, the premium is thereupon returnable to the assured.’
In addition, s(2) states:
‘Where the consideration for the payment of the premium is apportionable and there is a total failure of any apportionable part of the consideration, a proportionate part of the premium is, under the like conditions, thereupon returnable to the assured.’
Finally, s 84(3)(b) provides:
‘Where the sub-matter insured, or part of, has never been imperiled, the premium, or, as the case may be, a proportionate part thereof, is returnable: Provided that where the subject-matter has been insured “lost or not lost” and has arrived in safety at the time when the contract is concluded the premium is not returnable unless, at such time, the insurer knew of the safe arrival.’
A Right to a return of the whole of the premium
The right to a return of the whole of the premium arises in the following cases where:
1. The parties were never ad idem
This is a general rule applicable to all branches of insurance.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 84 (3)(a), provides:
‘Where the policy is void…the premium is returnable, provided that there has been no fraud or illegality on the part of the assured; but if the risk is not apportionable, and has once attached, the premium is not returnable.’
2. The policy, which has been issued by the company, was ultra vires the company
3. The policy is illegal
Where the policy is illegal, the illegality of the policy cannot be relied on by the insurers, if the facts of the case show the assured was not pari delicto with them, as, for instance, where the assured is induced to enter into an illegal contract by a fraudulent representation as to the legality of the contract made by their agent.
As agent employed to conduct negotiations for policies on behalf of insurers is not, however, an expert in insurance law, and is under no greater obligation to know the law than the person with whom he is dealing. An innocent misrepresentation by him as to the legality of the contract will not, therefore, entitle the assured to a return of premium.
As far as marine insurance is concerned, s 84(1) of the Marine Insurance Act 1906, provides that:
‘Where the consideration for the payment of the premium totally fails, and there has been no…illegality on the part of the assured or his agents, the premium is thereupon returnable to the assured,’
4. The policy has been avoided on the ground of innocent misrepresentation or non-disclosure by the assured
The assured may have been guilty of innocent misrepresentation or non-disclosure in consequence of which the policy is avoided as from its inception by the insurers. In this case the policy is voidable at the election of the insurers, and if they elect to avoid it, they must return the premium on the ground that the consideration for which it was paid has failed.
As far as marine insurance is concerned, s 84(3)(a) of the Marine Insurance Act 1906, provides:
‘Where the policy is …avoided by the insurer as from the commencement of the risk, the premium is returnable, provided that there has been no fraud or illegality on the part of the assured; but if the risk is not apportionable, and has once attached, the premium is not returnable.’
5. There has been fraud or breach of good faith on the part of the insurers
There may have been fraud or breach of good faith on the part of the insurers, in consequence of which the assured has been induced to enter into a contract different from that which he intended make, or the policy is otherwise rendered worthless to the assured.
6. The subject-matter has already been destroyed
But where the policy is intended to be retrospective, it is immaterial that the risk had already ceased at the time when the policy was made, and there is no right to a return of premium.
7. The subject-matter is incapable of identification
Then may occur where the assured has no property answering the description of the subject-matter contained in the policy, or where the contract is otherwise void for uncertainty.
8. The assured has no insurable interest in the subject-matter
This is a principle which applies to all branches of insurance, but as far as marine insurance is concerned, the Marine Insurance Act 1906, s 84(3)(c), states:
‘Where the assured has no insurable interest throughout the currency of the risk, the premium is returnable, provided that this rule does not apply to a policy effected by way of gaming or wagering.’
B. Right to a return of part of the premium
In certain cases the assured may be entitled to a return of part of the premium. This may occur:
1. Where there has been over-insurance;
2. Where there is an express term to that effect the policy; and
3. Where the company goes into liquidation.
1. Where there has been over-insurance
Where the assured is insured for an amount in excess of the sum which he can by any possibility recover in the event of the total destruction of the subject-matter of insurance, and has paid a premium in proportion, it is clear that some portion of the premium is paid without consideration, since the insurers can never become liable to pay the full amount of the insurance. So long, therefore, as the assured has acted honestly in fixing the amount for which he has insured, it seems that he is entitled to a return of the portion of the premium in excess of the actual consideration.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 84(3)(e), states:
‘Where the assured has over-insured under an unvalued policy, a proportionate part the premium is returnable.’
The same principle applies to liability insurance where the amount of premium depends on the amount of wages paid or number of vehicles used by the assured during the period of insurance. If the premium is paid on a larger amount of wages or a greater number of vehicles than are actually paid or used, there is an over-insurance, and there must be a return of part of the premium accordingly.
Where the over-insurance is occasioned by double insurance, the assured appears equally to be entitled to a return of premium subject to the following rules:
(a) Where the different policies are all effected on the same day
In this case they are to be treated for this purpose as one insurance, and any return of premium is to be made rateably by the insurers upon all the policies in proportion to the amounts which they have respectively undertaken to pay.
(b) Where the policies have been effected on different dates
In this case, although any loss falling within their scope will have to be borne rateably by all the insurers, irrespective of the date of their respective policies, a return of premium is only to be made by those insurers by whose policies an over-insurance is constituded. The insurers upon the prior policy or policies would have been liable, in the event of a loss happening before the over-insurance arose, to pay the full amount covered by them, and as, therefore, in their case there is no failure of consideration, no return of premium can be claimed against them.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 84(3)(f), states:
‘Where the assured has over-insured by double insurance, a proportionate part of the several premiums is returnable:
Provided that, if the policies are effected at different times, and any earlier policy has at any time borne the entire risk, or if a claim has been paid on the policy in respect of the full sum insured thereby, no premium is returnable in respect of that policy, and when the double insurance is effected knowingly by the assured, no premium is returnable.’
The question is not likely to arise in connection with fire insurance except in the case of an insurance upon a particular subject-matter. Where the insurance is upon a class of objects, the fact that at the time of the loss the value of the objects at risk was less than the sum or sums insured, apparently gives no right to a return of premium, since the assured is entitled at any time to secure the full benefit of the insurance by bringing objects of sufficient value within its scope, and the insurers have, therefore, run the risk of him so doing.
2. Where there is an express term in the policy
The policy frequently contains a stipulation providing for a return of part of the premium on the happening of a specified event. The events usually specified are:
(a) The determination of the policy
The insurers may reserve to themselves the right of putting an end to the policy, or the assured may be given the right to surrender it at any time upon notice. In these cases the stipulation provides for the return of a part of the premium proportionate to the unexpired part of the period of insurance. It is immaterial whether the risk has or has not attached.
(b) The performance of a condition
The insurers may bind themselves to return part of the premium on the performance of a condition subsequent, the amount of premium to be returned being fixed by the stipulation.
Thus, the policy may provide that 10 per cent of the premium is to be returned on the expiration of the policy, if the assured has made no claim under it during its currency or that, if during the currency of the policy the risk is diminished, a portion of the premium, to be fixed by the insurers, is to be returned. The right of the assured to the stipulated return is not affected by the happening of a loss under the policy, so long as the condition is, in fact, performed.
3. Where the company goes into liquidation
Where the policy is prematurely determined by the insurers, being a company, going into liquidation during the period of insurance, the assured is entitled to prove for the value of the policy at the date of the liquidation, and thus, in effect, may become entitled to a partial return of premium.
In the case of an insurance company to which the Insurance Companies Act 1982 applies, the amount of any liability of the company must be determined by the valuation regulations made under the Act.
In all other cases the rules applicable to the valuation of contingent claims in a liquidation apply, and a just estimate must be made, so far as is possible of the value of the policy. There appears to be no reason in principle why the value of a current policy, if no loss happens during the liquidation, should not be estimated on the basis of partial return of premium proportionate to the unexpired portion of the risk, and it is submitted that a valuation on this basis is correct. Where, however, a loss happens during the liquidation, the basis of valuation is modified, and the assured is entitled to prove for the amount of the loss.
D. WHERE THERE IS NO RIGHT TO A RETURN OF PREMIUM
The fact that the assured is unable to enforce his policy against the insurers and thus loses the benefit of the protection for which he has paid not, except in the cases specified above, entitle him to a return of premium. In particular, there is no return of premium in the following cases:
1 Where there has been no failure of consideration.
2 Where though there is a failure of consideration, the failure is attributable to the conduct of the assured
3 Where there is an express condition in the policy that the premium is to be forfeited on the happening of a specified event or events.
1. Where there is no failure of consideration
The assured is precluded from claiming a return of premium where there has been no failure of consideration. If on the face of the policy the risk has once attached, and the insurers have become liable to the assured to pay in the event of loss, the consideration for which the premium is paid is performed. The assured cannot, therefore, claim a return of premium as on a failure of consideration, although the policy for some reason or another becomes void or exhausted after the risk has attached.
Thus, if the property insured is destroyed on the very day after the commencement of the policy by a cause for which the insurers have not undertaken to be answerable, such as for instance, by an excepted peril, the assured cannot recover any portion of the premium, although the insurers are by the destruction of the property discharged from any further liability in respect of it.
The same principle applies where the assured does any act which determines the policy prematurely, as, for instance, by breaking a condition subsequent. Nor he is entitled to a return of premium when the insurers after they have indemnified him, have, in the exercise of their right of subrogation, succeeded in recovering the amount paid by them from the person responsible for the loss.
If, however, the contract is not entire and the premium is capable of being apportioned between different risks, some of which are never run, the assured may claim a return of that portion of the premium which is referable to the risks never run.
2. Failure of consideration attributable to the conduct of the assured
Where there has been a total failure of consideration, the assured may be precluded by his conduct or by the terms of his policy from claiming a return of premium. This takes place in the following cases:
(a) Where the assured has been guilty of fraud
This principle applies to all branches of insurance.
As far as marine insurance is concerned, the Marine Insurance Act 1906, s 84(1), (2), states that neither the whole nor any part of the premium is returnable where the assured or his agent has been guilty of fraud.
(b) Where the contract is illegal
A contract is illegal where, for instance, it is by way of gaming and wagering. As far as marine insurance is concerned, s 84(1), (2) the Marine Insurance Act 1906, states that neither the whole or any part of the premium is returnable where there has been illegality on the part of the assured or his agents.
Until the risk has attached, the assured has a locus poenitentiae; as long as he rescinds illegal contract before any steps have been taken to carry it out, he may claim a return of premium.
If, however, the risk has once attached, the assured has no longer a locus poenitentiae. He cannot rescind the contract and claim a return of premium on the ground that no steps have been taken to carry it out, since the illegal contract comes into operation on the attaching of the risk.
Notwithstanding the attaching of the risk, however, he does not forfeit his right to return of premium unless it is clear that he is in pari delicto with the insurers. If he was fraudulently induced by them into believing that the contract was legal, the fact that the contract is illegal will not prevent him from obtaining a return of premium. Similarly, where the only contract between the parties is not on the face of it illegal, and the assured never intended to enter into a contract in violation of the law, the contract actually entered into may turn out to be illegal; but the assured will be entitled by reason of his bona fides to return of premium. Thus, he may have insured in the bona fide belief that he had an interest, or in the honest expectation that he would acquire an interest before loss; and, although, in the absence of an interest, he cannot recover on the policy, he is not prevented from recovering the premium.
3. Express condition in the policy
The policy may contain a stipulation defining the cases in which there is to be no return of premium. The effect of the stipulation may be to deprive the assured in certain cases of the right, which, but for the stipulation, he would have had, to claim a return of premium.
Thus, a stipulation avoiding the policy in the event of any statement in the proposal being untrue or in the event of a subsequent alteration of the risk may further provide for forfeiture of any premium paid. Under such a stipulation, it is immaterial that the assured made the mis-statement innocently or that the risk was altered in ignorance or forgetfulness of the stipulation. It is equally immaterial that the premium was paid after the act causing the forfeiture had been had been committed and whilst the assured was unaware of its effect.
Further a motor insurance policy may provide that in the event of a total loss of the vehicle no part of the premium will be returned.
A stipulation under which the premium is forfeited is strictly construed; in particular, it must be clear that the assured as well as the insurers agreed to be bound by it.