On the expiration of the period of insurance, the policy comes to an end and the liability of the insurers ceases except in respect of claims which have already arisen. The parties may, however, renew the policy the policy by mutual consent. As a general rule, renewal is contemplated by the language of the policy and is provided for by special stipulation. The renewal is usually effected by means of a renewal receipt, given in exchange for the renewal premium; but a fresh policy may be issued.
A. STIPULATIONS AS TO RENEWAL
A stipulation as to renewal may be framed in three different ways:
1. A stipulation may make the policy renewable if both parties so desire.
2 The stipulation may make it renewable at the option of the assured.
3 The stipulation may bind both parties to renew it unless either party notifies the other that he does not intend to renew it.
1. Where the policy is renewable by mutual consent
The assured, by tendering the renewal premium, in the first instance makes an offer to renew the policy, which the insurers may accept or decline at pleasure; they cannot, therefore, be compelled to accept the renewal premium when tendered.
If, on the other hand, the insurers invite the assured to renew the policy by sending him a renewal notice, the offer to renew the policy proceeds from them, and his acceptance is signified by payment of the renewal premium. In this case they are bound to accept the renewal premium when tendered. But if the insurers offer to renew the policy at an increased premium, which the assured refuses to pay, a subsequent tender of the increased premium is inoperative, even though made during the days of grace.
Unless the terms of the stipulation so provide, it is unnecessary for the insurers to give notice to the assured that they do not intend to renew it. Their failure to do so does not preclude them from denying that they have renewed the policy.
2. Where the policy is renewable at the option of the assured
The stipulation may make the policy renewable at the option of the assured. His right to claim a renewal may be absolute, in which case the policy must be renewed, if he so desires, or it may, by the terms of the stipulation, be liable to be defeated if, before it is exercised, the insurers have given notice of their intention to determine the policy at the expiration of the current period. In the latter case the stipulation amounts to a standing offer by the insurers to renew the policy, and the assured may accept it at any time before he has received notice of its withdrawal. On complying with the terms of the policy as to renewal, therefore, he is entitled to insist on his policy being renewed, and the insurers cannot decline to renew it unless they have first given notice of their intention not to do so.
3. Where both parties must renew the policy in the absence of notice
The stipulation may provide that the policy is to continue in force for a further period unless prior to the expiration of the first period notice has been given by either party to determine it. If, therefore, no such notice is given, the policy continues in force as a matter of course. Without any act of assent on the part of either, the assured becomes liable to pay a further premium or premiums, whilst the insurers become liable in their turn to make good any loss happening during the second or any renewed period.
A stipulation as to renewed contained in the original policy is not necessarily incorporated into the renewed policy, so as to make that policy in its turn renewable upon its expiration. Whether the renewed policy is itself renewable or not depends on the language of the stipulation.
B. THE PRACTICE AS TO RENEWAL
In practice, the insurers, shortly before the expiration of the policy in force, send to the assured ‘renewal notice’, intimating that the renewal premium is about to fall due. The sending of this notice to the assured amounts to an offer by the insurers to renew the policy, on the footing of the original proposal or any variation of the terms indicated in the renewal notice, such as an increased premium. The assured is usually required to intimate his acceptance of this offer by paying the premium for the renewed period, and unless and until he does so, the renewal does not take effect. If, however, he expressly declines the offer to renew his policy, a subsequent tender of the premium will not, of itself, renew it.
Where the insurers have taken no steps in the matter, the assured may tender the premium or otherwise intimate his willingness to renew the policy. In this case the offer to renew the policy comes from him, and the insurers may accept or decline it, as they think fit.
On paying the premium the assured usually receives a renewal receipt on which he is entitled to rely as showing that the policy has been duly renewed. When the payment is made to an agent on the ‘insurers’ behalf, the binding effect of the payment depends on the authority of the agent to receive it. If, however, the payment is otherwise good, the insurers cannot repudiate liability on the ground of a mere informality in the form of receipt actually given by the agent.
Statement by BIA and Lloyd’s
In 1977 The British Insurance Association and Lloyd’s drew up a statement of non-life insurance practice which they recommended to their members. The statement applies only to non-life policyholders domiciled in the United Kingdom and insured in their private capacity only, and, as far as the renewal of a policy is concerned, provides:
‘Renewal notices should contain a warning about the duty of disclosure including the necessity to advise changes affecting the policy which have occurred since inception or last renewal date, whichever was the later.’
C. THE EFFECT OF RENEWAL
Whether the renewal of a policy is a continuation of the original contract or the making of a new contract is a question of importance in view of its effect on the duty of disclosure and the operation of conditions subsequent.
1. The situations to be considered
The effect of a renewal appears to depend on the manner in which renewal is dealt with by the policy. Three situations may arise:
a. Where the policy provides for its continuation by renewal unless a particular event takes place.
b. Where the policy stipulates that it is not to continue unless renewed by mutual consent.
c. Where the policy is silent on the question of renewal.
(a) Provision for renewal unless particular event takes place
Where the policy (e g the ordinary form of life policy) expressly provides for its continuation by renewal beyond the specified period of insurance, unless a particular event, such as the giving of notice or the non-payment of the premium takes place, the renewal is a continuation of the original contract. The contract comes to an end on the happening of the specified event. But, until it happens, the contract continues in full operation, the insurers being bound to accept the renewal premium, if tendered, at the original rate.
The first issue of the policy is the completion of the contract and the duty of disclosure is exhausted once and for all. Facts which were not then material need not be disclosed afterwards, if they should become material, and the insurers cannot refuse to renew the policy on the ground that, owing to a change of circumstances, the risk has been greatly increased.
On the other hand, any breach of duty during the original negotiations renders the policy liable to be avoided, however often it may have been renewed, Similarly, the breach of a condition subsequent avoids the policy once and for all, and not merely during the current period of insurance. The period of insurance does not, in fact, affect the duration of the policy; it merely fixes the basis on which the premium is calculated and the time when it is to be paid. The insurers may, however by accepting a renewal premium with knowledge of a breach of duty or breach of condition, preclude themselves from denying that the policy continues in force.
(b) Where the policy is not to continue unless renewed by mutual consent
Where the policy expressly stipulates that it is not to continue in force beyond the period of insurance, unless renewed by mutual consent, the renewal appears to be equivalent to the making of a new contract.
The insurers, being at liberty to renew the policy or not at pleasure, are not bound to accept the premium, when tendered; they may refuse it altogether, or they may make their consent to the renewal conditional on an increased premium being paid, or on the terms of the contract being otherwise varied.
Moreover, the duty of disclosure reattaches so far as the facts to be disclosed are material. All representations, therefore, made at the inception are deemed to be repeated on the renewal unless corrected. Hence, any material facts which were not disclosed or were misrepresented during the original negotiations, must, if they are still material, be fully disclosed or accurately stated, as the case may be, before renewal; any facts which have become material during the current period of insurance must also be disclosed. On the other hand, the fact that the original policy was or became void because of a breach of duty or a breach of condition does not, it is submitted, affect the validity of the renewed policy, if the cause of avoidance has ceased to operate before the renewal. Thus, an inaccurate answer to a question relating to ‘other insurance’ may affect the validity of the original policy; but if, before renewal, the other insurance has been allowed to lapse, there is no misrepresentation or breach of condition so far as the renewal is concerned, and the renewed policy is, therefore, it is submitted, valid.
(c) Where the policy is silent on the question of renewal
Where the policy is silent on the question of renewal, any renewal is probably a new contract. The duty of disclosure is the same when the insured is applying for a renewal as it is when he is applying for the original policy.
2. Some express terms as to whether renewal is a new contract
There has been considerable difference of opinion whether the renewal of a policy by mutual consent is a continuation of the original contract or the making of a new contract. Many policies have been drafted on the assumption the renewal is a mere continuation, and consequently, express stipulations have been inserted to assimilate the rights of the insurers on renewal to what their rights would be on the making of a new contract.
Thus, the policy may expressly provide that the insurers are not bound to renew the policy, that the period of the renewed insurance is to be subject of agreement, that the premium may be increased, that the assured is to apply for renewal upon a fresh proposal form or give notice of any fresh material facts, or that the policy is to be void if its continuation is procured by fraud or misrepresentation.
If the view that renewal in this case is a new contract is correct, these stipulations are unnecessary.
D. DAYS OF GRACE
A policy which requires renewal ought, strictly speaking, to be renewed at or before the expiration of the current period of insurance, since, at the expiration of the period, the policy lapses and the assured ceases to be covered. The policy or renewal notice frequently contains a stipulation enabling the assured to renew the policy, after its expiration, on payment of the premium during a further period, known as ‘days of grace’. In absence of such a stipulation, the assured is not entitled to days of grace; and the policy may contain an express stipulation requiring the renewal premium to be paid before the expiration of the policy.
1. The classes of stipulation
Days of grace only become important in the event of a loss happening during the days of grace and before the premium has been paid. The rights of the parties in this case vary according to the form of stipulation used. The following classes of stipulation may be distinguished:
a. Stipulations under which the insurers are liable for any loss happening during the days of grace, notwithstanding the non-payment of the premium before the loss.
b. Stipulations under which the insurers are not liable for any loss happening before the renewal premium is paid.
(a) Where the insurers are liable even though the premium has not been paid before the loss
The insurers will be liable where the stipulation, in effect, extends the original period of insurance by the days of grace. In this case there is, strictly speaking, no question of renewal, since the loss is covered by the original policy, and it is, therefore, immaterial whether the renewal premium has been paid or not.
A stipulation in the policy may provide that the insurers are to be liable if the premium is paid before the days of grace expire. A stipulation in this form does not extend the original period of insurance, or preclude the insurers from giving notice that they do not intend to renew unless an increased premium is paid. If, therefore, the assured has declined to pay the increased premium or has otherwise indicated his intention not to renew the policy, the stipulation has no effect and the insurers are not liable, there being no policy in existence at the time of the loss.
Where however, the parties have done nothing to determine the policy, payment of the premium at any time during the days of grace is equivalent to payment on the day when it fell due; there is, therefore, a subsisting policy at the date of the loss. Moreover, the insurers cannot, after the loss, decline to accept the premium if tendered, since to allow them to refuse it would render the stipulation of little effect.
If the stipulation contemplates a payment by the assured personally, a tender by his personal representatives during the days of grace does not renew the policy. Thus, under a personal accident policy containing a stipulation to this effect, the insurers are not liable where the assured, during the days of grace, sustains an accident within the meaning of the policy, from which he dies, although his executors afterwards, before the days of grace expire, tender the renewal premium.
(b) Where the insurers are not liable for any loss happening before the renewal premium is paid
The insurers may repudiate liability on this ground where the stipulation gives the insurers an option, exercisable at any time, to accept or decline the renewal. Hence, if they refuse to accept the premium there is no policy in existence under which they can be held liable, and there is nothing in the language of the stipulation to preclude them from refusing to accept the premium after loss.
Sometimes the stipulation expressly provides that they are not to be liable for any loss happening before the renewal premium is paid.