A US insurer agreed that it would not “cancel nor non-renew this policy except for the reasons stated”. None of the reasons applied. The insurer was therefore bound to offer renewal terms that were a recognisable extension of the initial policy but was entitled to a reasonable change in premium.
Indian Habor Insurance insured F&M Equipment Ltd under a ten year Pollution and Remediation Legal Liability Policy with an undertaking to renew unless there had been a material misrepresentation, material breach, failure to comply with the policy, a material change in operations or a loss of reinsurance, none of which occurred. At the end of the ten year period the insurers offered to renew the policy for five years but excluded the costs of a pollution clean-up that had formed the only claim under the original policy.
It is rare and unwise for an insurer to give an open-ended undertaking to renew on the same terms for a lengthy or unrestricted period.
A US three-judge panel unanimously held that dramatically altering the length, amount and scope of the coverage was not a proper offer to renew. The court held that the obligation was not satisfied by offering a renewal that the insured was bound to decline. Renewal need not be identical to the original policy but a pre-agreed renewal requires continuation of coverage on the same or nearly the same terms as the policy being renewed subject to a reasonable premium.
Even in the USA the case law on this subject is quite thin. There is little law regarding renewal obligations. It is rare and unwise for an insurer to give an open-ended undertaking to renew on the same terms for a lengthy or unrestricted period.