In a June 2021 judgment, the Supreme Court of Appeal held that the 30 day grace period for an unpaid premium in a life policy does not apply where the cancellation of the policy is a result of a repudiation by the insured herself. The grace period only applies where the non-payment of the premium is not in all the circumstances a repudiation of the policy.
The relevant insurer in responding to the request to cancel the policy advised the insured that a notice period of 30 calendar days applied to cancellations.
Despite that requirement, the insured instructed her bank to stop payment of the debit order in respect of the premium due for the last month of the policy. When the insurer submitted the monthly debit order to the bank for payment the order was returned unpaid with the remark “payment stopped by account holder”. In consequence of the non-payment the insured was informed that the policy had been cancelled from the beginning of the month of default being 1 September 2018.
The insured died on 22 September 2018 in rather bizarre circumstances by gas poisoning at a tourist resort.
Subsequent to the death, on 27 September 2018 on the advice of the insured’s erstwhile broker, the month’s premium was paid for September by the executor of the insured’s estate without mentioning the death. The insurer communicated with the claimant in respect of their reinstatement requirements requiring a fully completed signed declaration of heath by all lives insured. There was no response to that communication.
A claim was subsequently submitted under the policy with the insurer. The claim was rejected because premium for the month in which the death had occurred had not been paid and the insured had been notified, in a number of ways (including an sms to her cellphone number) that the policy had been cancelled with effect from 1 September 2018.
The executor argued that the insurer was required to meet the claim because the insurer failed to notify the insured of the unpaid premium and before cancelling the policy should have afforded the insured a 30 day grace period to make the payment, and the premium was paid within the 30 day grace period.
The insurer argued that the grace period provisions did not serve to extend the policy against the wishes of the insured after the policy had been cancelled and did not preclude the insurer from cancelling the policy immediately in the event of a repudiation. When the bank message was received that the payment had been stopped it was clear to the insurer that the insured did not intend to comply with their contractual obligations under the policy. In the light of the insured’s repudiation of the contract the insurer had elected to cancel it and had communicated its decision accordingly to the insured.
The appeal court found that the insured’s conduct in instructing the bank not to pay the premium could be interpreted in no other way than that she no longer wished to remain bound by the terms of the policy and that she had no intention of honouring the terms of the policy which required her to give a month’s notice. The court accepted that the insured had deliberately repudiated the policy.
The test for repudiation is objective and not subjective: what would someone in the position of an innocent party think she intended to do? Repudiation is not a matter of intention but of perception of the reasonable person placed in the position of the aggrieved party.
The insured had been informed by the insurer at least twice that she was contractually bound to give 30 days’ notice to cancel the policy. She was a professional woman assisted by a financial broker. In those circumstances the court had no doubt that the insured knew of the terms of her policy. And she must have known what the consequences of instructing her bank to stop payment of the premium would be.
The insured had made it clear that she wanted to move her policy to another insurer as they had offered her something better.
She clearly had no intention of paying two insurance premiums in September. Accordingly the insurer was perfectly entitled to accept the repudiation and cancel the policy immediately. The situation did not arise where there were insufficient funds in the insured’s account or if the bank had made an error in respect of non-payment of her debit order. In the circumstances there was no obligation on the insurer to advise the insured of the unpaid debit order or to afford her 30 days within which to pay the arrear premium.
Grace period provisions cannot exclude reliance on repudiation or even a mutual agreement by the parties to cancel the policy. The Policyholder Protection Rules do not assist an insured in these circumstances. The same principles will apply to non-life policies.