Canceling a contractor insurance policy - when and how is it possible?
Oct 24, 2018
Question:
A lawyer representing an insurance agent contacted us regarding an insurance company's refusal to cancel a contractors' work insurance policy. Is the insurance company entitled to refuse cancellation? What options does the insured have to cancel a contractors' policy?
Answer:
A contractors' work insurance policy is an insurance policy that the insurance company may only cancel in limited and specific circumstances. The policy clauses relating to policy cancellation in the general terms of the "Bit" 2013 policy (the most common in the market among most insurance companies) concern cancellation by the insurance company. These are limited clauses that grant the insurance company the option to cancel only for non-payment (subject to prior notice as customary) or fraud - only. However, regarding cancellation by the insured, the policy does not address this matter. Therefore, if the client wishes to cancel contractors' work insurance on their own initiative, there are two optional approaches they can take. It is important to be familiar with both approaches, as an uncontrolled cancellation request (when the agent is not well-versed in the material) may yield a negative response.
Cancellation of contractors' work insurance based on reduction in project value The basis for insurance in the contractors' policy is the project value. An insured who has performed only part of the work and has left the project can approach the insurance company with a request to reduce the insurance amount according to the value of the work actually performed, and request to cancel the policy from the date of cessation of work by them. In such a situation, I do not see grounds for the insurance company to refuse.
It is important to remember that since some portion of the work has been performed (even if its financial scope is small) - the insurance company has the right to receive an appropriate premium, including for its expenses, as well as the proportional part of the premium for the value of the work performed and/or in combination and taking into account the period of its exposure. In such a case, the insurance company may charge according to "short period."
If the insured has not taken possession of the site or begun any work, they may request cancellation from inception. In such a case, I see no justified grounds for refusal. However, the insurer may reasonably be entitled to deduct from the full premium refund any expenses incurred for activities authorized in advance by the insured. For example, this could include a risk survey carried out after the insured expressly approved the quotation and issuance of the policy.
It is important to remember, however, that while property coverage under a Contractors’ All Risks policy begins immediately after property is unloaded at the site, third party liability coverage and employers’ liability coverage begin on the date specified in the policy schedule. In other words, if the insured authorized the policy to take effect, the insurer’s liability began on that date, even if the insured feels they have not used the insurance because work has not yet started. This sometimes explains insurers’ insistence on the matter.
One final point: if the Contractors’ All Risks policy contains a clause protecting a secured party’s interest, a prior notice requirement, or a provision allowing cancellation only with the approval of a secured party or the client, cancellation will take effect only after the relevant approval has been obtained and/or the applicable notice period has expired.
"Cancellation begins"
If the insured has not entered the land and has not begun work at all, he can demand cancellation from the beginning. Even in such a case, I do not see any justified grounds for refusal. However, it is reasonable to assume that the insurance company will be entitled to deduct from the full premium refund amounts its expenses for actions that were approved in advance by the insured. For example - conducting a survey, if it was carried out after the insured's express approval of the price quote and the issuance of the policy.
However, it is important to remember that while the insurance commencement date in the contractor's policy for the property section is immediately after all property has been unloaded from the site, the insurance commencement date for third-party and employers' liability sections is the date specified in the list. That is, if the insured has approved the activation of the insurance - the insurance company's liability began from the specified commencement date, even if the insured "feels" that he has not taken advantage of the insurance at all because he has not yet started work. This is sometimes the explanation for the insurance companies' insistence on this matter.
A final note in conclusion - if a contractor's work insurance policy contains a lien clause and/or an advance notice clause, or a clause that prevents cancellation except upon approval by the lienholder or the person commissioning the work - then the cancellation will only take effect after approval by the lienholder or the person commissioning the work (as the case may be) and/or the expiration of the appropriate period for the advance notice.
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