Cancellation Clause
The cancellation clause governs the periods, form and grounds under which an insurer or policyholder may terminate an international policy early, usually with tiered periods for ordinary and extraordinary cancellation.
- Clause type
- Termination
- Origin/Market
- International programme
- Favours
- Neutral
- Negotiability
- Negotiable
Purpose
The cancellation clause sets out the conditions under which an international policy can be terminated before the agreed expiry date. It typically distinguishes between ordinary cancellation without specific cause, which requires a longer notice period, and extraordinary cancellation for good cause — such as non-payment of premium, exposure to sanctions, or a material change in risk — which allows shorter notice.
Effect and limits
In international programmes it must be noted that cancelling the master policy does not automatically terminate the locally admitted policies, since these are independent contracts governed by local law; local minimum notice periods and approval requirements can override the master policy’s stated periods. Some jurisdictions also require a stated reason or notification to a supervisory authority before cancellation becomes effective.
Negotiation and practice
When structuring a programme, cancellation periods for the master and local policies should be synchronised to avoid a gap in continuous cover. For non-payment of premium, alignment with a separate premium payment warranty is important, since the two mechanisms can carry different legal consequences and timeframes.