Change in Law Clause
The change in law clause governs how contract terms and continuation are affected if new legislation or regulation enacted after inception materially changes the insured risk or the basis of the contract.
- Clause type
- Condition
- Origin/Market
- Reinsurance market
- Favours
- Neutral
- Negotiability
- Negotiable
Purpose
Reinsurance treaties price risk and premium based on the legal position in force at inception. If that position changes materially – for example through new bases of liability, altered coverage mandates or regulatory intervention – the original pricing may no longer hold. The change in law clause creates a mechanism for dealing with such subsequent legal changes.
Effect and limits
Depending on the wording, a material change in law triggers a duty to renegotiate, a special right of termination, or an automatic adjustment of premium and terms. The clause applies only to changes that materially affect the insured risk or the basis of the contract – not to every minor regulatory adjustment.
Negotiation and practice
Key points are the definition of the materiality threshold and whether the clause applies retrospectively to losses already incurred but not yet settled. In lines with high regulatory dynamism (environmental, cyber, financial market regulation), the clause has particular practical relevance.