Premium Payment Warranty (LSW3000/3001)
The premium payment warranty requires the policyholder or cedent to pay the premium within a fixed period; if the deadline is missed the contract can terminate automatically or be cancelled by the insurer.
- Clause type
- Warranty
- Origin/Market
- London Market (LMA/NMA/Lloyd’s)
- Favours
- Insurer
- Negotiability
- Market standard
Standard wordings
- LSW3000
- LSW3001
Purpose
In the London market, premium is often collected via a broker with a time lag rather than at inception. The premium payment warranty (LSW3000 for direct, LSW3001 for reinsurance contracts) secures the insurer a binding payment deadline, usually 30 to 45 days from inception, and makes compliance with that deadline a condition of the contract’s validity (a “warranty”) rather than a mere ancillary duty.
Effect and limits
If premium is not paid on time, the contract does not lapse immediately; instead the insurer gains the right to cancel it after a further notice period stated in the clause (commonly 15 days), and if payment is made within that grace period the cancellation is treated as revoked. On cancellation, premium remains due pro rata for the period the insurer was on risk, and a loss that otherwise would have been covered and occurred before the deadline generally remains insured.
Negotiation and practice
Programme leaders and cedents should design internal payment processes so that deadlines are met even where payment flows through several tiers via a broker, since a warranty — unlike an ordinary contractual duty — is construed strictly. For instalment premiums, it must be checked whether each instalment is separately subject to the warranty or only the first payment.