Termination After a Claim

Purpose

After a claim, the interests of either party may change: the insurer may want to re-assess an increased future risk, while the policyholder may wish to switch providers if dissatisfied with claims handling. The clause therefore creates a special, time-limited right of termination independent of the ordinary renewal date, tied to the occurrence or completion of claims settlement.

Effect and limits

The right of termination is usually tightly time-limited – typically a few weeks after the loss or after the conclusion of settlement negotiations – and must be exercised expressly within that period or it lapses. Where the insurer exercises the right, liability usually ends only after a short further notice period so the policyholder can arrange replacement cover; where the policyholder exercises it, the insurer often retains a pro-rata premium claim.

Negotiation and practice

In commercial insurance, brokers frequently negotiate a restriction or complete waiver of the insurer’s right of termination, to prevent a customer losing cover after a large but non-risk-increasing loss. Insurers, conversely, use the right selectively for customers with a conspicuous claims frequency or indications of a lasting deterioration in risk.

Jurisdictional comparison

Switzerland ties the right of rescission in Art. 42 VVG to a partial loss and lets liability end only 14 days after notice of termination is given. Germany grants both parties a right of termination under Section 92 VVG, which the insurer must exercise within one month of concluding settlement negotiations, subject to its own one-month notice period. Austria regulates a comparable right in Section 96 VersVG with its own, shorter deadlines and differing exceptions for individual lines such as hail insurance.