Where
an insurance policy provides for automatic reinstatement of cover following
loss then cover does continue without a break.
If an insurance company subsequently gives notice cancelling cover, it
must pay for any losses arising in the interim prior to cancellation.
The Court of Appeal
has definitively settled the effect of automatic reinstatement clauses in
insurance contracts. Operation of these clauses was at issue after
successive earthquakes in Christchurch during 2010 and 2011. Insurance companies argued they had an
unspecified time within which to decide whether there had been “automatic”
reinstatement of cover and that they could retrospectively cancel cover after a
later earthquake had caused further loss to insured buildings.
The Court of Appeal
ruling followed consolidated appeals by three different insurance companies:
QBE Insurance, Vero Insurance and Lloyds.
The Court ruled that
where there is an “automatic reinstatement” clause, cover resumes immediately
following an insured loss. Where cover
is subsequently cancelled, notice of cancellation operates prospectively, not
retrospectively. A further or increased
premium can be levied following automatic reinstatement.
QBE
Insurance v. Wild South – Court of Appeal (10.09.14)
14.038