An insurer's failure to notify of the expiration of contracts of general insurance

Generally, insurers will notify their insured policyholders in advance regarding the expiration of a contract of insurance.  However, what happens on those occasions when the insurer fails to notify an insured of the expiration of the insurance contract, or notifies the insured at the last minute?  Section 58 of the Insurance Contracts Act 1984 ("ICA") helps shed some light on the matter. 

Section 58 of the ICA applies to general insurance contracts that are "renewable".  In the ICA, renewable insurance means insurance cover that is:

  1. provided for a particular period of time; and
  2. of a kind that it is usual to renew or for the renewal of which it is usual to negotiate.  

The ICA provides that the insurer must give the insured notice of the expiration of the policy not later than 14 days before the day on which the policy expires.  The notice must include the day and time the policy expires and whether the insurer is willing to negotiate to renew or extend cover. 

If the insurer does not comply with this obligation, i.e. does not give the insured at least 14 days notice of the expiration of the policy, and the insured has not obtained some other replacement insurance, the insurance contract will automatically renew on the same terms for the same period of cover.  This section of the ICA is extremely beneficial for policyholders.  Practically, this means that the insurer will be prevented from changing the policy, for example, increasing the premium or adding additional exclusions. 

Section 58 also provides, if the insurer is late notifying the insured of the expiration of the policy, the insured is not required to pay the premium unless a claim is made.  If a claim is made for a total loss of property, the insured must pay to the insurer the full premium payable under the policy.  If the claim is not for a total loss of property, the premium that the insured must pay to the insurer is a proportionate value of the premium based on the time the claim is made in the policy.  For example, if the claim is made half way through the policy and is not a total loss, only half the premium will be payable. 

Section 58 of the ICA has significant consequences for both insurers and insureds.  An insured may potentially obtain what is essentially a free policy of insurance.  One of the main purposes of section 58 is to prevent a situation whereby an insured is left without insurance because they were not aware that the policy had, or was due to, expire.  The provision that the insured is not required to pay a premium on the automatically renewed policy is to prevent the insurer from later denying cover due to the insured not paying the premium.  The public policy consideration behind this is that the insured would not have been aware that the premium was due to be paid. 

The consequences of relying on section 58 of the ICA are extensive.  If the insurer has actually made an adequate notification within the required time period, an insured may be rendered potentially without insurance.  Insureds should use caution if seeking to rely on section 58 of the ICA.