A restaurant company bought a combined business insurance policy and paid the premium for the period from March 24 2007 to March 23 2008.
In February 2008 the insurer sent an invoice for the next policy period. The restaurant company did not pay the invoice and the insurer did not send a reminder.
In January 2008 there was a fire in the restaurant. The restaurant company claimed insurance indemnity for, among other things, damaged property. The company had also become embroiled in various legal proceedings and wished to use its legal expenses insurance for the disputes. The insurer denied the request.
In November 2009 the restaurant company intiated legal proceedings against the insurer regarding coverage under the legal expenses insurance.
The general conditions of the legal expenses insurance contained a suspension clause to the effect that the insurer's liability ceased when payment of the premium was delayed. It stated as follows:
"The premium in respect of a renewed policy shall be paid no later than on its commencement day. The premium need not, however, be paid earlier than 14 days after the insurer has sent the premium invoice.
The insurance is renewed even if the premium is paid later, provided that payment is made no later than one month from the latest due date for payment according to the previous paragraph. The insurer's liability takes effect the day after the payment."
The restaurant company petitioned the Supreme Court to declare that it was entitled to use its legal expenses insurance for the disputes.
The insurer disputed the petition on the grounds that the disputes had arisen after March 23 2008 (ie, after the policy had expired).
In a June 11 2015 judgment the Supreme Court declared that in order to rely on the agreed suspension clause, the insurer should have sent a reminder at least seven days before the premium's due date.
The court further referred to the fact that under the previous Insurance Contract Act 1927, suspension clauses could be invoked provided that the insurer had reminded the policyholder of the due date for the premium payment in advance. This meant that an agreed suspension clause took effect immediately after the expiry of a policy period only if the insurer had reminded the policyholder of the due date for the premium payment at least one week in advance. This requirement was normally fulfilled by sending a premium invoice.
The court stated that the relevant provision under the existing Insurance Contract Act (2005:104) – Chapter 8, Section 4(2), which regulates business insurance – stipulates that if insurance is taken out by the policyholder paying the premium, the insurer's liability comes into force on the day following the day when the premium was paid. This also applies if the insurance is valid only if the premium is paid before the policy period starts.
The court noted that Chapter 8, Section 4(2) is worded somewhat differently from the corresponding provison in the 1927 act. This has caused discussion, in a leading textbook among other places,(1) as to whether the existing provision is intended to cancel rather than suspend coverage. However, the court found no support for the assumption that the legislature intended to change the regulation of premium payment delay. Therefore, it appeared that Chapter 8, Section 17(1) also targetted suspension cases. This interpretation falls within the wording of the provision.
If a suspension clause has been agreed, Chapter 8, Section 17(1) of the Insurance Contract Act should be applied so that the insurer cannot maintain that liability has ceased due to failure to pay the premium unless a reminder of the due date of the premium was sent at least seven days in advance. Such reminder may be sent before the policy period has expired and does not require that the premium payment is already delayed.
The Supreme Court concluded that the insurer was entitled to rely on the suspension clause from March 24 2008.
For further information on this topic please contact Rose-Marie Lundström at Rose-Marie Lundström Advokat AB by telephone (+46 8 5460 1700) or email (email@example.com). The Rose-Marie Lundström Advokat AB website can be accessed at www.rml-law.se.
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