Reject or repudiate?
- Posted by Roger Hendricks
- On 05/11/2016
- 0 Comments
While the use of the phrases “repudiation of a claim” and “repudiation of liability” are common in the insurance industry it is preferable, and correct to use the terms “rejection of a claim” and “denial of liability”. That it is because there is specific meaning to the term “repudiation” of a contract. Repudiation is a breach of a contract by the one party that justifies cancellation by the innocent party. Repudiation is conduct which exhibits the clear and unequivocal intention of the party concerned to no longer be bound to the contract.
When an insurer is entitled to, and does, avoid a policy because of the insured’s material misrepresentation or non-disclosure, avoiding the contract is not a breach of the contract. In these circumstances the insurer does not repudiate the contract. The insurer denies liability in respect of the claim because the policy has been avoided by reason of material misrepresentation or non-disclosure.
When an insurer rejects a claim relying on application of an exclusion clause, or because the claim does not fall within the operative clause of the policy, that is not a repudiation of the contract. In these circumstances the insurer does not deny the existence of the contract of insurance but denies liability under the contract.