CR131 Conclusion of contract – cancellation and replacement

Conclusion of contract – cancellation and replacement of – “snatching at the bargain”.


Upon being widowed Mrs A took “life cover” as well as “dread disease cover” through a consultant/franchise employee of the insurer, who acted as her financial adviser. Some years later when her circumstances changed, Mrs A decided to replace these policies by increasing the “dread disease cover” as well as improve her “cost relationship to cover ratio”. In the process the financial adviser cancelled the old policies in anticipation that the new policy would be approved. However the insurer declined the proposed replacement policy.

It later transpired there was much confusion, uncertainty and misunderstanding between the insurer and the financial adviser regarding internal procedures. Consequently Mrs A was left without cover. Mrs A then tried to revive the cancelled policies without success.


Mrs A referred the matter to this office for relief. It was considered at an adjudicators’ meeting. The meeting took a unanimous prima facie view that the insurer’s action in refusing to reinstate the policy amounted to “snatching at the bargain”, as it were, and found it to be unreasonable and unlawful;

It is clear that the transaction at issue was a composite or holistic one; what was intended was in effect a novation of the existing policy. The policy holder sought to surrender one policy and replace it with another; obviously the surrender of the first was conditional on the replacement policy taking effect. When it became clear that the replacement policy would not be offered on standard terms, the transaction should have gone no further, and the erroneous “surrender” of the existing policy must fall away.


Following this provisional ruling the insurer proposed a replacement contract with similar benefits as the cancelled one, free of underwriting, at Mrs A’s current age and with a current date of commencement. Mrs A accepted this proposal.

April 2006