Can marine insurance contracts be canceled before the end of the insurance period? – Remark


Legal termination rights
Agreed termination rights


Providers of shipping, warehousing and other logistics services (“transport providers”) will often take out liability insurance with a fixed insurance period (for example, one or two years) to insure the risks. and potential responsibilities that may arise in the course of service.

However, if several incidents resulting in significant losses occur, some insurers may unilaterally terminate these insurance contracts before the expiration of the insurance period.

It is important for carriers to know whether insurers have the right to unilaterally terminate insurance contracts in advance without their consent. This article summarizes the termination rights of insurers under Chinese law.

Insurers can terminate insurance contracts on the basis of statutory termination rights or agreed termination rights.

Legal termination rights

There are relevant provisions regarding the statutory termination rights of insurers in:

  • the law on insurance;
  • maritime law; and
  • certain judicial interpretations of the Supreme People’s Court.

In the context of marine insurance, if these laws contain different provisions on the same specific issue, the provisions of the maritime law shall prevail over the law on insurance and other laws.

The provisions of the above laws provide that insurers have the right to exercise statutory termination rights in the following circumstances.

When carriers don’t pay premiums on time
If the carriers do not pay their insurance premiums to the insurer on time, the insurer will have the right to terminate the insurance contract before the start of insurance liability, unless the insurer has already issued insurance documents.

However, after insurance liability begins, Chinese courts will not accept insurers’ contract termination requests on the grounds that the carrier has not paid the premium.

When carriers fail to inform insurers of material circumstances
According to maritime law, before entering into a marine insurance contract, a carrier must sincerely inform the insurer of the material circumstances of which he is aware or should be aware in the course of his ordinary commercial practice and which may affect on the insurer to decide on the premium or whether he agrees to take out insurance.

In the event of intentional failure by the insured to sincerely inform the insurer of such circumstances, the insurer has the right to terminate the contract without reimbursement of the premium. The insurer will not be liable for losses resulting from the risks insured before the termination of the contract.

When carriers do not respect the guarantees of the insurance contract
According to maritime law, a carrier must immediately inform the insurer in writing when the carrier has failed to respect the guarantees of the contract. The insurer may, upon receipt of the notice, terminate the contract or demand a modification of the conditions of the insurance cover or an increase in the premium.

When the degree of danger of the insured object increases considerably
When the degree of risk to the object of the insurance increases significantly during the term of the insurance contract, a transport provider must inform the insurer in accordance with the contract in good time. The insurer may, in accordance with the contract, increase the insurance premium or terminate the contract.

When carriers intentionally cause an insured loss
When a carrier intentionally causes an insured loss, the insurer will have the right to terminate the insurance contract, not to pay compensation and not to reimburse the premium.

When the insured fails to maintain the security of the object
When a carrier fails to comply with the obligation to maintain the security of the insured object as agreed, the insurer will have the right to increase the insurance premium or to terminate the contract.

Agreed termination rights

In addition to the aforementioned statutory termination rights, as a rule, neither an insurer nor a carrier can terminate a contract after the start of insurance liability. However, both maritime law and insurance law respect contractual freedom and allow both parties to agree on specific termination circumstances in an insurance contract.

Insurers generally provide for certain specific termination circumstances in their standard general insurance clauses and in the policy issued. Some insurers add at will termination rights in their standard insurance clauses or policies to protect their own rights and interests. However, Chinese law imposes certain restrictions on the termination rights of insurers. For example, freight insurance contracts and travel insurance contracts cannot be terminated by the parties once insurance liability has begun.

An exemplary case is that of a carrier having taken out civil liability insurance for one year. However, after several large payments, the insurer notified the client that the insurance contract would be terminated. The client argued that the insurance period had not expired. After examining the clauses of the insurance contract, a clause was found which provided the following:

Unless otherwise agreed, the insurer may terminate this insurance contract by sending a termination to the insured 15 days in advance. After termination of this insurance contract, the insurer will charge the actual premium on the basis of the actual operating income for the period from the start of insurance liability until the termination of the contract.

Therefore, the client was advised to find another insurance company to cover the potential risk in the future as soon as possible, instead of taking legal action which could have a negative effect.


Insurers can legally terminate marine insurance contracts before the expiration of the insurance period, provided that this right of termination has been clearly agreed in the contract. In such circumstances, transport providers will need to promptly engage the services of another insurance company to insure potential future risks and liabilities. This can be inconvenient for the transport provider and may lead to the latter assuming uninsured liability.

It is therefore suggested that, in addition to avoiding the occurrence of legal termination circumstances, transport providers should pay more attention to the relevant provisions of insurance clauses and policies. They should carefully consider whether they accept clauses allowing the insurer to unilaterally terminate the insurance contract before the expiration of the insurance period.

For more information on this topic, please contact Jin yu-lai to the KaiRong law firm by phone (+86 21 5396 1065) or by e-mail ([email protected]). The KaiRong Law Firm website can be accessed at

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