ABSTRACT
7.1 It is settled law that, absent fraud 1 , where an insurer exercises its right to avoid an insurance policy under s.17 of the Marine Insurance Act 1906, it is obliged to return the premium. One issue which has received less attention is whether the insured is entitled to recover interest on the returned premium, and for what period. The time value of money can be a key determinant in the economics of an insurance transaction, particularly when the policy is a long-term policy. An insurer’s assessment of the economics of the insurance transaction will often involve consideration of the amount which can be made by investing the premium in the period before claims become payable. An insurer who can both avoid, and retain the benefit of the “time value” of the premium between receipt and return, is likely to profit from the abortive insurance transaction at the same time as he successfully sets it aside. However, this important element of the insurance transaction finds only imperfect recognition in the law relating to the avoidance of insurance. This article considers the means now available to ensure that the remedy of avoidance more precisely achieves the economic effect at which it aims.
