Cancellation Clause: Meaning & Samples (2022) (2024)

Cancellation Clause Defined

Cancellation clauses are provisions found in an insurance policy that allows the insurer to cancel it before the end date. They permit the insurer to do so without a breach of contract penalty.

Different types of cancellation clauses include:

• Type 1. Event cancellation clauses
• Type 2. Contract law cancellation clauses
• Type 3. Notice of cancellation clause
• Type 4. 30-day cancellation clauses

You can find a cancellation clause in many types of insurance policies. Here’s an article about cancellation clauses for more info.

Cancellation Clause Explained

Insurance companies must use cancellation clauses if they want to create a legal channel for canceling customer policies. However, these reasons cannot violate local, state, and federal laws. Make sure your cancellation clauses are legal before asking customers to sign them.

Here’s another article about cancellation clauses.

Purpose of Cancellation Clauses

The purpose of cancellation clauses is to allow insurance companies to cancel customer policies for legitimate reasons. Insurers can measure their risk and take swift action to cut their losses.

Cancellation Clause Examples

Examples of cancellation clause used against customers include:

• Example 1. Not paying premiums
• Example 2. File too many false or erroneous claims
• Example 3. Failing to maintain the insured property
• Example 4. Morally hazardous behaviors
• Example 5. Mater changes in risk occur

Cancellation Clause Samples

Sample 1 – Service Agreement

TERMINATION. This Agreement may be terminatedat any time by the written agreement of the Parties as provided in Section1 hereof. Notwithstanding the foregoing and any other provision contained herein, the following Sections of this Agreement shall remain in effect and shall survive the termination of this Agreement: Section5, Billing; Section6, Limitation on Liability; Indemnification; Section9, Confidential and Proprietary Information; Section10, Cooperation and Dispute Resolution; Section13, Successors and Assigns; and Section14, No Third Party Beneficiaries.

Reference:

Security Exchange Commission - Edgar Database,EX-10.362d395429dex1036.htmSERVICE AGREEMENT, Viewed May 10, 2021, <https://www.sec.gov/Archives/edgar/data/109177/000119312512482298/d395429dex1036.htm>.

Sample 2 – Service Agreement

7.2Termination.

(a) After the end of the Initial Term, this Agreement may be terminated by any Party at any time without penalty by giving notice of such termination to each of the other Parties. Any termination under thisSection7.2(a)shall become effective 180 days after delivery of such notice, or such later time (not to exceed the first anniversary of the delivery of such notice) as may be agreed upon by the Parties;

(b) This Agreement may be terminated at any time by (i)the Services Provider, upon a Change of Control of the General Partner, or (ii)by the General Partner, on behalf of the MLP Group, upon a Change of Control of the Service Provider;

(c) This Agreement may be terminated at any time by the Services Provider upon the General Partner’s material breach of this Agreement, if (i)such breach is not remedied within 60 days (or 30 days in the event of material breach arising out of a failure to make payment hereunder) after the General Partner’s receipt of written notice thereof (or such longer period as is reasonably required to cure such breach,providedthat the MLP Group commences to cure such breach within the applicable period and proceeds with due diligence to cure such breach), and (ii)such breach is continuing at the time notice of termination is delivered to the General Partner; or

(d) This Agreement may be terminated at any time by the General Partner, on behalf of the MLP Group, upon the Services Provider’s material breach of this Agreement, if (i)such breach is not remedied within 60 days after the Services Provider’s receipt of the General Partner’s written notice thereof, or such longer period as is reasonably required to cure such breach,providedthat the Services Provider commences to cure such breach within such 60-day period and proceeds with due diligence to cure such breach, and (ii)such breach is continuing at the time notice of termination is delivered to the Services Provider.

(e) If this Agreement is terminated in accordance with thisSection7.2, all rights and obligations under this Agreement shall cease except for (a)obligations that expressly survive termination of this Agreement, (b)liabilities and obligations that have accrued prior to such termination, and (c)the obligation to pay any portion of amounts payable underArticle IVthat have accrued prior to such termination, even if such amounts have not become due and payable at that time.

Reference:

Security Exchange Commission - Edgar Database,EX-10.14d272812dex101.htmSERVICES AGREEMENT, Viewed May 10, 2021, <https://www.sec.gov/Archives/edgar/data/0001527709/000119312511351200/d272812dex101.htm>.

Sample 3 – Service Agreement

4.2Termination for Cause. If either Party materially defaults (including but not limited to the willful, material and wrongful disclosure of Confidential Information) in the performance of any of its duties or obligations under this Agreement (except for a default in payments by Tenet) which default is not substantially cured within thirty (30)days after written notice is given to the defaulting Party specifying the default, or, with respect to those defaults which cannot reasonably be cured within thirty (30)days, if the defaulting Party fails to proceed within thirty (30)days to commence curing said default and to proceed with all due diligence substantially to cure the default, but in any event does not substantially cure the default within ninety (90)days, then the Party not in default may, by

giving written notice of termination to the defaulting Party, terminate this Agreement as of a date specified in the notice of termination (the “Termination Date”) such Termination Date being subsequent to the date of the notice of termination.

4.3Termination for Nonpayment. If Tenet defaults in the payment when due of any amount due to IMaCS and does not, within thirty (30)days after being given written notice, either: (a)cure such default; or, (b)indicate that the payment is in dispute and provide a detailed explanation of such dispute and deposit the disputed amount in escrow in a major U.S. commercial bank reasonably designated by IMaCS, with interest to be allocated to the Party entitled to the principal upon resolution of the dispute, then IMaCS may terminate this Agreement. In the event Tenet deposits any disputed amount in escrow, such amount, together with any accrued interest, shall be released by the escrow agent only upon (a)receipt of written instructions signed by both IMaCS and Tenet or (b)receipt of an order from an arbitrator or court of competent jurisdiction.

4.4Termination for Convenience. Tenet may terminate this Agreement in its entirety on or after the first anniversary of the Effective Date upon at least one hundred eighty (180)days’ prior written notice to IMaCS.

4.5Termination of MLSA. Tenet may terminate this Agreement upon the termination by either party of the MLSA or expiration of the MLSA.

4.6Obligations Upon and After Termination. Notwithstanding anything in the Agreement to the contrary, whenever the Agreement is terminated or expires, in addition to any rights or remedies of the Parties under the Agreement, Tenet or its designee shall have the right to obtain the services provided for under this Agreement from a third party. IMaCS agrees to cooperate with any third party so as to accomplish the transaction without an interruption or disruption of the business operations of any Clients. Upon termination or expiration of this Agreement, for a period of one (l)year following such termination or expiration, Tenet shall have the right, but not the obligation and IMaCS shall fully cooperate with Tenet and/or its designee, if any, to facilitate the transfer of the IMaCS System, operations, Hardware, Documentation, licenses for use of all related materials pertaining to the operation of the Data Center to Tenet or its designee for a fee computed as follows: the greater of either (i)25% of IMaCS’s actual initial purchase costs or prepaid license fees or (ii)the purchase costs or prepaid license fees, less straight line depreciation over sixty (60)months following the date of purchase license by IMaCS. Notwithstanding anything contained in the Agreement to the contrary, Tenet shall pay no additional fees to IMaCS under this Section4.6 for any software provided pursuant to the Master Software License and Service Agreement. IMaCS shall provide the services at its then-prevailing commercial rates. IMaCS shall provide other transition services as requested by Tenet as Additional Services under the terms of this Agreement for a period of sixty (60)days following the transfer of the IMaCS System to Tenet, or its designee, at IMaCS’s then prevailing commercial rates.

Reference:

Security Exchange Commission - Edgar Database,EX-10.1710dex1017.htmSERVICES AGREEMENT, Viewed May 10, 2021, <https://www.sec.gov/Archives/edgar/data/1424217/000119312508048821/dex1017.htm>.

Common Contracts with Cancellation Clauses

Common contracts with cancellation clauses include:

• Auto insurance policies
• Business insurance
• General liability insurance
• Homeowners’ insurance
• Professional liability insurance
• Cancellation clauses in purchase order
• Service contracts

Cancellation Clause FAQs

Insurance cancellation clause wording is essential to get right. Here are cancellation clause FAQs below for more information:

Can you terminate an agreement without termination clause?

Yes, you can terminate an agreement without a termination clause. However, get advice from contract lawyers to avoid making errors.

What is cancellation of insurance policy?

Cancellations of insurance policies are when the terms of a policy lawfully end. The insured no longer has a right to benefits for events following the cancellation date.

What clauses survive termination?

Clauses that survive termination include:

• Non-competes
• Confidentiality
• Severability
• Governing law
• Termination effects

What is the difference between cancellation and termination of a contract?

The main difference between cancellations and terminations of contracts is that cancellations allow the insurer to cancel the contract without penalty. In contrast, a termination could apply to the insurer or insured.

Get contract law advice from insurance lawyers if you need more info about your agreements.