Insurance Contract and Policy Documents
This domain examines how the insurance contract is formed, what each document does, and how clauses and warranties control the claim.
Formation
An insurance contract needs offer (proposal form, which is the basis of the contract), acceptance (insurer's acceptance and receipt of premium), consideration (premium and the promise to indemnify), capacity, free consent and lawful object. Insurance is a contract uberrimae fidei and, unlike ordinary contracts, requires disclosure of material facts even if not asked.
The documents
- Proposal form: the insured's declaration; any false answer can affect the claim.
- Cover note: temporary evidence of cover pending issue of the policy.
- Policy: schedule (names, sum insured, period, premium), recitals, operative clause, exclusions, conditions, and the signature clause. The schedule and any endorsement prevail over printed text where they conflict.
- Endorsement: a written amendment (change of address, sum insured, vehicle, addition of a clause) signed by the insurer; it overrides the original wording.
- Renewal notice and certificate of insurance are also policy documents.
Warranties and conditions
A warranty is a condition that must be complied with exactly; breach entitles the insurer to avoid liability. A representation is a statement of fact made before the contract which, if untrue, may allow avoidance. Conditions precedent to liability (for example, maintaining a fire extinguisher) must be satisfied before a claim can be paid. Clauses such as the arbitration clause and the contribution clause are binding terms, not options.
Worked example
A proposal states the insured has never suffered a fire loss; the risk is accepted at standard rates and a policy is issued. Fire destroys the stock. The insurer finds a previous claim for the same premises and avoids the contract, because this is a material fact and a warranty of truth in the proposal.
Traps
Confusing warranty with representation; forgetting that an endorsement overrides the policy; assuming an unpaid premium still gives cover. Section 45 of the Insurance Act, 1938 restricts calling a life policy in question after three years from issue, revival or rider date.