In some classes of insurance at Lloyd’s proposal forms are used. But in others a broker who is instructed to effect a Lloyd’s policy must prepare a ‘slip’, which is a document taking the place both of the proposal and of the cover note in other insurances.
A. THE NATURE OF THE ‘SLIP’
On a slip of paper he writes down the essential features of the proposed insurance for the purpose of enabling the policy to be adapted to the particular insurance proposed by the insertion of the necessary details, and for the purpose of disclosing to the underwriter the risk which he is being invited to run, and to enable him to fix the premium to be charged.
The ‘slip’ must, therefore, contain a description not only of the assured, and of the amount proposed to be insured, but also of the subject-matter of insurance, including in the case of fire insurance a statement as to the location of the building concerned. In addition, it contains a statement as to the peril insured against, and as to the commencement and duration of the contract.
As the ordinary terms of a Lloyd’s policy are familiar to both broker and underwriter, it is unnecessary to refer to them in the ‘slip’. But any proposed variation from the ordinary terms must be specified.
The ‘slip’, as prepared by the broker, is submitted by him to the various underwriters with whom he is in the habit of doing business. Each underwriter, as it is submitted to him , initials it, if he accepts the proposed insurance, for himself and the ‘name’ of the other members of the syndicate, adding opposite his initials the amount for which he is willing to accept liability.
It is the duty of the broker, as representing the proposed assured, to disclose every material fact to the underwriter, on submitting the ‘slip’; and if he fails to do so, the policy is liable to be avoided. In this connection, it is important to consider the order in which the initials of the different underwriters to whom the ‘slip’ has been submitted, appear on the ‘slip’. Each underwriter following the first is necessarily influenced by the fact that the proposal has already been accepted by the first underwriter, and any fraud, misrepresentation, or non-disclosure committed against the first underwriter is equally a breach of duty against the subsequent underwriters. On the other hand, a breach of duty against any other underwriter than the first affects such underwriter only, and cannot be relied upon by the others whether they precede or follow him upon the ‘slip’.
B. THE EFFECT OF INITIALLING THE ‘SLIP’
The initialing of the ‘slip’ by the underwriter is the acceptance of the assured’s proposal, and the underwriter is bound by his line subject only to the contingency that it may fall to be written down on ‘closing’ to some extent if the ‘slip’ turns out to have been oversubscribed. He thereby binds himself to sign a policy in accordance with the ‘slip’, when tendered to him for signature, and he cannot refuse to do so expect upon grounds which call in question the validity of the acceptance. The signing of a policy is, however, a mere formality; it may take place even after loss, and the underwriter cannot refuse to sign the policy on the ground that the broker failed to tender it within a reasonable time after the initialing of the ‘slip’.
The contract is complete on the initialing of the ‘slip’ and, if there is no formal policy in existence, the underwriter may be sued on the ‘slip’. The ‘slip’ is not a mere undertaking in honour to issue a policy; it constitutes in itself a binding contract of insurance. No objection can be taken to its form on the ground that it does not completely express the intended contract of insurance; it contains the essential terms of the contract, since it must be read in connection with the common from Lloyd’s policy to which it is intended to relate. In the absence of a custom to that effect, an assured (or reassured) is bound to the same extent as the insurer by the initialing of the ‘slip’ and has no option to rescind the contract thereafter. Further, no term to that effect arises by implication of law as a matter of necessary business efficacy.
The duty disclosure ceases on the ‘slip’ being initialed and does not continue until the actual signature of the policy. It is, therefore, immaterial that the assured, after the initialing of the ‘slip’, makes a statement to the underwriters which is inaccurate, or discovers a material fact which he fails to disclose.
As far a marine insurance is concerned, the Marine Insurance Act 1906, s 21 states:
‘A contract of marine insurance is deemed to be concluded when the proposal of the assured is accepted by the insurer, whether the policy be then issued or not; and for the purpose of showing when the proposal was accepted, reference may be made to the slip or covering note or other customary memorandum of the contract,…
As to the duration of the duty of disclosure, s 18(1) provides:
‘Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded every material circumstance which is known to the assured….’