Since the contract of insurance is constituted by the acceptance of an offer, it is necessary in the first instance to make certain that an offer has, in fact, been made which is capable of being accepted.
A. WHAT CONSITUTES AN OFFER
To constitute an offer capable of being accepted, the following conditions must be fulfilled:
1 The alleged offer must be intended by the party making it to be an offer.
The party who begins the negotiations does not necessarily make an offer thereby; he may merely indicate his readiness to consider an offer.
2 The alleged offer must be complete.
It must show with precision into which the party making it is prepared to enter.
3 The alleged offer must be communicated to the other party.
4 The alleged offer must be in force at the time when the other party purports to accept it.
Any offer may be revoked before acceptance; and an offer once refused ceases to be in force and cannot afterwards be accepted unless it is repeated.
B. BY WHOM THE OFFER IS MADE
The offer to enter into a contract of insurance may, as a general rule, be considered as addressed to the insurer by the person who is seeking to protect himself by insurance against loss. He may have been invited by the insurers to put himself into communication with them; but, whether the invitation comes to him from the insurers direct, or through the medium of an agent, or whether it is given to him personally, or only as a member of the public through an advertisement, the position remains unchanged, and he must submit his proposal, which they may accept or decline at their pleasure. The offer therefore proceeds from the proposed assured when he has filled up the proposal and forwarded it to the insurers.
The terms of an ordinary contract of insurance are not specially arranged between the parties; the insurer have their own terms on which they are prepared to contract and from which, as a rule, they are not willing to depart. There is no real negotiation between the parties, the assured being compelled to contract with the insurers on their own terms. There is, therefore, no difficulty, in an ordinary case, in ascertaining from whom the offer proceeds. Sometimes, however, the wording of the documents issued by the insurers may, however, show that the offer proceeds from them, as, for instance, in the case of coupon insurance.
Where the terms of the proposed contract are really a matter of negotiation, as in the case of special insurances falling outside the ordinary business of the insurers, greater difficulty arises, and each case must be judged by its own circumstances. During the course of the negotiations, the parties may repeatedly change places, each party in turn putting forward an offer to be met by a refusal and a counter-offer from the other. The facts may show that it is the insurers who have made an offer, from which they cannot recede, and which the proposer may turn at his option into a binding contract.
This may take place, even in an ordinary case where a proposal form is used, if the insurers, in their acceptance, introduce terms or impose conditions which did not appear in the proposal. In this case what purports to be an acceptance is not in reality an acceptance, but a new offer to contract on new terms and conditions. Thus, where the premium to be charged has to be settled by the insurers after consideration of the particulars furnished by the proposed, the offer to enter into a contract of insurance is made by the insurers when they settle the premium and inform the proposer of this fact, whilst the proposer, by tendering the premium, accepts their offer and does not merely offer to contract with them on their terms.
C. THE PROPOSAL FORM
1 The usual contents of proposal forms
Proposal forms necessarily vary in their content according to the nature of the proposed insurance; they also vary according to the practice of different insurers. All proposal forms, however, contain questions which the proposed assured is required to answer, and these questions, whatever the nature of the insurance, are framed on the same general lines.
The matters to which the questions relate may be classified as follows:
a The description of the proposed assured.
b The description of the risk proposed to be insured.
c The description of circumstances affecting the risk.
d The previous history of he proposed assured.
(a) Description of the proposed assured
The description of the proposed assured will include his name, address, and occupation. Where the proposed assured has more than one occupation or profession, it is not a misrepresentation or non-disclosure entitling the insurers to avoid the policy to state one of them only and to omit the rest, provided that the rate of premium for the different occupations is the same. The policy is, however, voidable when the rates of premium differ and the omission is , therefore, material, unless the insurers are precluded from denying that they did not know the proposed assured’s various occupations.
(b) Description of the risk
This necessarily varies according to the nature of the insurance. Thus, in the case of personal accident insurance, the assured is usually required to state his age, weight and height. In the case of insurance on property, a full description of the property proposed to be insured must be given. Further, in the case of liability insurance, the circumstances out of which the liability may arise must be started.
(c) Description of circumstances affecting the risk
Questions falling under this head are directed to ascertain whether there are any special circumstances connected with the proposed insurance tending to show that the risk is greater than usual. These also must necessarily vary according to the nature of the insurance.
Thus, in the case of personal accident insurance, the proposed assured is usually asked for details as to his present and past state of health, and as to any existing physical defects. In the case of property insurance, a description of the nature and situation of any building containing the property proposed to be insured and of any measures taken to prevent or minimize loss may be needed. In the case of liability insurance, a description of the state of the proposed assured’s premises, the nature of his business, or the machinery and appliances used, or a statement as to the number of persons employed by him, may be required, according to the nature of the proposed insurance.
The proposed assured may further be required by a general question to state whether there are any other circumstances material to the risk. Unless the question permits the proposed assured to use his own judgment the circumstances to be stated include all circumstances which any reasonable man would think material.
(d) Previous history of the proposed assured
Questions relating to the previous history of the proposed assured so far as it affects the risk fall under two heads:
i the experience of the proposed assured.
ii the relations of the proposed assured with other insurers.
(i) Experience of the proposed assured
The proposed assured is required to state whether he has, in the past, suffered loss by the peril proposed to be insured against, or whether he has ever been exposed to the danger of loss.
(ii) Relations with other insurers
The proposed assured is required to state whether he has ever made a similar proposal to other insurers, whether such proposal was declined, or accepted at a higher premium, whether any previous policy has been cancelled, or its renewal refused, or whether he has ever claimed under a similar. He may also be required to state whether he is already insured or intending to be insured with other insurers, and whether the proposed insurance is intended to be in substitution for other insurances or as an additional protection.
The proposal form concludes with a declaration that the statements made in the answers to questions are true, and that the proposed assured agrees that they are to be the basis of the contract.
2 The questions asked in various types insurance
As has been pointed out above, the contents of proposal forms vary according to the nature of the subject-matter insured. In the pages which follow a brief survey will be made of the questions found in the proposal forms used in the principal branches of non-marine insurance life, personal accident, fire, burglary and motor.
(a) Life insurance
The proposer is required to give his name, his present address and occupation and to state whether he is married or single, and also the date and place of birth. An important question relates to previous proposals for life insurance which may have been made to the company concerned or to another insurance company. The proposer has to say whether such a proposal has ever been declined, delayed, withdrawn, or accepted at an extra premium. The insurance company sometimes asks whether he has ever resided abroad, and, if so, when and for how long, and whether his health was in any way affected. He may be asked whether he has any intention of going abroad, and if so, where and for what purpose and for how long. A question of particular importance which is required to answer is whether he has suffered from any disease or incurred any accident requiring medical attention. usually this question is limited to a period, e g of five years immediately before the submission of the proposal. The proposer will have to supply the insurance company with the names and addresses of the medical men whom he has consulted. Another question refers to the possibility of the proposer engaging in aviation or other hazardous pursuits. If he intends to travel on any regular air route, he will usually have to state to what part of the world he intends to travel.
The proposer has to state whether there are any circumstances not referred to in the previous questions which bear on the suitability of his for insurance. The proposer, after he has completed his answers to the questions, then has to sign the declaration whereby he declares that he is at present in good health and not afflicted with any disease or disorder tending to shorten life, and that his answers to the questions are true. He further agrees to answer any questions put to him by a doctor appointed on behalf of the insurance company regarding his health. Further, he has to state that he will not withhold any circumstance tending to render an assurance on his life more than usually hazardous. Finally, he agrees that the answers to the questions and the declaration and the answers given to the doctor, who is acting on behalf of the insurance company, are to be the basis of the contract, and if any untrue statement has been, or will be made, or any information necessary to be made known to the company has been or will be withheld, all sums which have been paid to the company will be forfeited and insurance policy will be null and void.
(b) Personal accident insurance
The proposer must state his name in full, his address and business, his occupation, his age, his height, ad his weight. He must state whether he is at present in good health and whether he ordinarily enjoys good health. He must disclose whether he has ever had any physical defect and infirmity, whether his sight or hearing has in any way been impaired, or whether he has suffered from any disease of the eye or ear. A question also asks him whether he has ever had any fit of any kind, or paralysis, or whether he has suffered from certain diseases, e g pneumonia, erysipelas. Another question asks him whether he has had smallpox or ever been vaccinated.
He will have to say whether he has any time or times in the recent past, e g the last five years, been incapacitated by accident or illness from following his occupation for more than a week at a time. if he has been away from work, he has to give the particulars. He has to state the name and address of his usual medical attendant. The insurance company will want to know whether he is of sober and temperate habits, whether he plays football, engages in mountaineering, aviation or gliding. The proposer will have to say whether there are any circumstances connected with his occupation which render him especially liable to accident or disease. He will have to say whether any previous proposal in respect of accidents has been declined or not proceeded with, and whether he has ever had any insurance cancelled or discountinued or its renewal refused. He must supply the insurance company with full particulars of any claim made under any accident insurance policy.
The proposal form usually ends with a declaration in the form similar to that described above in the case of life insurance, which has to be signed by the proposer.
(c) Fire insurance
In the case of fire insurance the proposer has to state his name and address, and, in the case of a firm, the name and addresses of all the partners, or, in the case of a limited company, the names and addresses of all the directors. The business or profession must be given together with the situation of the property to be insured. The proposer has to describe the property to be insured with the amount in respect of each item. He has to say how the building proposed to be insured is lighted, heated, and protected against fire. He must disclose whether any manufacturing process or any hazardous trade is carried on in the building or near it. If the property or any part of it is already covered by insurance against fire, the details of such insurance must be given. There is always a question whether a previous proposal for fire insurance has ever been made by or on behalf of the proposer or ever been declined or accepted at an increased rate of premium. Sometimes the proposer is asked whether a proposal in respect of any type of insurance policy has ever been declined, and whether any insurance policy which has been effected by him has ever been cancelled or discontinued. He is also required to state whether any property belonging to him has ever been destroyed by fire. The proposer is also asked whether there are any other facts within his knowledge which are material to the insurance proposed. If so, he must give particulars of them.
The proposal form ends with a declaration, which has to be completed by the proposer, and is similar to those mentioned above in other types of insurance.
(d) Burglary insurance
The proposer will have to give his name and address in full, and his occupation. He must give a full description of the premises which are to be insured, together with their rental and a statement as to how long the premises have been occupied by him, whether he is the sole occupier, and whether the premises are left unoccupied at any time. An important question relates to the security of the premises, e g how are the outer doors secured, and whether the windows on the ground floor are protected. In the case of insurance of business premises, the proposer will have to say whether he keeps a stock insurance-education and where it is left at night, and whether all valuables are put in a safe when the premises are closed. The insurance company will want to know whether the premises have ever been entered by thieves, and what precautions have been taken to prevent a recurrence. As in the case of other types of insurance, the proposer will have to give details to previous proposals being declined, and the details of any claims which he has made. A declaration which he has to sign says that he declares that all the answers and particulars which he has given are true, and that the amount proposed for insurance represents to the best of his knowledge and belief the full value of the articles to be insured, and he undertakes to exercise all ordinary and reasonable precautions for the safety of the property. He agrees that the declaration shall be the basis of the contract between him and the company.
(e) Motor insurance
The proposer will have to give his name and address and occupation in full. The particulars of the car to be insured, e g the maker’s name, the registration letters, the number of seats, the date of manufacture, the date of purchase, the original cost, the estimated present value, the chassis and engine numbers. He must say whether the car is to be used solely for private purposes, and whether he will be the sole driver. His age must be given, and any details of any physical defects from which he suffers. The insurance company will want to know whether he has ever been involved in an accident in the car to be insured, and whether he has ever made any claims in connection with any other car. The proposer will be asked whether he has ever been convicted in respect of any offence in relation to the driving of cars, or had his licence endorsed. Sometimes this question is extended in its scope so that the proposer will have to give the details of any previous convictions of those persons who he expects will drive the vehicle. He is also asked whether any insurance company has declined his proposal or required an increased premium or imposed special conditions, or cancelled or refused to renew his policy. He then has to sign a declaration stating that the answers he has given are true, and that he agrees that the declaration shall be the basis of the contract.
3 The effect of the proposal form
The proposal form, when duly filled in and signed by the proposed assured and forwarded to the insurers, operates as a formal offer by the proposed assured to the insurers to enter into a contract of insurance. The proposal form shows the terms on which he is willing to contract, and if the offer is accepted, he cannot insist on having an insurance differing in its terms from those specified in the proposal.
Since the proposal form, in practice, proceeds from the insurers, it further shows the terms upon which they too are willing to contract. They are bound, therefore, after acceptance, to a policy with the proposal.
4 Statement by BLA and Lloyd’s
In 1977 The British Insurance Association and Lloyd’s drew up a statement of non-life insurance practice which they recommended to their members. The statement applies only to non-life policy holders domiciled in the United Kingdom and insured in their private capacity only, and so far as proposal forms are concerned, provides:
a The declaration at the foot of the proposal form should be restricted to completion according to the proposer’s knowledge and belief.
b If not included I the declaration, prominently displayed on the proposal form should be a statement:
i drawing the attention of the proposer to the consequences of the failure to disclose all material facts, explained as those facts an insurer would regard as likely to influence the acceptance and assessment of the proposal:
ii warning that if the proposer is in any doubt facts considered material, he should disclose them.
c Those matters which insurers have found generally to be material will be the subject of clear questions in proposal forms.
d So far is practicable, insurers will avoid asking questions which would require expert knowledge beyond that which the proposer could reasonably be expected to possess or obtain or which would require a value judgment on the part of the proposer.
e Unless the prospectus or the proposal form contains full details of the standard cover offered and whether or not it contains an outline of that cover, the proposal form shall include a statement that a copy of the policy form is available on request.
f Unless the completed form or a copy of it has been sent to a policy holder a copy will be made available when an insurer raises an issue under the proposal form.
5 Statement by Life Offices’ Association
A similar statement has been issued by the ‘Life Offices’ Association in relation to long-term insurance practice. It applies to such insurance effected by individuals resident in the United Kingdom in a private capacity. In so far as proposal forms are concerned it says:
‘a if the proposal form calls for the disclosure of material facts a statement should be included in the declaration, or prominently displayed elsewhere on the form or in the document of which it forms part:
i drawing attention to the consequences of failure to disclose all material facts and explaining that these are facts that an insurer would regard as likely to influence the assessment and acceptance of a proposal;
ii warning that if the signatory is in any doubt about whether certain facts are material, these facts should be disclosed.
b Those matters which insurers have commonly found to be material should be the subject of clear questions in proposal forms.
c Insurers should avoid asking questions which would require knowledge beyond that which the signatory could reasonably be expected to possess.
d The proposal form or a supporting document should include a statement that a copy of the policy form or of the policy conditions is available on request.
e A copy of the proposal should be made available to the policyholder when an insurer raises an issue under that proposal information not relevant to that issue being deleted where necessary to preserve confidentially.’