What are the Rules for Drafting and Filling Up an Insurance Proposal?

 

INTRODUCTION

 

Today, I will talk about the case of Manmohan Nanda v. United India Assurance Co. Ltd. & Anr., Civil Appeal No. 8386/2015, wherein the Hon’ble Supreme Court discussed the basic rules to be observed in making a proposal for insurance.

 

In an earlier post, I had discussed the importance of good faith in a Contract of Insurance. To know more about it, please visit the link provided in the description below.

 

MEANING

 

Briefly speaking, a Contract of Insurance is “a contract by which one party undertakes to indemnify another party/insured against risk of loss, damage, or liability arising from the occurrence of some specified contingency.”

 

PROPOSAL FORM

 

It is pertinent to note that the Proposer/Insured is generally required to fill up a Proposal Form prior to issuance of the Insurance Policy. In such Proposal Form, the Proposer is required to fill in the relevant and material details that have been asked by the Insurer. The Proposal Form is usually in a Question-Answer Format. For example, in case of Health Insurance, the Proposer would be required to provide a history of the pre-existing diseases and other related medical conditions in the relevant column where such question has been posed by the Insurer. In this regard, the Court has framed the basic rules that are to be followed in making a Proposal for Insurance. The pertinent ones are as follows: -

 

IMPORTANT RULES

 

a. “A fair and reasonable construction must be put upon the language of the question which is asked, and the answer given will be similarly construed.” Minor discrepancies or omissions that are insubstantial are liable to be ignored.

 

b. “Carelessness is no excuse, unless the error is so obvious that no one could be regarded as misled. If the proposer puts ‘no’ when he means ‘yes’ it will not avail him to say it was a slip of the pen; the answer is plainly the reverse of the truth.”

 

c. “An answer which is literally accurate, so far as it extends, will not suffice if it is misleading by reason of what is not stated.”

 

d. “Where the space for an answer is left blank, leaving the question un­answered, the reasonable inference may be that there is nothing to enter as an answer.  If in fact there is something to enter as an answer, the insurers are misled in that their reasonable inference is belied.” Whether leaving blank is a matter of non-disclosure or not is a matter of interpretation.

 

e. “Where an answer is unsatisfactory, as being on the face of it incomplete or inconsistent the insurers may, as reasonable men, be regarded as put on inquiry, so that if they issue a policy without any further enquiry they are assumed to have waived any further information.” 

 

f. “A proposer may find it convenient to bracket together two or more questions and give a composite answer. There is no objection to his doing so, provided the insurers are given adequate and accurate information on all points covered by the questions.” 

 

g. “Any answer given, however accurate and honest at the time it was written down, must be corrected if, up to the time of acceptance of the proposal, any event or circumstance supervenes to make it inaccurate or misleading.” 

 

ENDING REMARKS

 

Thus, such rules ought to be followed in making a Proposal for Insurance. What is important to note that is that the Court has tried to balance the rights of the Insurer and the Proposer, at the stage of filling up the Proposal Form. Everything contained in the Proposal Form must be considered in proper perspective by adopting the afore-stated rules and the general rules of interpretation. Sometimes the questions posed in the Proposal Form are such that the Proposer/Insured becomes vulnerable as the statements in the proposal form could be held against the insured. All in all, it was held by the Court that “in order to seek specific information from the insured, the proposal form must have specific questions so as obtain clarity as to the underlying risks in the policy, which are greater than the normal risks.” 

 

Thus, I hope that the basic rules that are to be followed in making a Proposal for Insurance are clear by now.