Insurance Basics – The Proposal

Completing a Proposal Form

Its more important than you think 

By Ramnarine Mungroo LLB (Hons) LPC, ACII 
Attorney-at-Law & Chartered Insurance Practitioner 

In arranging for insurance coveragethe proposer is under a duty to provide the insurance company with all relevant particulars regarding the risk to be insured. The provision of this information is necessary for the insurer to underwrite the risk i.e. to make an informed assessment of the risk to be insured and agree the terms and conditions of the insurance as well as to calculatthe premium. 

For convenience, the information generally required is captured in a document called a ‘Proposal Form’. Proposal Forms would vary depending on the type of insurance required and forms an integral part of the contract of insurance as it is the basis upon which the contract is formed and is incorporated into the contract. 

In completing a proposal form, the proposer is required to answer all questions truthfully, since it is on the basis of the information provided, that the risk will be assessed and the terms and conditions set. To ensure that all questions are answered truthfully, the proposal form contains a Declaration at the end of the questionnaire, just before the signature. This Declaration, once signed, warrants the truthfulness of all the information provided and has legal consequences. 

Insurance policies are termed contracts of ‘Utmost good faith’. The logic behind this principle is to correct the inequality between the parties since ‘the proposer is deemed to know everything about the risk to be insured, whereas, the insurer is deemed to have no knowledge of the risk.” As a result, there is an implied obligation of “Utmost Good Faith” on the proposer to ensure the truthfulness of all information provided to the insurer.  

Because of the obligation placed on proposers, failure to provide all information or withhold and/or provide misleading information that is relevant to the insurance, may result in the policy being void from inception.  

Generally, when a claim occurs, the insurance company would conduct a full investigation into the circumstances of the accident and then the truth is discovered about the proposer’s history. In such circumstances, the insurer would have the option to repudiate liability under the policy and not pay any claim. In certain circumstances, the policy can also be voided from inception for mis-representation of material facts. 

Example: 

At the time of completing a proposal form for motor insurance, the proposer said he had no previous accidents. However, following an accident and a claim being made under the policy of insurance, it was revealed that the insured was involved in a previous accident in which he was liable. The insurer would have the option to deny the claim and void the policy from inception. 

In such case where the policy is voided, the insured would be without insurance cover and would now be personally liable to fund the cost of his own claim as well as pay for damages to all other third parties for property damage as well as personal injuries. 

Therefore, extreme care must be taken when completing Proposal Forms so as to ensure truthfulness of all information provided.