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We know that a Contract Of Insurance is based on utmost good faith. It means, while at the time of applying for insurance the insured has disclosed all material facts and other required details to the insurance company and vice-versa. The facts disclosed by an insured will help insurance company to decided risk exposure and whether to accept the associated risk or not and if yes then the amount of premium to be charged to the insured.

An insurance contract (General Insurance) is a contract of indemnity and insurance company is liable to pay the loss occurred by the insured due to happening of insured risk/perils.

We can say that a Policy of insurance is a contract based on an offer (proposal) and an acceptance.

The insured makes a proposal which is accepted by the insured.

An Insurance Policy (Contract of Insurance) is generally issued by the insurance company incorporating all terms and conditions of insurance based on the risk assessement made on thee basis of details available from the insured. A contract of insurance is govern by the same rules as other contracts.

We can say that a policy of insurance is a formal document issued by the insurance companies expressing or embodying the contract of insurance between the parties. Any contract of insurance comes within the word “Policy”, and no statutory or formal document is necessary to make the contract of insurance ; if a contract is created by any binding means that is a policy to al intents and purposes.

The Indian Life Assurance Companies Act, 1912-defines insurance “Policy” as- “ A policy of assurance on human life means any instrument by which the payment of money is assured on death (except death by accident only) or the happening in any contingency dependent upon human, life or any instrument evidencing a contract which is subject to the payment of premiums for a term dependent upon human life”.

It means that in an insurance policy , the intention of parties must prevail, and the intention is to be gathered primarily from the words in which the parties have chosen to express their meaning. The whole of the policy must be looked into and not merely a particular clause at the time of interpretation of Insurance Policy.

Rule of Contra Preferentum & Terms And Conditions of An Insurance Policy

It a settled law that a contract of insurance is to be construed in the first place from the terms used in it, which terms are themselves to be understood in their primary, natural, ordinary and popular sense. A policy of insurance therefore to be construed like any other contract.
An insurance in case of insurance contract has nothing to say but accept the terms and conditions of insurance policy. Now in this case the court generally favour the insured, while interpreting terms and conditions of an insurance policy in case of any dispute. In insurance contract the insured lost his bargaining power and accept terms and conditions as imposed by the insurance company. The insured and the insurance company is not at the same footing and hence any ambiguity in the terms and conditions under insurance policy will cost the insurance company.

CONSTRUCTION OF PRINTED DOCUMENTS; where printed forms are filled in with written words and ambiguity arises in the meaning, it is a rule of construction that greater effect is to be given to the written matter, as being the immediate language selected by the parties , than to the printed , which is intended for general application. In the construction of written or printed documents it is legitimate in order to ascertain their true meaning, if that be doubtful , to have regard to the circumstances surrounding their creation and the subject-matter to which it was designed and intended they should apply-[Sri Rajah Vatsavaya Venkata Vs. Sri Poospati Venkatapati, 52 IA,1:48M230,1924PC 162].

LET’S CONSIDER RULE OF -CONTRA PROFERENTUM

The word Contra Proferentem has been derived from the Latin word verba chartarum fortius accipiuntur (Contra Proferentem) which means against the offeror or the drafter. This rule is based on the principle that a person behind the framing of such ambiguity is responsible for it.

Wikipedia- Contra proferentem, also known as “interpretation against the draftsman”, is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording.

Investopedia- The contra proferentem rule is a legal doctrine in contract law which states that any clause considered to be ambiguous should be interpreted against the interests of the party that created, introduced, or requested that a clause be included. The contra proferentem rule guides the legal interpretation of contracts and is typically applied when a contract is challenged in court.

It means that “Contra proferentem”, also known as “interpretation against the draftsman”, is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. The doctrine is often applied to situations involving standardized contracts or where the parties are of unequal bargaining power, but is applicable to other cases. The doctrine is not, however, directly applicable to situations where the language at issue is mandated by law, as is often the case with insurance contracts and bills of lading. The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as it can.

Additionally, the rule reflects the court’s inherent dislike of standard-form take-it-or-leave-it contracts also known as contracts of adhesion. The court perceives such contracts to be the product of bargaining between parties in unfair or uneven positions.

PLEASE NOTE THAT:

1. If there is any ambiguity in the language of the policy, it is to be construed more strongly against the party who prepared it, that is the company-[Anderson Vs. Fitzerald (1853)4HLC848 and Cooperative Assurance Company Ltd. Vs. Sachdeva AIR 1936 Lah 685 :38 PLR 405].

2. If the terms of a policy are couched in any ambiguous language that interpretation should be favoured which is beneficial to the assured. This principal applied equally to the construction of all the policies , whether they are polices of fire, life or marine insurance.

3. Joel Vs. Law Union and Crown insurance Company (1908) 2KB 863- Lord Fletcher Moulton says that;

“ Hence I agree with the words used by Lord St. Leonard in the case of [Anderson Vs. Fitzgerald (1853)4HLC484] to the effect that in this way provisions are used in the policies on insurance which unless they are fully explained to the parties will lead a vast number of persons to suppose that they have made a provision for their families by an insurance of their lives and by payment of perhaps a very considerable portion of their incomes when in point of fact from the very commencement the policy was not worth the paper on which it was written.”

4. It was further observed that there should be tendency in all cases to hold for the assured than for an insurance company. Warranties particularly are to be read liberally in favour of the assured and against the insurance company. Where there is doubt due to contradictory provisions or ambitious expressions, the court should bear against the construction that imposes the obligation of a warranty.

5. The provisions relating to forfeiture should be construed more in favour of the assured that in favour of company.

6. When the words of the policy are susceptible of the interpretation give by the assured although in fact intended otherwise by the insurers the policy would be construed in favour of the assured. It is possible that the language used in the policy may be that of the assured , more particularly in the written part of it. In that case if there is ambiguity it must be construed more strictly against the assured.

CONCLUSION: It is said that the contract of insurance should be construed liberally for the interest of the commerce. But it can never justify indifference to the real purpose of the policy or warrant the recognition of an obligation which was not directly or by reasonable implication imposed by its terms when these terms are fairly interpreted according to their material and ordinary meaning. The insurance company should give more emphasis on drafting terms and conditions of insurance policy. Since any ambiguity or interpretation of terms and conditions will cast the company and court will decide the matter in favour of assured. It should always kept in mind that the written words are given more importance than printed words in insurance policy. It is duty of the insurance company to make the insured/assured fully aware the terms and conditions of insurance policy and free look period will do much in this case. The insurance company must receive a confirmation from the insulated/ assured that he/she has understood the terms and conditions of the policy.

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DISCLAIMER: the article produced here is only for imparting knowledge and information to the readers. The views expressed here are personal views of author and same should not be considered as professional advise.

Author Bio

Qualification: CS
Company: SBI GENERAL INSURANCE COMPANY LIMITED
Location: MUMBAI, Maharashtra, India
Member Since: 25 Aug 2018 | Total Posts: 214
A Qualified Company Secretary, LLB , LIII , Bsc( Maths) BHU, Certification in Insurance Risk Management ( ICSI-III) have completed Limited Insolvency Examination and having more than 20 years of experience in the field of Secretarial Practice, Project Finance, Direct Taxes ,GST, Accounts & F View Full Profile

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