As you are aware that ‘Proposal Form’ is the most important documents on the basis of which an insurance policy is structured. A Proposal Form consists of material information related to insured, subject matter of insurance, nature of business in which insured is involved, financial position of insured, the description of risk to be insured and all necessary information related to insured. The Proposal Form also consist of declaration and statements of the insured and same will be incorporated in the Insurance Policy.
The main source of information in an application for risk coverage is the proposal form that the applicant or the intermediary submits to the insurer. A duly completed proposal form is the basis of insurance, and any changes at each renewal may be advised by the insured to the insurer by a letter signed by the insured. A proposal form is a standard printed document that is completed by a person who is requesting insurance coverage.
A Proposal form is the most essential and fundamental document required for an insurance contract between a prospective customer and the insurance company. It includes the customer’s necessary information like name, address, age, education, occupation etc. It can also include the person’s medical history.
The proposal form is used to introduce the customer to the insurance company, confirming the identity of the prospective customer to ensure he is not a robot.
The proposal in insurance is a request from the proposer to the insurance company to give protection against risk.
PURPOSE OF A PROPOSAL FORM
The uses of an insurance proposal form can be summarized below;
i) It is the basic means by which the insurer can access information regarding the risk proposed.
ii) It also enables the insurer to determine the premium payable on the risk involved in the transaction.
iii) Proposal forms are the basis on which the insurance contract is based, and all information given by the insured forms part of the agreement.
In many cases the question has arises whether answers in the proposal form are premises that a certain state of things shall continue or a certain course of conduct shall be pursued during the whole period covered by the policy, so that if the particular promise is not kept , the policy is invalidated or whether these promises are merely descriptive of risk , so that if accident happens while the promises state of things subsists , there is a valid claim, but if the accident happens while the state of things has ceased or been interrupted , there is no valid claim, but that provided the loss occurs while state of things is in being , the policy is not avoided by the fact that at some other time state of things has been discontinued or interrupted.
These questions have arisen in various cases in Farr Vs. Motor Traders Mutual Insurance Society, (1920) 3KB 669 – it was decided that statement in proposals (although descriptive as warranties) were merely descriptive of the risk insured against, and in Dawsons Ltd. Vs. Bonnin (1922)2 AC 413- the statements in proposal form were treated as warranties.
FARR VS. MOTOR TRADERS’ MUTUAL INSURANCE SOCIETY, (1920) 3KB 669 – the facts of the case was, the plaintiff was the owner of two taxi cabs, which he insured with the defendants for one year against damage caused to either of them by accidental external means. In the Proposal Form for the policy the plaintiff in answer to a question stated that each cab was to be driven in one shift per 24 hours. Soon after risk attached one taxi cab was disabled due to an accident and other was driven for two shifts of 24 hours for a short period and during this period no accident occurred. In an action by the insured the Court held that the answers in the Proposal Form were descriptive of the risk and were not conditions restricting the conduct of insured during the whole period of the policy, and breach of this would preclude the insured from recovering.
REBERTS VS. ANGLO SEXON INSURANCE ASSOCIATION, (1927) 96 LJKB 590- in the proposal the insured described the purpose for which the vehicles were to be used as commercial and the nature of goods to be carried were textile goods. The accident happened when lorry in fact was carrying passengers and not commercial goods as described in the Proposal Form. It was held in the Court of Appeal that the word “Commercial” and “Textile Goods” were descriptive of the risk and not conditions of validity of the policy, but as accident happened when the lorry was not used for commercial purpose of carrying textile goods, the risk in respect of which the claim was made was not the risk insured against, and the insured was not entitled to recover.
The House of Lords had decided the soundness of above two cases in DOWSONS VS. BONNIN, (1922) 2 AC, 413- the House of Lords gave judgement against the insured. It is to be observed that the question which the court was called upon to decide was not whether the answers of the insured were warranties or merely descriptive of the risk insured, but the ground of decision of the Court was that there was insurance against loss of a vehicle by fire at one place, and the vehicle is destroyed in another place, the risk which has destroyed, it is not the risk, which was insured. In above case an insurance against fire was taken by the insured for his vehicle and in the proposal form the vehicle was described to be usually garaged at “6 Cadogan Street, Glasgow”. In fact, the vehicle was not usually garaged there either at the time of the filing of Proposal Form or during the currency of the Insurance Policy, or even at the time of the accident.
IN MORGAN AND PROVINCIAL INSURANCE COMPANY (1932)2 KB 70 in this case the Proposal Form stated that the purpose for which the lorry was used for delivery of coal and the nature of goods was coal. A collision was incurred, while the lorry was carrying coal. But it was contended on behalf of the company that at a previous time the lorry was carrying timer and the premium paid by the insured was less than that which would have been payable, if the insured had stated that the lorry was to be used for general haulage, that there was a warranty that nothing but coal should be carried and when timber was carried the warranty was broken and hence, they (the insurance company) were exempt from the liability.
It was held that on the true construction of the particular contract, the relevant answers in the Proposal Form amount to nothing more than a description or definition of the risk insured against and that as the accident occurred while the lorry was in course of delivering coal and was therefore, within the risk, the insured was entitled to recover.
IN INDIA also the decision of REBERTS VS. ANGLO SEXON INSURANCE ASSOCIATION, (1927) 96 LJKB 590 is followed
THAKER GOPAL SINGH Vs. MUTUAL INDEMNITY AND FINANCE CORPORATION LTD., AIR 1937 ALL 535 & SIBTAI HASAIN Vs. GUARDIAN ASSURANCE CO. AIR 1937 OUDH 476.
In one case the Proposal Form for insurance of a motor bus contained the words “Licensed to carry passengers”. There was no reference to any qualification that the bus should carry passengers only either terms or conditions mentioned in the body of Insurance Policy or in the endorsement on the back of the policy, but at the foot of the schedule which according to the Operative Clauses of the policy was to describe the vehicle insured against the words “purpose for which the vehicle to be used” the words “Carrying Passengers” were inserted. The motor bus was burnt while carrying four passengers and sixty tons of Mustard Oil and the company repudiated liability on the ground that the bus was not carrying passengers but hazardous merchandised, when it took fire.
WHILE GOING THROUGH POLICY DOCUMENT
Now coming to the policy, we find that although the preamble specifically stated that the proposal was to be the basis of the contract and was to be incorporated in the policy, the operative clause did not refer to the proposal again and specifically made the company liable for damage caused subject to the terms and conditions of the policy inscribed on the face thereof or endorsed thereon. There is no mention that it was subject to the terms and conditions contained in the schedule attached to the policy.
On the other hand, the operative clause stated that the indemnity would be in respect of any vehicle described in the schedule. Thus, a clear distinction was drawn between the terms and conditions inscribed on the face of the policy or endorsed thereon and the description of the vehicle as given in the schedule.
It is a point worthy of note that there is no reference to any qualification that the lorry should carry passengers only, either in the terms and conditions mentioned in the body of the insurance policy or in the endorsements on the back thereof. The only reference to this is to be found at the foot of the schedule which, according to the operative clause, was to describe the vehicle which was insured.
There were two blanks which were left unfilled; one was chassis number, and the other was registered number and letter. These specifications had however been supplied in the proposal form. Below the table the words: “Purpose for which vehicle will be used, carrying passengers”, no doubt to some extent supports the defendant’s case, but they too do not say “carrying passengers only or exclusively”, and were certainly intended to be a description of the vehicle insured because they occur in the schedule which was to describe the vehicle, and are no part of the conditions and the endorsements of the insurance policy.
THE COURT HELD THAT
The defendant Insurance Company seized on this entry and made an objection at once that the lorry was being used for the transport of hazardous merchandise, whereas it was described as carrying passengers. Possibly some idea existed at that time of taking advantage of condition No. 4 of the policy that the assured shall at all times exercise reasonable care in the protection and use of the insured vehicle. If it were shown that he was carrying hazardous merchandise, that possibly might have been some defence and the same statement of hazardous merchandise appears in para. 5 of the written statement. No evidence was given on behalf of the Insurance Company that mustard oil is hazardous merchandise.
Explosive inflammable substances like petrol or carbide and kerosene are considered as dangerous by car Insurance Companies. Mustard oil in sealed tins is not so considered.
Mustard oil may be combustible as the evidence shows that 50 out of 60 tins were burnt but there is no evidence on the record to show that it is inflammable and therefore it does not appear to be established that it was in any sense hazardous merchandise.
Now it appears to me that the company may have put forward the claim in this connection in regard to passengers owing to the particular rules in force in Calcutta under the Calcutta and Howrah Motor Vehicle Rules which are very different from the U.P. Rules. The Calcutta Rules provide in Rule 2(14) for classification of a motor lorry as a motor vehicle which is ordinarily-used for the carriage of goods and the registration of such a vehicle comes under Rule 4(4)(c).
Motor omnibus is defined in Rule 2(17)(b) as a motor vehicle which carries passengers and it is to be registered under Rule 4(4)(b). Now there is no provision in the Calcutta Rules that a motor omnibus may carry goods or indeed that any vehicle can carry goods and passengers at the same time. If there is to be any change in the classification, an application must be made under Rule 6(b).
The U.P. Motor Rules which apply in the present case are different and as the learned Chief Justice has shown in detail it is possible to have a vehicle, that is a motor lorry, which is a public motor vehicle for the carriage of goods or goods and passengers. The permit which was granted in this case allows carriage of goods and passengers. There was therefore nothing illegal being done by the plaintiff in carrying goods and passengers under the present conditions. I am of opinion therefore that the validity of this policy was not affected in any way by this action.
The Court held that the words “licensed to carry passengers “in the Proposal Form and “Carrying Passengers “in the Schedule to the policy were merely words describing the motor vehicle. They did not define the risk nor did they amount to a condition or warranty and the company was therefore liable.
CONCLUSION: from above decision it is clear that the statement or words used in the Proposal Form by the insured at the time of applying insurance policy are mererely descriptive in nature and describing the subject matter (in case of motor about vehicle) and they do not define the risk insured and not amount to a condition or warranty.
DISCLAIMER: the above case law is only for information and knowledge of readers. in case of necessity do consult with insurance advisors.
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