Answer ... Pursuant to Section 1 of the Insurance Act, “an insurance contract exists when the insurer assumes the obligation, by means of a premium or quotation, to compensate a damage or perform an agreed action if the foreseen event occurs”.
Entering into an insurance contract usually involves the following stages.
Proposal form: According to Section 4 of the Insurance Act, the insurance contract is consensual (ie, it is entered into through the parties’ consent and it enters in force from that moment, even before the policy is issued). The proposal binds neither the insured nor the insurer, and it may be subject to prior knowledge of the general conditions.
If there are any differences between the proposal form and the terms of the policy, such differences will be considered accepted by the insured if no claim is made within one month of having received the policy (Section 12 of the Insurance Act).
Quotation: Under some circumstances, the quotation of the premium may be fixed or may be made available to the future insured prior to the proposal being placed.
Placement: An insurance contract is deemed to be concluded when the proposal of the insured is accepted by the insurer. This is the legal definition provided by the Insurance Act, although it has become outdated in some respects. In practice, the main terms and conditions and a premium quotation are usually made available to the insured, which in term accepts by requesting the issuance of an insurance policy under the conditions discussed. The legal solution is to consider insurance as a consensual contract, which is concluded and binding upon the expression of consent regarding the main terms of the insurance agreement, which does not require any written or formal expression, including the actual issuance of the policy (Section 4 of the Insurance Act).
Evidence of contract: An insurance contract can only be evidenced in writing. Other means of evidence are admitted if there is any form of written proof which may indicate the existence of the contract (Section 11 of the Insurance Act).
Utmost good faith, disclosure and representations: The duty to act in good faith is essential in insurance law and is binding on both the insured and the insurer.
Any non-disclosure or misrepresentation, or any failure to disclose material circumstances known by the insured before the contract is concluded – even if made in good faith – which in the opinion of experts could have prevented the insurer from entering into the contract or prompted the insurer to modify its conditions had the insurer been aware of the real status of the risk, makes the contract null and void (Section 5 of the Insurance Act). If the failure to disclose was not wilful, the insurer may, at its sole discretion:
- annul the insurance contract by returning the collected premium with a deduction of the applicable expenses; or
- readjust the premium with the consent of the insured.
However, if the insured acted wilfully, in principle, the insurer may keep the premium and annul the contract.