Some Common Policy Conditions in An Insurance Policy
Some Policy Conditions are sort of put in place to help in regulating the contract. These policy conditions may be implied or they can express conditions.
The Implied Conditions
In the absence of express conditions, the insurance contract is subject to implied policy conditions which are:
- Good faith
- Insurable interest
- Subject matter of insurance
- Identification of the subject matter
- Implied conditions can be expressed in a policy explicitly or can be modified or excluded by the express conditions
Express conditions
These are clearly stated on the policy, there are two types of express conditions
- General Conditions, which are applicable to all policies of that class and are therefore, printed on the policy document.
- Special Conditions: Which are applicable only to that specific policy. The special conditions are thus handwritten or typed or runner stamped on the policy. (E.g type of packaging, compulsory excess, unloading etc)
Now all conditions whether expressed or implied are the operatives clause of a policy.
They are recited as conditions to be fulfilled by the insured for assuming the right to recover under policy. These conditions are further classified into the following types:
- Condition Precedent: This is which precedes the formation of the insurance contract, the statement made in the proposal must be true and complex. The contract also pre-repairs that the subject matter. This must be adequate in all respect and should exist when the contract comes into force. The fulfilment of the conditions in essential for the validity of the contract.
- Conditions Subsequent: Conditions that are subsequent to the validity of the policy are matters that are considered by the parties as required for the continued validity of the policy. One of these is without the consent of the insurer. The risk of the contact should remain constant and should not be altered.
- Conditions Precedent to liability: The assured in the event of occurrence of a loss must fulfill conditions which are precedent to the liability of the insurer, otherwise the insurer is freed from honouring the claims even if the loss is covered by the policy.
These types of policy conditions included
- Sending the notice to the insurer immediately on its occurrence
- Every claim, notice and wit received by the insured on the subject matter should be forwarded to the insurer
- The assured must cooperate fully in the investigation of the cause of loss by the insurer
- The assured must not assume any liability or promise or offer to make any payment to the third party
- Loss minimization efforts as if uninsured
- For life insurance, proof of age and death certificate are some conditions preceded to the liability of the insurer. The insurer cannot be held liable for non-payment if these conditions are not fulfilled.
What can lead to a Breach of Conditions in an insurance policy
A breach of conditions although isn’t usually something to forward to, but it’s also an important part of what insurance policy, or something to note when about to sign an insurance contract.
In a breach of contract, the policy ceases to be operative from the date of the breach.
However, if the insured complies with the request conditions, he can hold the insurer liable for indemnification of the loss.
Read more: Mastering Underwriting in Modern Insurance Practices
Most of the conditions are framed to deal with claims settlement, action required at the time of the loss etc.
When it comes to provisions relating to fraud, generally insurance contract mentions that misrepresentation and concealment of any material fact or fraud will render the contract void.
This conditions can be included as soon warning or as a condition enforceable by the court of law.
Notice of loss:
Most of the contracts of insurance requires the assured to give an immediate notice of any type of damage or loss, if possible.
However if it’s not practicable then the insured should report the loss within a reasonable time frame.
The purpose of this clause is to enable the insurer to inspection the lose and collect the evidence needed to support the claim, again it also ensure that the insured gets the benefits of the policy quickly.
Proof of loss: After property loss has occurred, the insured has to submit a formal proof of loss and it’s amount within the stipulated tine, generally the insurance agent or an adjust helps the insured in doing so but the onus is primarily on the insured to notify the insurer and substantiate the amount of loss.
However, the insurer can take adequate time to investigate further if he wishes to. Lastly any legal suit must commence with 12 months of the occurrence of the loss.
The insurer has to settle the claim especially after receiving all relevant documents.
Appraisal: Most property insurance contract provide that if the parties to the contract cannot agree on the amount of loss, an independent Arbitrator can be selected by both of the parties to the contract.
Do not resort to this process generally, it is mandatory in nature since it is a policy condition.
Protection of property: Most Insurance Contracts contains provisions that require the insured to take up reasonable steps for protecting the property from damage.
Read more: Different Types of Insurance Policies and Coverage
The failure of the insured to carry out the requirements of such provisions relieves the insurer from an liability
Cancellation: All insurance contracts mentions the conditions under which the policy might be terminated and cancelled.
In case of general insurance contracts, either of them parties can cancel the policy. The police for the same is given for 7,10 or 30 days.
This gives the insured time to obtain coverage elsewhere.
Any advance premium paid has to be returned to the insured where the insured opts for cancelling the policy he receives a lesser amounts than what is otherwise available calculated on the basis of Short-period rates.
Time Limitations: As has been mentioned earlier the insured has to notify the insurer on the loss suffered within the specified limit of time set forth.
The event of loss has to be notified. The proof of loss has to be submitted and the claim amount is to be paid. Certain other types of time limits are also found in the insurance contracts.
In case of business interruption insurance, the payment primary depends on the length of time for which the business was shut down.
Waiver of Breach: This happens when the insurer waives the breach of any of the conditions by the insured, the effect is same as the conditions being fulfilled by the insured.
In the case of Barret bros Ltd Vs Lickass, the assured was involved in a motor accident, he has received a notice, which was an intended prosecution for the above accident.
The insured has neither informed the insurer about the accident nor had he forwarded the notice till them.
The insurer on coming to know about the prosecution from the police, instead of asking for the notice, merely asked for the reason why he had not complied with the requisite conditions.
The letter of the insurer was considered as soon waiver of the breach by the insured.
The fulfilment of the conditions mostly depends on the conduct of the insurer and sometimes is made redundant by his conduct.
Assignment: The policy of insurance is a personal contract and thus if the insured wants to transfer the right of the policy, he can only do so with the consent of the insured.
The transfer of rights can be made through assignment of the policy. Assignment means transfer of rights to another person usually made through a written document.
When the property on which insurance has been obtained is sold the existing policy might be transfered to the buyer of the policy with the permission of the insurer.
Assignment of the Proceeds of the Policy: Mere transfer of the rights of receiving the benefits of the policy, which the insured is entitled to does not require the approval of the insurer.
This is because it does not amount to the assignment of the policy of the insured for recently the benefits of the policy, where due to a breach of a condition the insurer declines to pay, the assignee cannot receive anything from the insurer.
Premium: The Consideration for Assuming the risk, by the insurer is the insurance premium, the payment can be in the form of a lump sum or in the form of a series of periodical instalment, in certain portfolios such as Marine and Marine Hull etc) The form of payment would be determined by the terms of the contract.
The insurer should actually receive the premium before he can assume the risk. The insurer should actually receive the premium before he can assume the risk.
The insurer cab assume risk, if the amount is to be paid to the agent or a money order book or is posted.
It must also be noted that acceptance of the premium by the insurer does not amount to conclusion of the contract (acceptance of the money as advance deposit only saves the insurer).
