Proposal Form – Can it override the terms of the Policy?

In the case Pilkington United Kingdom Ltd v CGU Insurance Plc [2004] EWCA Civ 23, the England and Wales Court of Appeal, quoted from an old case Bradley and Essex and Suffolk Accident Indemnity Society [1912] 1 KB 415, stating: “61. In Re Bradley, the policy was an indemnity against employer's liability under the Workmen's Compensation Act 1906. The policy contained a term requiring the employer to keep a wages book containing the names of all employees and their remuneration and to notify the insurers of details of all remuneration paid during the period of insurance… The insurers repudiated liability of a claim on the grounds that the insured, who was a small farmer with one employee, did not keep a wages book. The policy contained a clause providing that observance "of the conditions of this policy" should be a condition precedent to insurer's liability.”

The court in Bradely had highlighted the value of the proposal form. The court said: “The society, in response to the proposal, gave the claimant a policy of insurance, dated April 1, 1908, which recited that the claimant (thereinafter called “the insured”) had made to the society “a written proposal and declaration dated March 25,1908, containing certain particulars and statements which it is hereby agreed shall be the basis of this contract and be considered as incorporated herein,” ….

In the lower court it was pointed out “that if the condition as to a wages book had been intended to be a condition precedent, it would have been put in the proposal for a policy; but it is submitted that it is immaterial whether the condition is in the proposal or the policy, and that if it was not meant to be a condition precedent, the proposal was the document which should have contained the condition.”

Justice Farwell, one of the Judges in the Bradley case, was clear: “Contracts of insurance are contracts in which uberrima fides is required, not only from the assured, but also from the company assuring. It is the universal practice for the companies to prepare both the form of proposal and the form of policy: both are issued by them on printed forms kept ready for use; it is their duty to make the policy accord with and not exceed the proposal, and to express both in clear and unambiguous terms, … It is especially incumbent on insurance companies to make clear, both in their proposal forms and in their policies, the conditions which are precedent to their liability to pay, for such conditions have the same effect as forfeiture (repudiation) clauses, and may inflict loss and injury to the assured and those claiming under him out of all proportion to any damage that could possibly accrue to the company from non-observance or non-performance of the conditions.”

The Judge continued: “It has been further held that if the proposal be in one form, and the office draws up the policy in a different form, varying the right of the assured, Courts of Equity would rectify the policy so as to make it accord with the proposal: Collett v. Morrison (3) ; Griffiths v. Fleming (4) ; and in cases like the present, where the proposal is “ considered as incorporated” in the policy, the Court will, on construction of the two documents read together, give effect to the proposal as overriding the policy where they differ.” Further the court said: “They receive a printed form of proposal, and it is reasonable to assume that they read and rely on it, and they receive in exchange for the form so supplied to and required from them a policy which they are entitled to assume and do assume, in most cases without careful perusal of the document, to accord with the proposal form. It is, in my opinion, incumbent on the company to put clearly on the proposal form the acts which the assured is by the policy to covenant to perform and to make clear in the policy the conditions, non-performance of which will entail the loss of all benefits of the insurance.”

“It is contended that it is of the utmost importance to insurance companies that they should be able to defend themselves against frauds by inserting conditions precedent, such as keeping wages books, and the like. Be it so; there is no objection whatever to the insertion of such conditions, so long as the intending assured has full and fair notice of them and consents to them.”

The court said that this could have been easily be done by stating them briefly in the proposal forms with the addition that payment may be refused if they or any of them are not complied with; “but it is, in my opinion, scarcely honest to induce a man to propose on certain terms, and then to accept that proposal and send a policy as in accordance with it when such policy contains numerous provisions not mentioned in the proposal, which operate to defeat any claim under the policy, and all the more so when such provisions are couched in obscure terms.”

The court during the hearing had found that the arbitrator had been satisfied that the wages were paid; and that the claim was a perfectly honest claim. Further that there was nothing in the proposal form to suggest the need to keep a wages book, nor that there was any evidence that it was usual for a farmer employing one man only to keep such a book.