Subtleties of the Master Policy

Master Policies ease protection for groups and group members. All insurers would receive master policy requests from various organisations – organised and unorganised. Master policies are used in property, liability, health, PA etc. This is because both organisations and insurers understand the administrative complexities for managing the paperwork and maintenance of numerous records, when individual policies for their members have to be issued. However, there are many issues to be kept in mind relating to master policy as laid down by the IRDAI and also as ruled by courts.

A ‘master policy’ is given when a named group takes out an insurance cover for the benefit a certain identifiable group. Each member of the group is then enrolled, not necessarily at the same time, but across the policy year. The master policy will be administered by a named organiser/insured who acts as sponsor, under the master policy. The insurer will issue some form of master policy and enrolled members is to receive a certificate or evidence of insurance. The group organiser can recover management expenses for the administration of the master policy program from the members.

The Consumer Education Website of the IRDAI gives the following information about Group Insurance: “A group insurance policy gives you advantages of standardised coverage and very competitive premium rates. You can avail of group insurance policies that a group you belong to takes.

Groups – for this purpose - can be employer-employee groups or non-employer-employee groups as defined by IRDA’s group insurance guidelines. (Examples are holders of the same credit card, savings bank account holders of a bank or members of the same social or cultural association and so on.)

Here are some things to be careful about when you participate in a group policy:

1.????? Only one master policy will be issued to the Manager of the group and will be in the name of the group (eg: the association)

2.????? You are entitled to get a certificate of insurance if you participate in a non-employer-employee group policy for your records.

3.????? This certificate should contain the schedule of benefits, premium charged and terms and conditions of the cover

4.????? Your cover could cease if you leave the group

5.????? When you leave the group, the insurer should offer you continued coverage under an individual policy

6.????? The Manager of the group should disclose the premium rate and terms of the policy including the premium discounts offered to the group and should pass on the discounts to all members

7.????? The manager of the group has to disclose any administrative or other charges he is collecting from members over and above the premium charged by the insurance company”.

Courts on Master Policy

In the case Van Huizen v. Trisura Guarantee Insurance Company, 2020 ONCA 222, the Court of Appeal for Ontario, explains the difference between a master policy and a contract of insurance. The court was dealing with a professional liability master policy dispute. (Paras are quoted below).

?

Insurance policy can be distinct from an insurance contract

“[22] It is therefore important for the purpose of this appeal to clarify the distinction between an insurance policy and an insurance contract. These words are often used interchangeably. This conflation can give rise to considerable confusion, as it did here.

[27] Therefore, while an insurance policy sets out terms that may govern the relationship between the parties to an insurance contract, it is the contract that gives rise to legal consequences and must be the subject of interpretation for the purposes of determining the parties' rights and obligations.

Master Policy is not a binding contract

[32] For the reasons I have already stated, the master policy does not, however, constitute such a binding agreement on its own. It cannot. The master policy merely sets out the terms of professional liability insurance being offered to the members of the AIC. It is missing key terms on which agreement is necessary to form an insurance contract, including the assessed risk, the premium to be paid and the term of insurance.

The Certificate gives evidence of the contract

[33] Each member who desires coverage must apply for the coverage on terms set out in the master policy. The insurer can then assess the individual risk of the applicant in determining the premium and in deciding whether to enter into a contract with the applicant. Provided the member and insurer come to an agreement on the remaining essential terms of the contract and agree to be bound by the master policy, the insurer will issue a certificate to the member, evidencing the existence of that contract.

Terms of the Master Policy and Certificate have to be complied with

[34] It follows that while each member who holds a certificate will be bound by identical terms as set out in the master policy, they are also bound by the unique terms as set out in their certificates and are therefore necessarily party to separate contracts with the insurer. In Re Lawton, at p. 37, Bergman J.A., concurring, noted a similar phenomenon in the context of a group life insurance policy for employees of a certain employer:

The master policy is, in effect, merely an agreement by the [insurer] with the [employer] to insure the individual employees who are eligible, on the terms specified in the master policy. In my opinion the certificates issued to the individual employees pursuant to, and in performance of, that agreement, constitute the real and effective insurance. I am further of the opinion that these certificates are not incorporated in, and made part of, the master policy. It is the other way about; the master policy is incorporated in, and made part of, each individual certificate of insurance.

Certificates are separate insurance contracts

[35] Similarly, the certificates issued to Mr. Van Huizen and Mr. Barkley each evidence a separate insurance contract on terms including those set out in the master policy. The declarations specify exactly what constitutes these contracts of insurance: "These Declarations along with any completed and signed Application and the Policy, each Member Certificate of Insurance, and endorsements, if any, shall constitute the entire contract between the Insured and [the appellant]" (emphasis added).

[36] The individual nature of the insurance contract is also reflected in the declarations, which say that the name of the insured is "[a]s per individual certificate", as well as that the policy period is "[a]s per individual certificate", and that the premium is "[a]s per individual certificate". Further, the master policy summarizes the bargain that underlies the insurance contract, namely, that it is "in consideration of the payment of the premium and in [page598] reliance upon all statements made and information furnished" to the appellant, "including the statements made in the Application", that insurance is agreed to be provided.