4. Formation and Interpretation of Insurance Contracts

Introduction and Context

Insurance is often described as a promise to provide financial protection against specified uncertainty. Legally, however, it is more than a promise: it is a contract creating enforceable rights and duties between the insurer and the policyholder, and sometimes between the insurer and other interested parties. The quality of insurance protection therefore depends not only on actuarial pricing and claims administration but also on how the contract is formed, documented, interpreted and performed.

Insurance contracts present special interpretive difficulties. They are usually drafted by insurers, offered to large numbers of customers, expressed through technical language, and supported by proposal forms, schedules, endorsements, warranties and exclusions. The insured may have limited opportunity to negotiate the wording. Courts and regulators consequently examine not only the literal text but also the nature of the transaction, the parties’ knowledge, the purpose of the cover and the fairness of the insurer’s conduct.

The legal framework differs across jurisdictions. In India, general contractual principles arise primarily from the Indian Contract Act, 1872, while insurance business is regulated principally under the Insurance Act, 1938, regulations and directions issued by the Insurance Regulatory and Development Authority of India (IRDAI), and judicial decisions. Similar principles appear in other common-law systems, although terminology and remedies vary. This chapter therefore explains general principles while identifying important Indian applications. Students must always consult the law applicable to the particular policy, place of contracting and type of insurance.

Learning Objectives

After studying this chapter, the learner should be able to:

1. Explain how offer, acceptance, consideration, capacity and legality operate in insurance contracts.

2. Distinguish proposals, quotations, binders, cover notes, policies, endorsements and renewals.

3. Analyse warranties, conditions, exclusions and representations and explain their consequences.

4. Apply major rules of policy interpretation to ambiguous or disputed wording.

5. Evaluate the professional, regulatory and ethical responsibilities involved in policy documentation and claims decisions.

6. Identify contractual risks created by digital distribution, automated underwriting and incomplete documentation.

7. Apply the principles to practical insurance disputes and managerial decisions.

The Contractual Architecture of Insurance

A contract is an agreement enforceable by law. In a conventional insurance transaction, the proposer seeks protection, the insurer assesses the risk, and the insurer agrees to pay a defined benefit or indemnity if a specified uncertain event occurs. The policyholder pays or promises to pay the premium and must comply with contractual duties such as disclosure, payment, loss notification and reasonable cooperation in claims investigation.

Insurance contracts are generally contracts of indemnity, especially property and liability policies. Indemnity aims to restore the insured to the financial position existing immediately before the loss, subject to the policy limit and other terms. Life insurance and many personal accident policies are generally benefit contracts: the agreed sum is payable on the occurrence of the insured event and is not necessarily measured by actual financial loss. This distinction affects insurable interest, valuation and the operation of subrogation.

Insurance is also commonly characterised as a contract of utmost good faith. The principle requires both parties to deal honestly and to disclose material circumstances within the relevant legal framework. Traditionally, the duty was particularly demanding for the proposer because the insurer relied on information unavailable to it. Modern regulation, proposal design and consumer-protection rules increasingly require insurers to ask clear questions and avoid relying on obscure or irrelevant omissions.

Most insurance policies are contracts of adhesion: their standard terms are prepared by the insurer and accepted, rejected or occasionally negotiated by the customer. They are also conditional contracts. The insurer’s promise to pay is subject to occurrence of the insured peril, proof of loss and compliance with applicable terms. These features explain why formation and interpretation are central to insurance management.

Formation: From Risk Proposal to Binding Cover

Offer and invitation to offer

An advertisement, prospectus, tariff, website display or general quotation is ordinarily an invitation to customers to make proposals, rather than a final offer by the insurer. The proposer normally makes the offer by submitting a completed proposal form, accepting a quotation on stated terms, or requesting issuance of a policy. The proposal describes the subject matter, requested cover, limits, period, claims history and other relevant circumstances.

A quotation may contain enough detail to become an offer in a particular setting, but its legal effect depends on wording and context. Phrases such as “subject to underwriting,” “subject to policy terms,” or “cover effective only upon receipt of premium” indicate that further approval is required. Insurance professionals should never assume that a quotation alone creates cover.

Acceptance

Acceptance must correspond with the proposal and must be communicated in an authorised manner. The insurer may accept, reject or make a counter-offer by altering the sum insured, exclusions, premium, deductible or other terms. If the alteration is material, the proposer’s agreement is normally required before the modified contract is treated as concluded.

Silence is generally not acceptance, although conduct may demonstrate acceptance. Issuing a policy, sending a cover note, recording risk on the insurer’s system, collecting premium or beginning claims handling may provide evidence that the insurer intended to assume risk. Acceptance may be conditional, for example, upon payment of premium, satisfactory inspection or receipt of a signed proposal. The effective date and time of acceptance should be recorded clearly.

In urgent commercial insurance, a broker may communicate a “bound” instruction or a temporary binder may be issued. Authority is crucial: a broker’s statement binds an insurer only to the extent of actual or apparent authority recognised by law. A cover note is normally evidence of temporary cover pending issue of the formal policy; it is not necessarily a different contract.

Consideration and premium

Consideration is the value exchanged by the parties. In insurance, the premium is the principal consideration for the insurer’s assumption of risk, while the insurer’s promise to pay is consideration for the premium promise. A premium may be paid in money, through an approved arrangement or, in some contexts, through an enforceable promise to pay. Statutory rules may restrict when risk can attach, particularly in general insurance.

Payment of premium and assumption of risk must be analysed separately. A policy may specify that cover begins only after premium receipt, whereas another may provide credit or permit instalments. Non-payment can prevent formation, suspend cover or justify cancellation, depending on the contract and applicable law. Managers should therefore distinguish “policy issued,” “premium received,” and “risk commenced” in operational systems.

Capacity and authority

Parties must possess legal capacity. Individuals must generally be of the required age and sound mind; corporations act through authorised officers or agents. Minors, persons lacking capacity and insolvent entities may raise special issues governed by applicable law. Capacity is not merely a formal concern: a policy purchased by a person without a legitimate interest or authority may fail in whole or in part.

Agency is fundamental. An insurance agent or broker may bind the principal only within the authority granted. Misrepresentation by an intermediary, incorrect completion of a proposal, or failure to transmit a customer’s instructions can generate disputes about attribution and professional negligence. Internal controls should define authority limits, record communications and ensure that customer declarations are not altered without confirmation.

Legality and public policy

The object and consideration of the contract must be lawful. A policy cannot validly insure an illegal enterprise or create an agreement contrary to statute or public policy. Insurance of a lawful interest does not make unlawful conduct permissible. Fraudulent claims, deliberate self-inflicted losses and arrangements designed to defeat compulsory insurance laws may be denied or invalidated according to applicable law.

Legality also includes regulatory compliance. Insurers must use approved products and disclosures where required, observe licensing and solicitation rules, comply with anti-money-laundering and sanctions obligations, and follow prescribed grievance and claims procedures. Contractual freedom in insurance is therefore limited by public regulation.

Policy Documentation and the Hierarchy of Terms

A policy is not merely a single page. It is a collection of documents that may include the proposal form, quotation, policy wording, schedule, certificate, endorsements, warranties, declarations, inspection reports and renewal communications. The schedule identifies the insured, subject matter, period, limits, premium, deductibles and special terms. The wording explains the operative cover, definitions, conditions and exclusions.

A sound documentation system establishes which document prevails in case of inconsistency. A specific endorsement commonly overrides a general wording provision, and the schedule may modify the standard wording. However, an endorsement must be sufficiently clear and brought to the insured’s attention where required. A certificate may evidence cover but may not contain the full contractual terms. Digital delivery has the same substantive objective as paper delivery: the insured should be able to access, retain and understand the contract.

The entire contract principle encourages interpretation of the policy as a whole rather than isolating a sentence. Definitions, insuring clauses, exclusions and conditions must be read together. A definition that expands “loss” cannot automatically create cover where the insuring clause does not grant it. Conversely, an exclusion should not be interpreted so broadly that it nullifies the principal promise without clear language.

Representations, Disclosure and Misdescription

A representation is a statement made during negotiation, such as the age of a building, claims history or use of a vehicle. A material misrepresentation may affect the insurer’s decision to accept the risk, set the premium or impose terms. The legal consequence depends on the applicable statute, policy wording and seriousness of the statement. Some systems distinguish fraudulent, negligent and innocent misrepresentation; others apply statutory remedies.

The duty of disclosure concerns material facts not necessarily asked in a specific question. A fact is material if it would influence a prudent insurer’s judgment. Examples may include previous losses, hazardous operations, structural defects or a relevant medical history. The duty is not unlimited. Facts already known to the insurer, matters reducing the risk, common knowledge and circumstances waived by the insurer may not require disclosure. Consumer insurance law may replace broad disclosure duties with a duty to answer clear questions honestly and reasonably.

Proposal forms should use plain, specific questions. Insurers should not rely on a vague declaration that the applicant has disclosed “everything material” while failing to identify important subjects. Customers, in turn, must read answers recorded by an intermediary and correct errors before acceptance. Electronic workflows should preserve the original answers, subsequent amendments, time stamps and consent.

Warranties, Conditions and Exclusions

Warranties

A warranty is a term of particular importance concerning the existence, continuation or control of a risk. Examples include a warranty that a sprinkler system will be maintained, that specified security arrangements will operate, or that goods will be stored in a particular manner. Traditionally, breach of warranty could discharge the insurer from liability even where the breach did not cause the loss. Modern legislation and judicial approaches in many jurisdictions moderate that severe consequence, especially where the breach is remedied or is irrelevant to the loss.

The classification of a term depends on substance, wording and law, not merely the heading “warranty.” Insurers should use warranties only where risk control genuinely requires them, state their scope and duration clearly, and train claims staff not to apply them mechanically.

Conditions

Conditions may be precedent to the insurer’s liability, conditions governing claims, or continuing obligations during the policy period. Common examples require timely notice of loss, immediate reporting of theft, preservation of damaged property, cooperation with investigation, compliance with safety requirements and avoidance of fraudulent conduct.

A condition precedent is especially significant: failure may prevent the claim from arising or permit the insurer to refuse liability, subject to statute and judicial control. Claims conditions should be proportionate and should not impose impossible requirements after the loss. An insurer that knows of a breach but acts in a manner inconsistent with reliance on it may face waiver or estoppel arguments, depending on applicable law.

Exclusions

An exclusion removes a category of loss from the initial grant of cover or limits the insurer’s liability. Typical exclusions concern intentional acts, ordinary wear and tear, war, nuclear risks, unlicensed use, pre-existing conditions, consequential losses or specified natural events. Exclusions allocate risk and help make premiums viable, but they can defeat reasonable expectations if drafted obscurely or presented inadequately.

The insurer generally bears responsibility for establishing that an exclusion applies, while the insured ordinarily bears the initial burden of showing that the loss falls within the insuring clause. Burdens may be altered by statute or policy wording. Where an exclusion contains exceptions, the full clause must be read as a unit. Claims analysis should identify the peril, the causal chain, the relevant exclusion and any exception rather than relying on a label such as “flood loss” or “electrical damage.”

Endorsements, Alterations and Renewal

An endorsement modifies the policy after or at the time of issue. It may add cover, delete an exclusion, change a deductible, correct an error, alter the insured interest or impose a special condition. It forms part of the contract only when properly authorised and communicated. A handwritten alteration, system-generated amendment or email instruction should be traceable to an authorised person and accepted according to the insurer’s procedures.

Renewal is not always a mere continuation. A renewal notice may be an invitation to contract, while the new policy may constitute a fresh contract with revised limits, exclusions or conditions. Past practice can assist interpretation but does not automatically preserve earlier cover. Material changes should be highlighted, particularly where automatic renewal or digital consent is used.

Judicial and Professional Rules of Interpretation

Courts seek to give effect to the parties’ objective intention as expressed in the policy. The following rules are particularly important:

1. Plain meaning and commercial context: Clear words ordinarily receive their ordinary meaning, read in the context of the transaction.

2. Whole-contract approach: The policy is read as an integrated document; definitions, schedules, clauses and endorsements must be reconciled.

3. Specific over general: A specific endorsement or particular clause generally prevails over a conflicting general provision.

4. Contra proferentem: If genuine ambiguity remains after ordinary interpretation, unclear language may be construed against the party responsible for drafting it, especially in an exclusion or standard-form term. It is a residual rule, not a licence to ignore clear language.

5. Narrow construction of exclusions: Exclusions are not ordinarily extended beyond their natural meaning, although courts do not rewrite an unambiguous exclusion merely because its result is inconvenient.

6. Business efficacy and reasonable expectations: Interpretation may consider the policy’s commercial purpose and the protection a reasonable policyholder would understand, subject to the actual words and mandatory law.

7. Utmost good faith and fair dealing: Conduct during formation and claims handling may affect available remedies, waiver and the assessment of contractual fairness.

8. Precedent and statutory control: Judicial decisions, consumer legislation, regulatory circulars and mandatory insurance rules can displace purely contractual interpretation.

Interpretation must be distinguished from rewriting. A court may resolve uncertainty but generally will not create cover that the parties did not contract for. Similarly, a claims officer should not deny a claim by extracting an isolated phrase while ignoring the policy’s grant of cover, definitions and surrounding clauses.

A Structured Method for Analysing a Coverage Dispute

A disciplined method improves consistency. First, identify the parties, subject matter, period and applicable law. Second, establish whether a contract was formed and when risk attached. Third, identify the insuring clause and define the event or loss. Fourth, determine whether the insured has established a loss within the grant of cover. Fifth, examine exclusions, exceptions, warranties, conditions and deductibles. Sixth, assess causation: was the insured peril an effective or proximate cause, and does the policy adopt a different causal test? Seventh, review compliance with disclosure and claims obligations. Finally, consider remedies, settlement authority, regulatory timelines and communication duties.

This sequence prevents a common error: beginning with an exclusion before determining whether the loss is covered at all. It also separates formation disputes from performance disputes. A policy may have been validly formed but later suspended for non-payment; alternatively, no cover may have attached because acceptance was conditional and the condition was never met.

Professional and Regulatory Applications

Underwriters translate legal terms into risk-selection decisions. They must ensure that questions are material, underwriting files are complete and deviations from standard wording are authorised. Claims managers interpret policy language consistently, investigate fairly and document reasons for acceptance or repudiation. Brokers and agents must explain material terms, transmit accurate information and avoid promising cover beyond their authority. Compliance officers monitor product governance, disclosure, complaint handling, data protection and regulatory reporting.

Ethically, contractual rights should not be used opportunistically. A technically available defence may be inappropriate where the insurer’s own conduct caused confusion, where a minor and immaterial error had no effect on risk, or where a vulnerable customer was not given an understandable explanation. Equally, customer advocacy does not justify fraudulent claims or concealment. Professional judgement requires fidelity to the contract, law, evidence and fair treatment.

Digital insurance introduces additional governance questions. Online proposal journeys may use pre-filled data, automated eligibility rules and artificial-intelligence models. The insurer must be able to explain what information was used, preserve the version of wording accepted, prevent unauthorised edits and provide meaningful human review for disputed decisions. Electronic records should establish identity, consent, delivery, access and effective time. Automation can improve consistency, but it cannot cure an unclear exclusion or replace accountability for an unlawful decision.

Illustrative Case Study: The Warehouse Fire and the Storage Warranty

Background

A manufacturing company, Meridian Components, purchased a commercial property policy covering fire damage to its warehouse. The schedule included a substantial sum insured and an endorsement stating that flammable solvents would be stored in an approved segregated area. The policy wording described the term as a warranty. Meridian’s production manager temporarily moved several containers to an adjoining area during renovation. A fire began near that area three weeks later.

Situation and problem

The insurer’s surveyor found that the containers were not in the approved area. The insurer repudiated the entire claim, arguing that any breach of the warranty discharged liability. Meridian contended that the relocation was temporary, that the fire originated in faulty electrical wiring away from the containers, and that the insurer’s modern policy and applicable law required a connection between breach and loss.

Analysis

The first issue was whether the endorsement was incorporated clearly and whether Meridian had received it. The second was the legal effect of the term labelled a warranty. The third concerned causation and the evidence about the fire’s origin. The claims team reviewed the inspection report, renovation records, fire-service findings, photographs, training documents and communications between the broker and insurer.

The policy’s wording did not state that every breach automatically terminated the contract. Applicable insurance law restricted reliance on a breach unrelated to the loss. Evidence showed that the containers had not caused or increased the electrical fault that initiated the fire, although their presence increased the volume of combustible material. The parties also disagreed about whether the endorsement required continuous compliance or only compliance during storage of solvents.

Approach and outcome

The insurer obtained an independent causation report and sought legal advice rather than relying solely on the label “warranty.” It concluded that the breach was established but did not satisfy the statutory and contractual requirements for complete denial because the fire was caused by wiring and the policy did not clearly make the term an absolute condition of all liability. The claim was admitted subject to the policy deductible and any proven underinsurance. Meridian was required to implement improved storage controls before renewal.

Learning points

The case illustrates that classification, wording, applicable law and causation must be analysed together. A warranty is not automatically decisive merely because it is headed “warranty.” Insurers should draft risk-control terms precisely and explain them at inception and renewal. Policyholders must treat warranties and conditions as operational obligations, not technical language to be reviewed only after a loss.

Challenges and Common Mistakes

Several recurring errors undermine insurance contracts. Customers may assume that payment guarantees immediate cover, fail to read endorsements, or provide incomplete information through an intermediary. Intermediaries may copy answers without verification or describe exclusions inaccurately. Insurers may issue inconsistent schedules, rely on inaccessible online wording, use broad declarations instead of clear questions, or repudiate claims without analysing causation and waiver.

Another risk is document fragmentation. If the schedule, endorsement and digital portal display different limits, a dispute may arise over which version was accepted. Version control, approval workflows and customer-accessible records are therefore legal controls as well as information-technology controls. Finally, excessive reliance on boilerplate can produce wording that is technically comprehensive but commercially unintelligible.

Current Developments and Best Practices

Insurance contracting is moving toward digital signatures, instant issuance, embedded insurance, usage-based products and automated underwriting. These developments shorten the time between proposal and cover but increase the importance of transparent consent and reliable audit trails. Parametric insurance also requires especially precise definitions of the trigger, data source and payment mechanism because payment may depend on an index rather than proof of actual loss.

Best practice includes:

• stating the effective date, time and conditions of attachment clearly;
• distinguishing quotation, proposal, acceptance, cover note and policy;
• asking focused material questions and preserving the customer’s answers;
• highlighting exclusions, warranties, deductibles and changes at renewal;
• maintaining a controlled hierarchy and version history for policy documents;
• training staff to analyse the grant of cover, exclusions, causation and conditions in sequence;
• providing reasons for adverse decisions and a meaningful complaint route;
• applying human oversight to automated underwriting and claims decisions; and
• reviewing wording against legislation, regulatory guidance, judicial decisions and actual claims experience.

Chapter Summary

Insurance contracts are formed through legally effective agreement supported by consideration, capacity, lawful purpose and authorised conduct. The proposal is usually the customer’s offer, while acceptance may be shown by policy issue, cover documentation or other authorised conduct. Premium payment, effective time and regulatory requirements determine when risk attaches. The policy comprises interconnected documents whose hierarchy and version control must be clear.

Disclosure, representations and warranties regulate the information and conduct on which underwriting depends. Conditions govern performance and claims, while exclusions limit the grant of cover. Their effect depends on wording, causation, applicable statutes and judicial principles. Interpretation gives effect to clear language in its commercial context, reads the policy as a whole and resolves genuine ambiguity without rewriting the contract. Professional practice requires accurate documentation, fair claims decisions, regulatory compliance, ethical conduct and accountable use of digital systems.

Key Terms

Offer: A definite proposal capable of acceptance; in insurance, usually the proposer’s completed application.

Acceptance: Assent to the proposal that creates contractual agreement when legally effective.

Consideration: The value exchanged, principally the premium and the insurer’s promise to provide cover.

Capacity: Legal ability of a person or organisation to enter an enforceable contract.

Insurable interest: A legally recognised interest in the subject matter such that the person benefits from its safety or suffers from its loss.

Utmost good faith: The duty to deal honestly and disclose material circumstances within the applicable legal framework.

Material fact: Information that would influence an insurer’s assessment, terms or decision to accept a risk.

Representation: A statement made during negotiation concerning the proposed risk.

Warranty: A significant contractual term concerning the existence or control of a risk, subject to applicable statutory rules.

Condition: A contractual requirement governing attachment, continuation or enforcement of cover.

Condition precedent: A requirement that must be satisfied before an obligation or liability arises.

Exclusion: A provision removing specified risks, causes, property or losses from cover.

Endorsement: A written or electronic amendment that changes the standard policy terms.

Cover note: Temporary evidence of insurance pending issue of the formal policy.

Indemnity: Restoration of the insured, subject to policy terms, to the financial position before the loss.

Contra proferentem: Construction of unresolved ambiguity against the party responsible for drafting the wording.

Subrogation: The insurer’s right, after indemnifying, to pursue recovery from a responsible third party.

Proximate cause: The legally relevant effective cause used to connect an insured peril with a loss.

Adhesion contract: A standard-form contract offered on terms largely prepared by one party.

Policy schedule: The document recording specific details such as insured parties, limits, period, premium and deductibles.

Review Questions

Short Answer Questions

1. Why is a quotation not necessarily an acceptance of an insurance proposal?

2. Distinguish a condition from an exclusion.

3. What is the purpose of an endorsement?

4. Explain the principle of utmost good faith.

5. What does contra proferentem mean in policy interpretation?

Long Answer Questions

1. Explain the formation of an insurance contract from proposal through acceptance, including the roles of premium, authority and effective date.

2. Discuss the legal and practical significance of warranties, conditions and exclusions in insurance policies.

3. Analyse the importance of policy documentation, hierarchy of terms and version control.

4. Explain the principal rules used by courts and claims professionals to interpret insurance wording.

5. Discuss how digital distribution and automated underwriting affect formation, evidence and governance of insurance contracts.

Analytical / Application Questions

1. An insurer issues a quotation marked “subject to underwriting,” but the customer pays the stated premium and suffers a loss before receiving a policy. Analyse whether cover exists and identify the evidence required.

2. A commercial policyholder fails to maintain a security alarm required by endorsement, but a flood—not theft—causes the loss. Apply the principles of warranty, causation and interpretation.

3. A claims officer relies on a broad exclusion without considering an exception in an endorsement and the policy’s commercial purpose. Advise the insurer on a legally and professionally sound method of reassessing the claim.

22. Multiple Choice Questions with Answers

Question 1

In a typical insurance transaction, which event most commonly constitutes the proposer’s offer?

A. A general advertisement published by the insurer

B. Submission of a completed proposal form

C. A renewal reminder sent by the insurer

D. A claims decision issued after loss

Correct Answer: B. Submission of a completed proposal form

Question 2

An insurer changes the proposed deductible and excludes a risk before issuing the policy. This communication is best understood as:

A. Acceptance without qualification

B. Automatic renewal

C. A counter-offer or modified offer

D. A waiver of premium

Correct Answer: C. A counter-offer or modified offer

Question 3

Which statement best describes consideration in an insurance contract?

A. Only the insurer’s promise has legal value

B. The premium and the insurer’s promise are exchanged values

C. A claim must be paid before consideration exists

D. Consideration is unnecessary when a policy is issued

Correct Answer: B. The premium and the insurer’s promise are exchanged values

Question 4

A policy schedule conflicts with a later, specific endorsement that clearly changes the deductible. Which term will generally receive priority?

A. The general advertisement

B. The proposal form in every case

C. The specific endorsement

D. An oral statement by an unauthorised employee

Correct Answer: C. The specific endorsement

Question 5

What is the most appropriate initial sequence for analysing a coverage dispute?

A. Begin with the broadest exclusion and deny the claim

B. Identify the insuring clause, then examine exclusions and conditions

C. Ignore the schedule and rely only on industry practice

D. Determine damages before deciding whether the event is insured

Correct Answer: B. Identify the insuring clause, then examine exclusions and conditions

Question 6

The contra proferentem rule is generally relevant when:

A. The policy language is clear and favourable to the insurer

B. A claim is fraudulent

C. Genuine ambiguity remains after ordinary interpretation

D. The premium has not been calculated actuarially

Correct Answer: C. Genuine ambiguity remains after ordinary interpretation

Question 7

Why should a claims officer examine causation when considering a breach of a risk-control warranty?

A. A breach is always irrelevant to liability

B. Applicable law may limit the effect of a breach unrelated to the loss

C. Causation determines the policyholder’s age

D. Causation replaces the need for an insuring clause

Correct Answer: B. Applicable law may limit the effect of a breach unrelated to the loss

Question 8

Which practice best supports enforceability of a digitally issued policy?

A. Deleting earlier versions after renewal

B. Relying on an oral explanation not recorded anywhere

C. Preserving wording versions, consent, delivery and effective time

D. Displaying exclusions only after a claim is submitted

Correct Answer: C. Preserving wording versions, consent, delivery and effective time

Question 9

A broker records an incorrect answer in a proposal form without showing it to the customer. The principal concern is:

A. The absence of any possible contractual relationship

B. Attribution, authority and the accuracy of the insured’s representations

C. That all brokers automatically become insurers

D. That premium can never be paid electronically

Correct Answer: B. Attribution, authority and the accuracy of the insured’s representations

Question 10

Which statement most accurately distinguishes indemnity insurance from a benefit contract?

A. Indemnity generally aims to restore financial position subject to policy terms

B. Benefit contracts never require an insured event

C. Indemnity policies cannot contain exclusions

D. Benefit contracts always pay the exact amount of physical damage

Correct Answer: A. Indemnity generally aims to restore financial position subject to policy terms