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What Is Offer and Acceptance In General Insurance Contract

What Is Offer and Acceptance In General Insurance Contract

An offer, intended to create legal relations, must be communicated to the offeree either by words or by conduct.

The phrase ‘insurance is the subject matter of solicitation’ is very commonly seen and heard. What this indicates is that insurance is sought by the person who wants to buy it from the insurer. It is to be solicited or purchased by the consumer. It must be remembered that “Customer’s participation in availing the insurance products and services are purely on voluntary basis.

[Post Image Courtesy of DDPavumba at FreeDigitalPhotos.net]

This means that the insurance company is providing you insurance against a risk on YOUR request/solicitation, i.e. the company agreed to sell you its insurance policy after you solicited or asked for such a sale. In legal terms, insurance is a product that should not be pushed by a seller, but should be pulled by a buyer.

The proposal is made by the insured and accepted by the insurer.

1. Agreement between the Parties – The acceptance of the proposal by the insurer together with the premium is expressed in the form of a contract – the insurance policy; together with the clauses is the basis of the agreement between the parties.

2. There must be Evidence of the Intention of the parties to enter into a contractual relation

This may be provided by the formal procedure of making the promise under seal, or it may be by the existence of consideration.

3. Consideration –The premium paid by the insured for the contract is the consideration

4. The parties must be recognized by the law as having the Capacity to Contract

All aspects regarding the capacity to contract, age, mental capacity and understanding etc as defined in the Indian Contracts Act, 1872 is applicable.

5. The consent of the parties MUST BE REAL

That is to say, the parties must not have been threatened, unduly influenced, deceived or misled in a manner which would nullify their agreement.

6. The subject-matter of the contract must be Legal and Possible

If one of these essentials is missing, the contract is void, voidable or unenforceable, depending upon the circumstances. A void "contract" is a contradiction in terms for it never can be a contract. A voidable contract is valid but, at the option of one of the parties,

We have already familiarized ourselves with the principles of insurance. To refresh ourselves, let’s take a quick look again –

1. Principle of Uberrimae fidei (Utmost Good Faith),

2. Principle of Insurable Interest,

3. Principle of Indemnity – with corollaries

(i) Principle of Contribution,

(ii) Principle of Subrogation,

4. Principle of Loss Minimization, and

5. Principle of Causa Proxima (Nearest Cause).

In risk management, we noted that insurance is a method of risk transfer, where many share the losses of a few. The whole concept of insurance is spreading the risk. The principle of indemnity is the basis of the existence and spread of insurance- the fact that a person, who has suffered losses, needs to be placed in the position where he was prior to the loss or as if the loss had in fact not happened.

The main point to be noted here is that the loss should be fortuitous, or accidental, the loss should not be inevitable.

Insurance Law And Practice - ICSI

About Author Mohamed Abu 'l-Gharaniq

when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries.

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