An insurance contract creates a contractual obligation between parties. The formation of insurance contracts is governed by the law of contracts. There must be offer and acceptance and agreement on all material terms, including the premium, the nature and duration of the risk to be covered, and the extent of liability. In determining whether to enter into a particular insurance contract, the insurer assesses the risk and determines an acceptable premium based on the representations made by the applicant for insurance.
An insurance policy may evidence the existence of an insurance contract because often parties will agree, as part of their contract, to be bound by terms and conditions as set out in an appropriate policy. When an insurer uses a standard policy, it may issue a certificate of insurance as proof of the underlying contract on the terms set out in an applicable policy. But an insurance policy or certificate of insurance is only the instrument: it evidences the existence of the insurance contract by which the parties have agreed to be bound. 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. *
William Poulos, Barrister
* This blog is not a substitute for legal advice. Should you require legal advice, a lawyer should be consulted to advise on the specific circumstances of your case.