The Proposal Form
There is one other essential component to the contract of PI insurance that is not contained in the policy wording; the proposal form. The proposal form forms the basis of the contract and it can be the document that is relied upon by insurers and their legal advisors in determining their liability to pay a claim. This concerns the matter of material information and full disclosure of activities, claims history and the like.
For all practical purposes the starting point of a PI policy is the link between the description of your business in the policy wording in comparison with the description of your business in the proposal form and any supplementary information appended to the proposal form. If there is a material difference between these two things there is an inherent weakness in the insurance cover.
A significant proportion of a Professional Indemnity Proposal Form is devoted to facts and figures relating to the business being insured. These can be questions relating to the proportions of business by category transacted by your firm, questions relating to internal procedures and questions relating to how many of certain types of policy or product have been transacted in previous years. The accuracy of these answers is paramount. Insurers can, and do, attach significance to the slightest discrepancy in these facts and figures.
It must also be said that the questions in the proposal form are not exhaustive and it may be open to Insurers to argue that information material was relevant albeit not requested in the proposal form itself.
Today, the law relating to non-disclosure is harsh. Developed at a time when the law played a less prominent part in the commercial decisions of underwriters the law relating to non disclosure has been relentlessly tightened to a pitch that is now a significant peril for every policyholder. Whilst there have been calls from the judiciary for this aspect of the law to be reformed, as things currently stand experience has shown that the courts will assume that an insurer was entitled to rely upon the information as disclosed, in whatever form disclosed and rely upon the disclosure as being totally accurate
Further it is assumed that as the Proposer knows more about their business than the insurer. The Proposer will also be expected to know what more the insurers should be told, that is material, beyond what is asked in the proposal form. This is especially true of insurance brokers; experts in the subject in their own right. So if material information is not disclosed to the insurer, even if not specifically requested, the insurer may be entitled to avoid liability.
The proposal form is the basis of the contract of insurance and insurers may refer back to it at the time of a claim to establish if the representations made are in fact true. It is easy to overlook a material fact.
Invariably, proposal forms will not ask questions that cover every aspect of the Proposer’s business. If there is any doubt that an aspect of your business is not covered by a question in the proposal form then you should make reference to it in an addendum to the form and give underwriters the opportunity to ask further questions. Failure to do this has led to claims being denied and policies being voided.