Chapter 3. Contract Formation

• Pages: 44-62

CHAPTER 3

CONTRACT FORMATION

3.1 INTRODUCTION

Because domestic legislation o ers little assistance, Commonwealth Caribbean jurisprudence

resolves issues and disputes in contract formation – including attendant rules – by application

of regional case law

1 augmented by British, Canadian, and Australian jurisprudence.

As established in our previous chapter, the insurance contract is a sub-species of contract.

2

It is therefore from the common law that the general principles of contract formation must be

extrapolated. These principles apply equally to contracts of insurance: o er, acceptance, con-

sideration, capacity and an intention to form legal relations. As stated by the Supreme Court in

the Jamaican decision of Bennett v Advantage General Insurance Co. Ltd : 3

it is well established that in order for a binding contract of insurance to arise, there must fi rst be

an o er put forward by one party to the contract and the acceptance of it by the other. An o er,

it is said, is usually made by the proposer (the proposed assured) who completes a proposal form

and sends it to the insurers for their consideration. The insurers would then accept the proposal

made leading to an agreement.

In some situations, counter-proposals may be made by the insurer so that negotiations may

end with the insurer making a fi nal o er for insurance cover to the proposer, which is up to

the proposer to accept by, for instance, tendering the premium due. The general principles of

contract law are applicable insurance law. In Sukhbir v GTM Fire Insurance Co. Ltd , 4 emanating

from the jurisdiction of Trinidad and Tobago, it was stated that there is no rule of common law

requiring contracts of insurance to be in any particular form, or in writing at all.

5 Usually these

contracts are made by the o er of the proposed insured by the completion of a proposal form

which is given to the insurers for their consideration and acceptance. Negotiations may or may

not ensue, leading ultimately to the issuing of the policy of insurance. A binding contract of

insurance, however, can be made notwithstanding the failure to fi ll out a proposal form or the

issuing of a policy. The only requirement is that there is consensus ad idem on the material terms

of the policy. This is a fundamental feature of insurance law:

An acceptance will be of no e ect in law unless the parties have agreed upon every material

term of the contract they wish to make. The material terms of a contract of insurance cover, the

amount and mode of payment of the premium and the amount of the insurance payable in the

event of a loss. As to all these there must be a consensus ad idem , that is to say, there must either

be an express agreement or the circumstances must be agreed.

Once the terms of insurance have been agreed by the parties, there is prima facie a binding con-

tract of insurance and the assured is obliged to pay the premium when due and as agreed, and

the insurer for their part must deliver a policy containing the agreed terms.

6

1 The Caribbean Court of Justice has marginally considered issues of insurance. Sea Havens Inc. v Dyrud , BB

2011 CCJ 7. Insurance was only briefl y referenced where the company was in breach of its obligations as

to payment of insurance premiums and land taxes. Canadian Imperial Bank of Commerce v Gypsy International Ltd

and Beepat , BB 2015 CCJ 7.

2 See further G. H. Treitel, Law of Contract , 14th edn (ed. E. Peel; Sweet & Maxwell: 2011), Chapters 2–5.

3 JM 2011 SC 98.

4 TT 2006 HC 28.

5 See N. Legh-Jones, J. Birds and D. Owen, MacGillivray on Insurance Law , 10th edn (Sweet & Maxwell: 2003), p. 121.

6 AG of Trinidad and Tobago v Kalackall Bhooplal Smalal (1987) 36 WIR 382: ‘it is essential when weighing the

credibility of a witness, to put correctly into the scales the important contemporaneous documents.’

Contract formation 45

3.2 PRACTICAL PERSPECTIVE

There are, however, several aspects of insurance law unique to the contract of insurance. From

a theoretical standpoint, an obvious tension exists between classical contract theory and insur-

ance law. Either as a product of or in an attempt to circumvent this friction, insurance law

has some peculiar features in the form of the concept of insurable interest, the doctrine of

umber rimae fi des and the status and rights of the benefi ciary.

7 Further, several di culties are

encountered when one attempts to apply general contract principles to the insurance contract.

The dominance of a laissez-faire philosophy, as a result of the standard form nature of the

insurance policy and the consequential inequality in bargaining power of the parties to the

contract, means that a di culty is encountered when attempting to determine a consensus ad

idem ideology within the context of insurance. To the individual insured who did not participate

in the negotiation or drafting of the contract, the superior position of the insurance company

is reinforced by the prevalence of drafting devices such as declaration clauses and basis of con-

tract clauses. Specifi c ter ms expressed within the proposal form and/or the policy of insurance

may operate as conditions precedent to the conclusion of the contract or, more signifi cantly, the

liability of the insured in the case of conditions in proposal forms.

From a practical standpoint, the contract of insurance possesses distinguishing features

from other commercial contracts. First, the contract of insurance cannot be secured without

the involvement of several di erent actors or intermediaries: agents, salesmen, brokers and

underwriters, along with medical personnel with respect to life insurance. Second, the contract

of insurance comprises several distinct documents which collectively constitute the contract:

the proposal form, policy and (in motor insurance) cover notes. Third, the insurance industry

embraces several di erent types of insurance contracts each possessing unique characteristics

(e.g. Lloyd’s contracts, travel insurance and coupon insurance).

3.3 OFFER AND ACCEPTANCE

An o er to enter into a proposed contract may be made by the potential insured by completing a pro-

posal form. This is a standard form, a mass-produced document, drafted by the insurer. The insurer

may simply accept the o er or may accept it with qualifi cations which, in classical contract terms,

will amount to a counter-o er.

8 Section 25 of the Barbados Marine Insurance Act

9 provides that a

contract of marine insurance is inadmissible in evidence unless it is embodied in a marine policy.

7 See further A. S. Burrows, ‘The Will of Contract Revived – Freid’s “Contract as Promise” ’ (1985) Current

Legal Problems 141; M. A. Eisenberg, ‘The Responsive Model of Contract Law’ [1984] 36 Stan. L. Rev . 1107;

A. D. Burgess, ‘Adhesion Contracts and Unfair Terms; A Critique of Current Theory and Suggestion’

(1986) 15 Anglo-Amer L. Rev . 255–280; J. Cumberbatch, ‘“In Freedom’s Cause”: The Contract to Negotiate’

[1992] 12 Oxford J. of Legal Stud . 58.

8 Earlier, in Joseph v First National Insurance Co. Ltd , TT 1977 CA 40, it was stated that it is clear that the o er may

assume the form of a letter. Bennett v Advanta ge General Insurance Co. Ltd , JM 2011 SC 98. From the Supreme

Court of Jamaica it has been noted, however, that there is no rule of insurance law that there can be no binding

contract of insurance until the premium has been actually paid or the policy has been issued. Once the ter ms

of the insurance have been agreed upon by the parties, there is, prima facie , a binding contract of insurance

and the assured is obliged to pay a premium as agreed, while the insurers, for their part, must deliver a policy

containing the agreed terms (see M. Parkington and N. Legh-Jones, MacGillivray & Parkington on Insurance Law , 6th

edn (Sweet & Maxwell: 1975), p. 86).

It is duly noted that the form exhibited does bear a signature purporting to be that of the claim-

ant .. . this form was signed by the claimant. I accept as a fact, in all the circumstances, that

the proposal form exhibited by the defendant was signed by the claimant and submitted to the

defendant for the issuance of a policy of insurance.

9 Cap 292.