INSURANCE POLICIES

 Insurance Underwriting Process (CII)

CHAPTER 3

INSURANCE POLICIES

There are three things you should remember about the insurance policy: (chapter 2)

• the policy will contain the details of the terms and conditions
• generally speaking, the parol evidence rule applies, i.e. neither party can rely on (mengandalkan) any negotiations leading up (mengarah) to the contract, only on the contract itself, and (Dalam sistim common law ada konsep parol evidence rule yang maksudnya adalah apabila makna suatu kontrak jelas maka bukti lisan dan bukti lain yang tertulis tidak diperkenankan mengubah makna kontrak tersebut .
• the policy is only evidence of the contract and not the contract itself. 

The general layout and content of a typical insurance policy

A. Structure, form and content

• In the early days of insurance, policies were of a narrative type, i.e. each policy was prepared by hand and was specific to the insured concerned.
• Nowadays, insurance policies are issued in a scheduled form, i.e. the policy wording is pre-printed, often in a booklet, and a schedule is incorporated (dimasukkan) in the policy.
• The policy schedule contains all the variable information concerning the insured and details of the risks insured
• Every insurer has its own form of policy for various classes of business it offers, and these vary considerably in style and length.
• Style will usually be determined by company or corporate approached to documentation
• Some companies produce policies in A4 format; others bind them in plastic folders, other have smaller, booklet-type document.
• Generally speaking therefore, the basic structure of all general insurance policies will be the same, and will incorporate the following

• 1. Heading (Judul) 
• Every policy will have a heading which includes the name of the insurer and in some cases, the address and company logo. The 'heading' speaks for itself, and does not really need further comment
• 2. Preamble (pembukaan)
• The preamble (also knows as the recital clause) sets the scene for what follows in the policy by referring to the two parties, the insured and the insurer (although not by name), forming the contract in terms of which the insurer undertakes to indemnify the policyholder ('insured") in accordance with the cover detailed in the policy, in return for a price (the "premium")
• The preamble also states that the proposal form is the basis of the contract and will be incorporated within the policy. This effectively makes the proposal form part of the contract, even though it is not actually reproduced and printed within the policy. This has important implications in respect of the declaration signed by the insured on the proposal form 
• 3. Signature (tanda tangan)
• 4. Operative clause (Klausula yang berlaku)
• This is the most important section of the policy, and is where the actual cover provided is outlined.
• There may be just one clause outlined the cover or, as is more common, a number of such clauses, each dealing with different aspect of the insurance and often containing exceptions that are specific to each individual operative clause
• 5. Exceptions (pengecualian)
• All insurance policies contain some general exceptions which apply to the entire contract.
• Exceptions and exclusion are sometimes used in different contexts, though for practical purposes they means the same thing
• 6. Conditions (Kondisi)
• A condition is essentially a contractual term that the insured agreed to comply with during the period of cover (suatu ketentuan kontrak yang disetujui dan dipatuhi oleh tertanggung selama periode jaminan)
• Conditions are either implied or express
• Implied (tersirat) conditions are implied by common law and practice and do not need to appear in the policy. Example
• An insured must act as if uninsured and not use the insurance as an alternative to acting carefully
• The insured must take reasonable action to minimize a loss
• The insured must not hinder (menghalangi) the insurer in their investigation of a claim
• Many fundamental principles of insurance are implied conditions, for example:
• utmost good faith
• that the insured has an interest in the subject matter
• Express (tersurat) conditions are always stated in the policy

• 7. Policy schedule 
• This is where the policy is made personal and specific to the insured, and is not a pre-printed, applicable to all part. The variable parts of the policy are stated here, such as:
• insured's name
• insured's address
• policy period
• premium
• details of the subject matter
• sum insured or limit of liability
• policy number
• reference to special exclusion, conditions or aspects of cover, and
• operative sections of the policy
• 8. Information and facilities
• Definitions
• Customer service standards statement
• Complaints procedure
• Claims information

B. Exceptions (or exclusion)

Most general insurance policies will contain two types of exception (or exclusion)

1. General exclusions
2. Specific exclusions

Some general exclusions are common to all general insurance policies, and are termed market exclusions

1. War and related perils

2. Radioactive contaminations and explosive nuclear assemblies

3. Terrorism

4. Pollution and/or contamination

5. eRisks

6. Marine policies

7. Contractual liability

8. Sonic bangs

C. Conditions

1.  Duties of the insured
2. Alteration
3. Action by the insured in the event of a claim
4. Fraud
5. Reasonable precautions (tindak pencegahan yang wajar)
6. Contribution
7. Subrogation
8. Average
9. Arbitration
10. Cancellation

D. Excesses, deductibles and franchises

1. Excesses

• An excess is the first amount of each and every claim for which the insured responsible. Theoretically, the insured is really their own insurer for the value of the excess. Excesses appear (muncul) in most of general insurance.

2. Deductibles

• A deductible is, essentially (pada dasarnya), a very large excess. This is increasingly prevalent (lazim) with commercial insurance.

3. Franchises

• A franchise is a fixed amount or period that acts as threshold to determine whether claims are payable. One the amount or period is exceeded, the claim is payable in full: nothing id deducting. If it is not exceeded, however, nothing is payable.
• Franchises are not common, but are sometimes found in engineering business interruption insurances. Time franchises (e.g. seven days) are common sickness cover under personal accident and sickness insurance policies.

E. Warranties, conditions and representations

1. Warranties

• In contrast (berbeda) to normal legal definition where a warranty is a minor contract term, in insurance terms a warranty goes to the heart of the contract, and it is vitally important that it is complied with. In insurance terms, a warranty is basically a promise made by the insured relating to facts or performance concerning the risk. It is an undertaking by (dilakukan) the insured that:
• something will or will not be done
• a certain fact exists or does not exist
• It may relate to past or present facts (i.e. a promise that something is so or was so) or it may be a continuing warranty, in which the insured promises that a state of affairs will continue to exist or the insured will continue to do something
• This constitutes a breach, and the contract is voidable (batal) from the date of breach.
• The insurer is still liable for losses occurring before the breach does not reinstate the liability of the insurer.
• If the warranty relates to past or present facts, the insurer can repudiate the contract ab initio (from the beginning)

2. Conditions

• Policy conditions are terms (persyaratan), which although they are not warranties, impose (beban) important obligations upon the insured. The effect of a breach (pelanggaran) of conditions is very serious and will vary depending on which of the following type of conditions group the condition falls under:

• conditions precedent to the contract (mendahului kontrak)
• conditions subsequent to the contract (setelah kontrak)
• conditions precedent to liability (or to recovery)

3. Representations

These are written or oral statements made during the negotiations for contract

4. Summary and comparison

• Warranties
• must be strictly and literally complied with, give the insurer the right to repudiate on any breach relevant to the loss or damage, be written into the policy, except where implied
• Conditions
• some implied conditions are so fundamental that they affect the whole validity of the contract in the event of non-compliance, breach of a conditions subsequent to the contract allows the insurer to avoid the policy as a whole from the date of the breach if there is a causal connection between a claim and the failure to observe the condition. Conditions precedent to liability give the insurer the right to repudiate a claim but not to repudiate the contract as a whole
•  Representation 
• need only a substantially correct. Allow repudiation only if a breach is material. Do not normally appear in the policy