Insurance Law

• Published date: 01 December 2013
• Author: LEE Kiat Seng LLB (Hons) (National University of Singapore), LLM (Maritime Law) (London); Advocate and Solicitor (Singapore); Adjunct Associate Professor, Faculty of Law, National University of Singapore.
• Date: 01 December 2013
• Citation: (2013) 14 SAL Ann Rev 404

Terms of the insurance contract

18.1 One of the prevalent cases in consumer insurance has been disputes arising out of the so-called ‘Critical Year’ policies. Under this policy, a life policy would be taken out and there is a provision that if the accumulated dividends paid on the policy are of a sufficient value, then the annual premiums would be paid out of this accumulated dividends instead of by the insured. The year in which this occurs is called the Critical Year. Of course, when the policy benefit illustration (‘PBI’) is being used by the insurance agent to show the intending insured the attraction of the insurance product, no one notices the usual provisos at the bottom of the PBI – these will usually provide that the dividends used in the PBI are based on the current scale and that future dividends are not guaranteed; the interest rate used to calculate the interest payable to the insured on the accumulated dividends are again not guaranteed and purely for illustration purposes (‘Provisos’).

18.2 In Zhu Yong Zhen v AIA Singapore Pte Ltd[2013] 2 SLR 478, the plaintiff took out a policy from the defendants in 1993. She had been shown a PBI by her insurance agent in which the Critical Year was denoted as 16, ie, after the 16th year, the annual premiums would be paid out from the accumulated policy dividends. In 2008, however, the plaintiff was informed she would have to pay premiums beyond the Critical Year. The irate plaintiff took the view that the Critical Year was a guaranteed feature of her policy and there was therefore no reason why she had to pay beyond the 16th annual premium.

18.3 There were other issues in this case: firstly, the claim for breach of contract on the basis that the defendants had caused the plaintiff's policy to lapse by refusing to make annual premium payments out of her accumulated dividends; secondly, a counterclaim by the defendants that she had defamed it on an internet blog.

18.4 The court dismissed the claim that the PBI formed part of the contract. The reason was simple: both the application form which had been filled up by the plaintiff and the policy booklet issued to her contained entire agreement clauses which therefore excluded the PBI. Since the Critical Year was not mentioned in the policy booklet or the application form, it was not a term of the contract.

18.5 In any event, the court was of the view that in light of the Provisos contained in the PBI, the values in the PBI were purely for illustrative purposes and there was therefore no guarantee that the plaintiff would only have to pay premiums up to the Critical Year.

18.6 Chan Seng Onn J was quite clear in his mind that at the stage of the presentation of the PBI, there was no contract yet. The contract was only formed upon the plaintiff filling up the application form and this being accepted by the defendants. No mention was made of the PBI in the application. Furthermore, there was the fact that there was a clause which specifically declared that only the answers to the questions in the form and the medical examination and the policy itself formed the entire contract between the parties.

18.7 In response to the plaintiff's attempt to circumvent the entire agreement clause in the policy booklet by asserting that she had not read it, Chan J relied upon Rust v Abbey Life Assurance Co Ltd[1979] 2 Lloyd's Rep 334 which is authority for the proposition that when an insured is presumed to contract with the insurer on the latter's usual terms, it is not necessary to further prove that the insured has seen or expressly agreed to the detailed terms of the policy.

18.8 The court reaffirmed the principle in Lee Chee Wei v Tan Hor Peow Victor[2007] 3 SLR(R) 537 that the purpose of the entire agreement clause is to strip any pre-contractual or collateral promises of legal...