In a world where insurance contracts have become predominant, a lot of legal knowledge is required in asserting duties such as the duty of disclosure in insurance contracts. The duty of disclosure simply means that a consumer seeking an insurance contract must disclose all relevant information to their potential insurer. The insured must tell the insurer everything relevant or reasonably expected to be relevant to the insurer’s decision to insure you. This duty arises through the operation of the law. This is because under common law an insurance contract is a contract of utmost good faith.
A contract of good faith entails a minimum standard, legally obliging all parties entering a contract to act honestly and not mislead or withhold critical information from one another. The consumer/Insured is allowed to disclose information through answering questions in the insurance form and to the extent of giving additional facts which may be essential to the contract. The duty of disclosure applies as a matter of law.
The potential insurer is allowed to refuse to enter into a contract in instances where the potential consumer has not been completely honest with the insurer. The insured must always adhere to the duty of disclosure. By upholding the duty of disclosure he or she is in turn appraising the doctrine of utmost good faith. This duty applies differently to long-term insurance contracts and short-term insurance contracts. In a short-term insurance contract, the insured is under a duty to disclose material information simultaneously at the conclusion of the contract and the renewal of the contract. However, in long-term insurance contracts, this duty is only exercised once and at the conclusion of the contract.
After the disclosure of relevant and/or material information, an insurer may decide to accept, not to accept the contract, impose conditions and/or adjust the premium fee. If it also discovered by the insurer that the insured was not honest with the duty of disclosure upon entering with the insured into a contract, the insured is may refuse to pay a claim. The said insured must not lie, misrepresent and/or withhold information that is essential to the existence of the contract.
The most widely acknowledged test to determine the materiality of the non-disclosed facts is that of the reasonable man test. This test is mostly fair to all parties and applies objectively. A fact or information would be material or relevant if the disinterested reasonable man would have considered such a fact or information to be material and/or relevant to the insurer or policyholder.
The locus classicus of the duty of disclosure in insurance contracts is the case of CARTER V BOEHM (1766) 3 BURR 1905, which held that provided that the insured was under a duty to disclose facts that only he knew but would be material to an insurer when assessing a risk. This simply laid an equitable balance between the insured and the insurer (policyholders) such that the insured was not under a duty to disclose information or facts which the insurer is deemed to have been aware of or waived thereof. This meant policyholders would not escape liability by virtue of asserting that the insured had not disclosed information that ought to have been known by the policyholders.
Material facts to be disclosed vary, an insured must disclose information that has previous convictions against the law, refusal to be insured by different policyholders, terminated insurance contracts by policy holders, health facts in terms of long-term insurance, previous accidents and many more moral hazards.
An example of exceptions to the duty of disclosure by the insured would be the case of ADAKWA v BOTSWANA INSURANCE COMPANY LTD (1) 2011 (2) BLR 1059 (HC). In this case, the Defendant, an insurer, repudiated liability for a claim by the Plaintiff for the loss of a motor vehicle which had been stolen when the Plaintiff was a victim of a car hijacking. The Defendant contended that the Plaintiff had not disclosed to it at the time of entering into the contract of insurance that the vehicle in question had previously been seriously damaged in a motor vehicle collision and had been ‘’rebuilt’’. It contended that this would have affected its decision in setting the premium or determining whether to take the risk or not. The Plaintiff contended that he had pointed out to the Defendant’s agent that the motor vehicle had in fact been damaged and repaired. The Defendant provided that such a fact was not stipulated in the insurance proposal form.
The court held that although the contract of insurance was a contract of the utmost good faith, and the proposer was required to disclose all relevant factors that could have a bearing on the acceptance or otherwise of the proposal to insure, the fact that the questions on the proposal form dealt almost exclusively with the personal details of the proposer, meant that a reasonable person completing the form would not anticipate that the Defendant wished to be informed of the history of the vehicle, let alone that it had previously been written off, information that was not necessarily known to the proposer.
It was further held that if the Defendant’s decision whether or not to assume the risk depended so much on whether or not the car had previously been written off, one would have expected it to have included a question to that effect in the proposal form. In the circumstances the Defendant’s repudiation was without justification and the claim had to be upheld. Thus, the Plaintiff successfully claimed P114 000.00 for compensation of the car.
It is quite clear that the duty of disclosure has a flexible window which can be inclusive of many facts to be considered material in concluding insurance contracts. The chances of success depends upon the circumstances of each case.