- within Consumer Protection, Transport and Privacy topic(s)
In a recent Judgement of the Supreme Court with No. 271/2016 the matters of disclosure and materiality were examined and some of the basic principles of Insurance Law were once again affirmed.
Facts
The appellant in this case contracted for a health insurance policy covering herself, her husband, and her daughter. She later filed a claim for her husband's hospitalization. The insurer discovered that the husband had pre-existing diabetes, which had not been disclosed during the application process. The insurer terminated coverage for the husband, claiming material non-disclosure. The appellant then filed an action, seeking to declare the termination unlawful. The insurer counterclaimed to have the contract declared void/voidable.
Procedural History
The court at first instance rejected the appellant's claim, finding her testimony unreliable and accepting the insurer's evidence. It held that she breached her duty of disclosure. She then went on to file an appeal on multiple grounds, including witness credibility and contract interpretation.
Issue
Whether the insurer was entitled to terminate coverage due to the appellant's non-disclosure of her husband's pre-existing medical condition.
Reasoning
The Supreme Court held that the appellant knew of her husband's condition and had a clear duty to disclose it. The proposal form required complete and accurate information. Her failure to disclose her husband's condition as a material fact entitled the insurer to terminate coverage. There was no obligation on the insurer to investigate further.
Legal Principles discussed
- Duty of Utmost Good Faith (Uberrimae Fidei): Insurance contracts require full and honest disclosure of all material facts by the insured.
- Material Fact: Any information that would influence a prudent insurer's decision to accept the risk or set the premium.
- Non-disclosure: Failure to disclose material facts renders the contract void or voidable, even if the omission is innocent.
- Duty of Disclosure Extends to Dependants: The insured must disclose relevant health information for all persons proposed for coverage, even if not specifically asked.
- Proposal Forms as Part of the Contract: Statements and omissions in the application are contractually binding.
Insurance contracts are characterised as agreements of uberrimae fidei—that is, contracts of the utmost good faith. The term "good faith" denotes honesty and fairness in dealings, which establishes mutual trust in the exchange of information. Because an insurance contract relies heavily on the information provided by the insured—information which the insurer cannot independently verify—the insured bears a duty to disclose all facts and information requested by the insurance company that a prudent insurer would regard as material.
Failure to disclose material information renders the insurance contract void, even if the non-disclosure occurred by mistake and without any fraudulent intent. This is because the actual risk undertaken differs from the risk the insurer believed it was assuming at the time the insurance contract was concluded.
However, in cases where the accuracy of the statements forms the basis of the contract and thus constitutes a condition precedent to its validity it is not necessary to determine whether the inaccurate fact was material or whether the insured knew the truth (Πανευρωπαϊκή Ασφαλιστική Εταιρεία Λτδ v. Eretria Leisure Cruises Ltd (1998) 1(Β) Α.Α.Δ. 1072). In such circumstances, the insurer is entitled to treat the contract as void from the beginning.
Summary
These authorities affirm that the duty of utmost good faith imposes on the insured a responsibility to disclose all material facts that would influence a prudent insurer in assessing the risk, even if the appropriate space is not available on the proposal form. Nonetheless, where an insurer issues a policy despite ambiguous or inconsistent answers, it may be deemed to have waived its right to repudiate liability on grounds of non-disclosure. As it was pointed out from the textbook of MacGillivray on Insurance Law, 9th edition, a failure to ask a clarifying question on the matter under consideration and to investigate it may create an impediment to raising a claim of non-disclosure.
The Supreme Court emphasized a balance between the insured's duty of disclosure and the insurer's obligation to act diligently during the contractual process.
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