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When taking out insurance, honesty is not just expected, it's a legal requirement. The duty of disclosure obliges the insured to provide full and accurate information to the insurer before a policy is concluded. A failure to do so can have serious consequences, potentially leaving the insured without cover when it's needed most.
Material misrepresentation
A material misrepresentation occurs when the insured intentionally provides false or misleading information in response to the insurer's questions. This could include lying about previous claims, concealing health issues, or misrepresenting the value of insured property.
In such cases, the insurer can prove that the misstatement was deliberate and material to the risk being assessed. The effect is that the policy becomes void, as if it never existed, because it was entered into based on false information. This is sometimes referred to as fraudulent misrepresentation, as it involves intention to deceive.
Material non-disclosure
Non-disclosure is slightly different. It happens when the insured fails to reveal a fact that they were not specifically asked about, but which would have materially influenced the insurer's decision to grant cover or set the premium.
Unlike a misrepresentation, non-disclosure does not require intent to deceive. However, it can still invalidate the policy if the undisclosed fact would have caused the insurer to refuse the risk or impose different terms had they known about it.
The legal consequence
In both cases – misrepresentation and non-disclosure – the insurance contract may be declared void ab initio (from the beginning). This means the insurer is not obliged to pay any claims under the policy, and any premiums paid might not be refunded.
The principle is rooted in fairness: insurance contracts are built on good faith. When one party withholds or distorts material facts, that good faith is broken, and the contract cannot stand.
Conclusion
Whether intentional or not, withholding relevant information from an insurer can have the same result, a void policy and denied claims. It's always in the insured's best interest to disclose all relevant facts honestly and completely when applying for insurance cover.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
