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Insurance Policies and Your Duty of Disclosure

It’s important to know that insurance underwriters need full information about the risk to be insured, along with your prior insurance history and some personal information, such as if you have criminal convictions, licence suspensions etc. If the information provided is inaccurate or incomplete, this can lead to claims being delayed or worse. 

Once all the information has been disclosed to the underwriter, they can assess your risks and decide whether the policy is appropriate or not for you. Also, calculate the premium and terms of cover. 

The requirement to provide full information is a legal requirement. It is referred to as either the duty of disclosure for commercial insurance policies (i.e. Professional Indemnity, Management Liability Contract Works) or duty not to misrepresent consumer insurance policies (i.e. home, motor vehicle, travel insurance). 

When does the duty apply? 

Both the Duty of Disclosure and the new Duty for Consumers are part of the Insurance Contracts Act, which is the primary law that sets the standards for both buyers of insurance and insurers. The law aims to ensure fairness and protect the rights of consumers.  The law also states that the Insurer and customer must act in the Utmost Good Faith. That is, act honestly, fairly and transparently. 

Depending on the type of insurance and the reason it is purchased, one of the following duties will apply when:

Taking out new insurance
Completing a proposal form, declaration or questionnaire and asked to answer questions on behalf of other people who are also insured by the policy. So, you’ll have to ask these people the same questions and provide their answers to the insurer to ensure you have the correct insurance. 

For example, if there are other regular drivers of your car or truck, you also need to ask them if they have had speeding fines or lost their licence due to a PCA or DUI charge and tell the insurer.


Changing or renewing your insurance
If you renew or ask for an extension of the policy period, request any change, or add cover, you have to advise the underwriter (or your insurance adviser) if there have been any changes to the answers of information previously provided to the insurer.  

If you are still determining which duty applies to you, talk to your insurance adviser. 

Below is a detailed look at each of the duties when they apply and the consequences when not complied with.

Duty of Disclosure – Commercial & Business clients (not Consumers)

Commercial businesses or premises are complex, with lots of risk factors underwriters have to consider. All underwriters have limits or what they can accept, such as the size of the company, sums insured, location, occupation, building construction or prior claims history. 

To make an informed decision about the cover and premium to be quoted or whether to provide any terms, the underwriter needs complete information about you and the risk to be insured. 

For this reason, you have a legal duty to disclose every matter that you know or would be expected to know that may be relevant to the insurer’s decision as to whether to accept the risk and on what terms the insurance is quoted. So, if you own a building but haven’t checked it for a long period, it would be difficult to answer a question on a proposal from ‘Is the premises in good repair and condition’. Insurers would expect you to know, not guess, before filling out the proposal form. This also applies when answering applications, questionnaires, or declaration questions.

Answers must also be truthful, with complete answers and transparent information. Partial answers or misinformation are often the same as being untruthful. 

Important matters to be disclosed depend on the type of insurance policy. These include for at least five years, the previous claims (insured and uninsured) and incident history. Directors’ personal history of criminal offences and convictions, bankruptcy or liquidation of a company, refusal, or declinature of insurance or claims.  If you’re unsure, talk to your insurance adviser.

You do not have to disclose anything that:

  • reduces the risk to be undertaken by the insurer (i.e. you have a better alarm that the insurer requires);
  • is common knowledge (i.e., in the newspaper, TV);
  • your insurer knows, or in the ordinary course of its business, ought to know (i.e. Cold Storage facilities have walls made of EPS, car dealers sell cars); or
  • if the insurer has waived your obligation to disclose (i.e. you have told the insurer your service truck and they don’t ask for more details).

Again, if you’re unsure what must be disclosed, talk to your insurance adviser.

Consequences of Non-Disclosure

Non-disclosure is usually discovered at the time of claiming, by claims officers, assessors or adjusters. 

If there has been non-disclosure by you or someone covered by the insurance policy, it will at least delay your claim and any settlement until it is investigated. 

Depending on the type of non-disclosure, your insurer may be legally entitled to reduce the amount of the claim settlement or not pay any of the claim, and in some cases, is legally allowed to cancel your insurance policy.

If any part of the non-disclosure was fraudulent, the insurer might be able to cancel the policy from the start date, so in effect, you were never insured and have no right to be covered for the loss or damage. 

Consumer Duty – to take Reasonable Care not to make a Misrepresentation and be Truthful when answering questions
From October 2021, a new Consumer Insurance duty applied to insurance policies used for personal and domestic purposes, such as car, home, boat and travel insurance.

For Consumer insurance policies, insurers can no longer ask ‘catch all’ type questions, such as ‘you must tell us anything that you know or should reasonably know to be relevant’ (this still applies to commercial risks). 

Insurers are now required to ask questions on which they will base their decision to provide a quotation (or not) and the premium and terms. 

Therefore, if you take reasonable care to answer the underwriting questions fully to the best of Your knowledge, accurately and truthfully, the insurer can no longer say there was non-disclosure or misrepresentation.  

Misrepresentation includes a statement that is false, partially false, or which does not fairly reflect the truth. The responsibility to take reasonable care not to make a misrepresentation applies to everyone who will be insured under the Policy. If You are answering questions on behalf of anyone else, the insurer will treat Your answers or representations as being from all persons to be insured under the policy.

General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

All information above has been provided by the author.


Insurance Advisernet, ABN 15 003 886 687, AFSL 240549

This article originally appeared on Insurance Advisernet News and has been published here with permission.

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