Insurance contracts and the duty to disclose

Insurance contracts are contracts of the utmost good faith.  This means that the insured has a duty to disclose to the insurer all material facts and circumstances of which the insured has actual or constructive knowledge.

In the case of Jerrier v Outsurance Insurance Co Ltd, Jerrier had insured his motor vehicle with the insurance provider Outsurance. In terms of the insurance contract, Jerrier would receive bonus points as an incentive for not lodging claims with the insurer for a period of time.  As a result Jerrier chose not to lodge claims for two separate incidents in which his vehicle was involved. Instead, he chose to pay for the damages himself and absorb the loss.

The contract also stipulated, however, that the insured had to notify the insurer immediately of any changes in circumstances that could influence the cover given as well as the conditions and premiums of the insurance contract. The insured was required to provide notice within 30 days of any such change in circumstances.

In 2010 Jerrier’s vehicle was involved in a further collision and he decided to lodge a claim with his insurer. Outsurance, having been informed of the two earlier incidents, repudiated liability for a number of reasons. Primarily however, it argued that Jerrier had provided incorrect information to it, alternatively, failed to disclose material information when he should have.

The court decided that the obligation to disclose the information arose only if the insured wished to enforce the indemnification for the loss which the insurer was obliged to honour. In other words, if the insured was involved in an accident with a 3^rd party and the 3^rd party agreed to accept payment from the insured in full and final settlement of the damages, there could be no reason to inform the insurer of the incident. The court interpreted the clause concerning a “change in circumstance” as relating primarily to the risk assessment of the insured and his ability to continue paying the premiums at the inception of the contract.  That is to say that the policy In question did not provide for an on-going duty to report after commencement of the contract.

Access the judgement here: http://www.saflii.org/za/cases/ZAKZPHC/2015/34.html