We have referred on this blog to the requirement that a policy holder has to disclose a number of important aspects to the insurer at the time when the agreement is concluded. These aspects include who the regular driver might be, the risk area etc… But how do the courts perceive this duty of disclosure?
I have come across a paragraph in a court case which best describes the obligation on the side of the insured to make a full disclosure. Judge Corbett JA said the following in Pereira v Marine and Trade Insurance Co. Ltd. 1975 (4) SA 736 (A) at 755 F – H :
“Insurance policies are, admittedly, contracts uberrimae fidei and this casts upon the insured, or strictly the proponent for insurance, the duty to disclose to the insurer, before the conclusion of the contract, all facts material to the risks which are known to the insured. The purpose of this rule is to enable the insurer to be apprised of all material facts relevant to his decision whether to undertake the risk and, if so, what premium to charge (see Fine v. The General Accident, Fire and Life Assurance Corp.Ltd, 1915 A.D. 213 at pp.218-19 ). The rationale of the rule is that the special facts upon which the risk is to be computed generally lie in the knowledge of the insured only (see Boderme, N.O. v. American Insurance Co. 1960 (4) S.A. 428 (T) at pp. 433-4. The appeal to this court was dismissed, see 1961 (2) S.A. 622 (A.D.). This duty to disclose exists in addition to the insured’s obligation to answer truthfully all questions put to him by the company in the proposal form (Colonial Industries Ltd. v. Provincial Insurance Co. Ltd. 1922 A.D. 33 at p 40). Failure by the insured to make such disclosure entitles the insurer to avoid the contract of insurance.”
It is important to consider this in layman terms and provide an explanation to some of the important aspects of the above section from the judgement:
- The nature of a car insurance contract is described as “Uberrimae Fidei”
- This Latin term means the Utmost Good Faith.
- It is accepted that both insured and insurer must act with the utmost good faith in their dealings with one another.
- The principle of Uberrimae Fidei implies that both parties will not withhold any information of a material nature regarding the object of insurance and the contract itself.
- The insurer must be allowed and enabled to take all the facts into consideration that could have an influence on the risk that are asked to insure against.
- It is accepted that some of these facts might only be known by the consumer – and he has a duty to disclose these facts!
- If the truthful disclosure is not made – the insurer will not be bound by the insurance contract.
Which test is used to determine whether there was a failure on the part of the insured to disclose all the relevant facts?
The court will use an objective criteria – that of the reasonable man in the position of the person making the disclosure and entering into an agreement with the insurer. If a reasonable man would have regarded the information to be material, it is no defence that the insured did not regard it as such!
We warned the consumer in a blog post titled “Be alert to the fine print in car insurance policies” A car insurance policy does however not give rights and obligations to only one party – but to both parties of the agreement. To hold the insurer to the agreement it is also required that the policy holder act with honesty and truthfulness in revealing all the relevant facts!