Disclosure To Your Insurer – Your Duty

Have you ever had that nagging feeling that your insurer might, just might, find a reason not to pay out on a claim?

We all deal with different kinds of insurance: house, contents, life, health, travel, mortgage, income protection, professional liability, public liability, earthquake, builders risk, and (if you want to believe) some foreign providers even offer a policy protecting against alien abductions.

Hopefully when taking out your insurance policies you read them in detail and are aware of the circumstances in which your claim can be refused (eg. if you snow-ski overseas, injuries that occur while off-piste are typically excluded from travel insurance). However, in reality this does not always happen.

1. Duty Of Disclosure

In New Zealand, all insurers have a right to refuse a claim if you, the insured party, failed to disclose something that may have influenced their decision as a prudent insurer to offer you insurance in the first place. This is known as your duty of disclosure. You are obliged to update your insurer with relevant information every time your policy is renewed or varied.

2. Breach Of The Duty May Lead To Harsh Results

Your failure to disclose a material circumstance allows your insurer not only to refuse a claim, but to treat the contract of insurance as never having existed. A flow on effect is that successful claims you have made in the past could be reversed.

The problem we face as consumers is that we would typically only become aware that our policy is void when we make a claim, as this is usually the only time the insurer makes a thorough investigation of our particular affairs. Some examples where policies were cancelled for non-disclosure include:

• Home insurance claim for fire damage denied because the insured party did not disclose a previous (although unrelated) criminal conviction.
• Income protection insurance claim denied after historical medical records showed insured party had previous (yet reportedly minor) undisclosed stomach pain that his General Practitioner concluded resulted from stress.

3. Level Of Disclosure Inherently Uncertain

An insurer will usually ask you many questions to determine your premiums and level of cover. However, the questions they ask are non-exhaustive and do not excuse you of your duty of disclosure.

Difficulties arise because the ordinary consumer does not have a sophisticated knowledge of insurance law. An ordinary consumer might diligently and honestly complete a detailed insurance application, overlook some piece of information they have no idea would be relevant to the insurer (and was not asked for by the insurer), pay years of premiums only to find when making an eventual claim that their policy is void.

The New Zealand Law Commission has been unsuccessfully advocating to ease the obligations on the consumer since the late 1990s, to bring us more in line with the legal position in the UK and Australia. The simple advice under the current regime is to review your new or existing policy document carefully and disclose everything you possibly can to your insurer and let them decide what is relevant. If this results in a higher premium – you can take comfort knowing you are now less likely to have a claim rejected due to non-disclosure.