Duty of disclosure

Honesty is always the best policy

When arranging insurance, it is easy to remember the details of the property or liability that you want to insure, after all its related to your personal or business situation. However, often when you are dealing with an insurer you are asked a set of general questions.

As insurance is a contract you must tell your insurer or broker everything you know or could be reasonably expected to know, that is relevant to the insurance cover you have chosen. This includes everything about the property you want to insure, yourself and all the people you want to cover under your policy.

Every insurer has a different set of questions, however they all have the same underlying purpose – to assess the risk and offer to issue an insurance contract for a charge, referred to as an insurance premium. Some common examples of the types of disclosure questions you may be asked are shown below:

• During the past five years, have you, or any other entity to be insured under this insurance, had any loss, proceedings, notice, complaint, claim or prosecution notified to or made against you, or any fine imposed under any legislation? • Have you or anyone else who will drive this vehicle ever been disqualified from driving for alcohol or drug related driving offences? • Have you or anyone else who will drive this vehicle ever had insurance declined, cancelled, or been refused renewal or had any special conditions imposed? • Is there any other information likely to affect this insurance? The insurer may ask specific questions in the application or claim, but then you are not excused from providing any other information that could be material to a prudent insurer – even if that information is outside the scope of the questions.

There can be serious financial consequences for you if you do not disclose relevant information to your broker or insurer. Even if you think it might not be relevant always err on the side of caution and disclose.

If you are arranging insurance with a Broker they will help guide you through the application process and explain the type of information that you have a duty to disclose. Information that can affect the insurer’s decision to offer a contract of insurance is known as a Material Fact.

For example, I am arranging a new liability policy for my building business, I tell the insurer my turnover, number of staff, business activities and that I had never made a claim on my liability insurance before. However, I am aware that a client from a job I finished two months ago has made an allegation to one of my staff that when we removed their oven we have damaged their vinyl flooring. This is a material fact and under the duty of disclosure, so I would need to let the new insurer know this when applying for the new liability policy.

A common example is when your policy has been cancelled for non-payment of premium. This is considered a material fact by all insurers. Therefore this must be disclosed to any new insurer when applying for a new insurance contract despite the circumstances of the non-payment.

There can be serious financial consequences for you if you do not disclose relevant information to your broker or insurer... always err on the side of caution and disclose.

When disclosure is required:

• Applying for insurance cover • Renewing an existing insurance contract • During the insurance contract if new material facts arise • Making a claim Non-disclosure of material facts often becomes apparent when you make a claim. This is the time that you are relying on the insurance contract to be enacted and damage or loss be paid for or repairs completed as per the terms of the insurance policy. However, when you make a claim you are asked to complete a claim form either in writing or verbally with your insurer. Another set of questions are asked and sometimes an assessor or investigator appointed. This is the time that most non-disclosures are discovered.