Duty of Disclosure
Before a contract of general insurance with an insurer is entered into, you have a duty under the Insurance Contracts Act 1984 to disclose to the insurer every matter that you know at the time or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk of the insurance and, if so, on what terms.
The duty to disclose matters to the insurer applies before you renew, extend, vary or reinstate a contract of general insurance. Your duty however does not extends to disclosure of matters:
- That diminishes the risk to be undertaken by the insurer
- That is of common knowledge
- As your insurer knows or, in the ordinary course of his business, ought to know
- As to which compliance with your duty is waived by the insurer
Non-Disclosure
If there is failure to comply with this duty of disclosure, the insurer may be entitled to reduce his liability under the contract in respect of a claim or may cancel the contract. If it is found that your non-disclosure if fraudulent, the insurer has the option of voiding the contract from its beginning.
Comments
The duty to disclose is a serious matter, and this should be impressed upon all management and senior staff.
We suggest you should:
- Supply them with a copy of the duty of disclosure
- Emphasise that the duty if disclosure applies not only on inception of the insurance, but also when policies are altered or renewed
If there is any doubt as to whether a matter is relevant, please refer the matter to us.
Underinsurance
Fire and Business Interruption Policies, Industrial Special Risks covers and Home Building and Contents policies often contain an Average Clause. This means that you must insure for the full value and this of course varies with the type of cover you take – market value, indemnity or replacement. If you are under-insured your claim may be reduced in proportion to the amount of under-insurance.
A simple example of the application of average is:
| Full Value |
$100,000 |
| Sum Insured |
$ 50,000 (Therefore you are your own insurer for 50%) |
| Fire Damage Claim |
$ 40,000 |
| Claim 50% of $40,000 |
$ 20,000 |
Utmost Good Faith
Fundamental to every contract of insurance is the premise that all parties (insured and the insurer) are to act with the utmost good faith in respect of any matter arising under the contract. Failure to do so may prejudice any claim.
Interest of Third Party in Property Insurance
A standard policy does not provide cover for any party other than the named Insurer or anyone specifically referred to in the policy. If you intend to insure the interest of any other parties you must request this.
Rights of Subrogation – Hold Harmless – Waiver
Some policies contain a provision which limits or excludes the insurer’s liability in respect of a loss, and some other agreements purported to enter into may also limit or exclude your right to recover damages from third party. Therefore, it is recommended that you should not sign any agreement, which contains a ‘hold harmless’ or waiver without first referring to Parmia Insurance.
Such clauses are often found in leases, maintenance contracts (e.g. burglar alarm or fire protection), repair contracts, or contracts with your suppliers.
Claims Made Policies
Professional Risks policies are normally written on a “claims made” basis. This means that the Insurer is only liable where the claim, or incident which could give rise to a claim, is notified to the Insurer before expiry date.
In such cases, careful inquiry is necessary to uncover any such incidents prior to expiry of each policy year.
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