Goodbye to the Duty of Disclosure in Insurance Law: Reasons to Rethink, Restrict, Reform or Repeal the Duty (Part 1)

• Jurisdiction: South Africa
• Author: JP van Niekerk
• Pages: 150-169
• Date: 16 August 2019
• Published date: 16 August 2019

Goodbye to the Duty of Disclosure in

Insurance Law: Reasons to Rethink,

Restrict, Reform or Repeal the Duty (Part 1)

JP VAN NIEKERK*

University of South Africa

1 Introduction

It is trite that in terms of South African law an insured is under a duty to disclose

of his own volition certain facts to the insurer with which he intends concluding an

insurance contract.1 The facts to be disclosed are referred to as material facts and

are those which, generally speaking, are relevant to, or have a bearing upon, the

risk to be taken over by the insurer in terms of the insurance contract in question.

Equally trite, a breach of the duty of non-disclosure amounts to a

misrepresentation – more specif‌i cally, a misrepresentation per omissionem –

and renders the insurance contract voidable at the option of the insurer induced

by it to conclude that contract.

The scope of the insured’s duty of disclosure may be limited by the following

factors:

• it is merely a pre-contractual duty and terminates upon the conclusion of

the insurance contract;

• it exists only in respect of material facts actually2 known to the insured;

• the materiality of facts are determined with reference to an objective test

involving the reasonable person;3

• the insured need not disclose – material – facts that the insurer actually

knows or may be presumed to know;4 and

• the insurer may have waived its right to be informed of particular

information,5 and may have done so either expressly or tacitly.6

* BA LLB (Pret), LLM (Unisa), LLM (London), LLD (Unisa). Professor in the Department of

Mercantile Law, School of Law, University of South Africa.

1 For details of the duty, and for authority for the general statements in this introductory part, see

MFB Reinecke, Schalk van der Merwe, JP van Niekerk & Peter Havenga General Principles of Insurance

Law (2002) in pars 192-6.

2 There is uncertainty about whether the duty exists, or should exist, also as regards facts

constructively known to the insured, constructive knowledge being knowledge which the insured could

have acquired by reasonable enquiry.

3 Realistically the reasonable person should be contextualised by putting him in the position of an

insured.

4 Thus, the actual or constructive knowledge of the insurer may curtail the duty of disclosure. An

insurer may be presumed to know facts which are common or public knowledge, or facts which should

be known to a professional or reasonable insurer. The reason why the non-disclosure of such facts cannot

amount to a breach of the duty and hence to a misrepresentation, is because an insurer cannot be misled

by the non-disclosure of facts of which it already has knowledge.

5 Distinguish from this an insurer’s waiver of its right to avoid the insurance contract on the grounds

of non-disclosure.

6 Thus, a waiver may be inferred from the questions asked by the insurer of the insured in a proposal

form.

150

(2005) 17 SA Merc LJ 150

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However, the following factors do not limit its operation:

• the fact that the insured was unaware of the existence of the duty or of the

materiality of certain facts;7

• that the insured’s breach of the duty occurred without fraud, that is, merely

negligently or even innocently;8

• the fact that the insurer may pertinently have asked the insured a range of

questions, leaving him with the impression if not lulling him into thinking

that no, or no further, information was required;

• the fact that the insurer may have been quite able and could quite reasonably

have been expected to obtain the relevant information itself either by asking

for it or by investigating the risk on some other way;

• the fact that the insured was unaware that the duty arises afresh upon any

renewal of his insurance contract9 and that, in consequence, changes in the

correctness of material information which may have occurred since their

last disclosure, or even new bits of material information which have come

to his knowledge, have to be brought to the insurer’s attention;

• that a fact not disclosed, although material to the risk, has no bearing

whatsoever upon any loss which may have occurred and for which the

insured may be claiming; and

• that the insurer would have concluded the contract in any event, albeit at an

increased premium or on different conditions.10

Not surprisingly, in every insurance contract it is possible for an insurer to

uncover some or other material fact not disclosed to it by the insured. Equally

unsurprisingly, a breach of the duty of disclosure is as a rule relied upon by

the insurer only when the insured institutes a claim on his insurance contract.

In fact, given its ready availability in virtually all cases, the defence of non-

disclosure is arguably as often a technical defence as it is not. Thus, if the

insurer suspects fraud on the part of the insured but cannot prove it, a simple

reliance on a breach of the duty of disclosure will permit it to escape liability

for the insured’s claim by avoiding the contract as a whole. The current state

of the law therefore allows insurers an additional opportunity at risk selection.

Not only are they able by way of pre-contractual risk assessment to decide

which risks they will take over at all, but they are also enabled, by way of

what is nothing other than the post-claim ‘underwriting’ made possible by the

law relating to non-disclosure, to determine which materialised risks they will

ultimately stand in for.

7 Thus, ignorance of the existence (‘must disclose’), the scope (‘must disclose material facts’) or the

application (what facts are material) of the duty provides no excuse for the insured.

8 Thus, the presence of fault or fraud is not required and in its present form the duty of disclosure

therefore has little if anything to do with any duty of good faith on the part of the insured. Put differently,

the duty may be breached by non-disclosure generally and not only by concealment.

9 A renewal is, in effect, nothing but the conclusion of a new contract for a further period.

10 The same consequence of avoidability of the insurance contract follows on mere non-disclosure,

irrespective of its precise effect on the particular insurer. The requirement of inducement is therefore

imprecise in that it exists even if the insurer would have concluded the contract on different terms, and

not only if it would not have concluded the contract at all.

DUTY OF DISCLOSURE IN INSURANCE LAW 151

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