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Chapter 5 Good faith 5/5
• prevent insurers from denying claims when the proposer has acted honestly and reasonably; and
• prevent a claim being refused where the proposer has made an innocent mistake but could be
prejudiced by the proposal form stating that the answers given ‘form the basis of the contract’.
B3 Insurer’s duty of disclosure
The insurer also has a duty of disclosure. In order to fulfil this duty, the insurer must behave with utmost
good faith, for example by:
• notifying a policyholder of an entitlement to a premium discount resulting from their insurance history;
• only taking on risks which the insurer is registered to accept; and
• ensuring that statements made are true; misleading a customer about policy cover is a breach of
utmost good faith, shown in Kettlewell v. Refuge Assurance Company (1909).
B4 Modification by policy wordings
We have seen that the duty of disclosure exists from the beginning of negotiations until the time that the
Duty of disclosure
contract of insurance takes effect. By law, it revives at renewal automatically, regardless of any policy revives automatically
provision. However, for many types of insurance, the insurer requires a continuing duty to disclose at renewal
material facts, in which case there must be a specific policy condition that makes this clear.
B4A At inception
Under common law, the duty of disclosure starts when negotiations begin and ends when the contract is Chapter
formed. From that point until renewal negotiations take place there is no requirement for the 5
policyholder to declare material facts, unless these affect the policy cover. For example, if the value of
property increases or a car is sold and another purchased it is clear that the insurer must be advised,
because the policy requires a specific endorsement to accommodate the change in risk. However, a
policyholder does not need to disclose a conviction for fraud (which would be a material fact for all
general insurance policies) until the following renewal. The exception would be if there was a specific
policy condition which extended the duty so that it became a continuing one. Reference copy for CII Face to Face Training
Question 5.1
A motor insurance policy was taken out for a small van. While the policy was in force, the policyholder joined an
amateur band and the van was then used to transport equipment and other band members. Do you think that the
policyholder should notify the insurers of this change and, if so, when and why?
B4B On renewal
On the renewal of a policy, the policyholder’s duty of disclosure is revived for general insurance
(non-life) policies.
All general insurance policies, such as fire, theft, liability and certain marine and aviation policies, are
contracts that are renewable, usually after twelve months. When the contract ends renewal terms are
usually offered and, if accepted, a new contract is formed. The duty of disclosure is revived during the
period of negotiation and applies as for new contracts.
It is important that you distinguish between the requirements for short-term policies and those for long-
term policies (such as life and pensions policies).
Once the requirement for disclosure has been met leading up to the inception of a long-term contract,
the duty of disclosure ceases. Once the policy is in force, even if a material fact, such as the life
assured’s health, changes, it does not need to be declared. The only requirement for the policy to
continue is that the policyholder pays the premiums when they are due.
B4C Continuing requirement
Insurers are often concerned that their rights at common law are limited because they do not need to be
advised of certain material mid-term changes to an insured risk. They deal with this situation in different
ways for different types of insurance. Not all insurers adopt the same approach but the following
illustrates some of the issues.
Commercial property insurance
A policy condition requires continuing disclosure of circumstances that may affect the insurance cover.
