Consequences of Non-Disclosure in the Contract of Insurance

Abstract

All contracts of insurance are contracts of utmost good faith, so both the insurer and insured are under a positive duty to make full disclosure of all material facts and not to make any sort of misrepresentations or mis-descriptions during the negotiations for obtaining the policy. This duty of utmost good faith applies equally to both the insurer and the insured. The duty to observe utmost good faith is ensured by requiring the insurer or the proposer to declare that the statements in the proposal form are true, and that he agrees that they shall be the basis of the contract and that any incorrect or false statements shall avoid the policy. The questions in the proposal form shall be so framed so as to get all information which is material to the insurer to know in order to assess the risk and fix the premium. The insurer gathers all material facts in prescribed proposal forms which the proposer fills up and signs adding a declaration that the answers are true. If the assured or the insured fails to make any disclosure, the insurer may avoid the contract. And if any false representation is done by the insured, then the insurer may repudiate the contract or if he desires, affirm the contract, that is waive the breach of utmost good faith committed by the assured or the insured. He must make the choice within a reasonable time after he comes to know about the breach. Otherwise he will be deemed to have waived the breach. The researcher in the following paper first takes the initiative to define the term ‘Non-Disclosure’. She then analyzed the legal provisions of non-disclosure. Further she discussed the insurer’s duty to disclose and the insurer’s duty to discloser. She also lays at length the criminal liability on the part of the insurer and the insured for failure to disclose any facts associated with the policy. Finally a conclusion is drawn on the effects of non-disclosure in the contract of insurance.