Your Duty of Disclosure

What is your duty of disclosure?

Before entering a contract of insurance, you have a legal duty to disclose certain matters to the insurer. If you fail to make the required disclosures, the insurer might have grounds to reject a claim in part or in whole.

The Insurance Contracts Act 1984 (Cth) sets out the rights and obligations of insurers and insured’s in relation to general contracts of insurance and applies to life insurance contracts. Under the Act, an applicant is required to disclose to the insurer “every matter that is known to the insured, being a matter that:

a)     the insured knows to be a matter relevant to the decision of the insurer whether to accept the risk and, if so, on what terms; or

b)     a reasonable person in the circumstances could be expected to know to be a matter so relevant.”

In simple terms, an applicant is required to disclose everything that might be relevant to the insurer in deciding whether or not to offer insurance coverage to the applicant. The duty of disclosure applies on each variation, extension or renewal of the policy. Precisely what needs to be disclosed will vary from policy to policy, but generally it includes being scrupulously truthful and forthcoming about one’s medical history and any previous accidents suffered. This is so even if the medical conditions have resolved, or are being properly managed, or there are no obvious injuries that are a result of an accident. If you are in doubt about the relevance of a matter; disclose it.

Past medical history particularly important to disclose

One of the most recent court decisions, Graham v Colonial Mutual Life Assurance Society Limited (No 2) [2014] FCA 717, which considered the application of sections 21 and 29 of the ICA, found in favour of the insured’s beneficiary, demonstrating that the insurer’s ability to avoid a life insurance contract may not be an easy one. This is even in circumstances where it appears on its face to be a clear case of non-disclosure.

What happens if you fail to comply with your duty of disclosure?

In brief – Insurers may avoid contracts for fraud and misrepresentation

While it may not always be easy for insurers to avoid a life insurance contract, it is critical that you err on the side of caution when considering your duty of disclosure, particularly in regard to your prior medical history.

Failure to disclose may lead insurer to avoid life insurance contract

Life insurance is serious business. After all, it is designed to ensure that if you die or are permanently injured, you have the security of knowing that your life insurer will pay a claim allowing you to take care of your (and your family’s) future financial needs.

However, obtaining life insurance cover is not a simple matter of mindlessly filling out a form and sending it through to the insurer.

The Insurance Contracts Act 1984 (ICA), provides that an insured has a duty to disclose certain matters to the insurer before a contract of insurance is entered into. If an insured fails to do so, section 29 of the ICA allows the insurer to avoid the contract.