Violation of duty to disclose and/or duty to provide information

Duty to disclose

Prior to concluding the insurance contract, insurers require all information that may be relevant to the risk of the insurance, the premium, and the other conditions. The prospective policyholder must disclose all facts that he knows or ought to know, and of which the prospective policyholder understands or ought to understand that these are relevant facts to the insurer. Violation of the duty of disclosure generally entitles the insurer to terminate the insurance contract. Intentionally violating the duty of disclosure is fraudulent.

The duty of disclosure also has a second component, namely the duty of disclosure upon the occurrence of an insured event or the realization of the risk thereof. The insured must report an event to the insurer within a reasonable time. Violation of this duty of disclosure may result in the insurer not being required to compensate the damage.

Duty to provide information

The duty to provide information rests with the insurer. The general rule is that an insurer may determine the scope of the insurance at its own discretion. However, the insurer does have a duty of care and a duty to provide information. Specifically, the prospective policyholder must have a clear understanding of the scope of coverage and the other conditions. If the insurer violates the duty to provide information and there is a difference of opinion regarding the scope of the insurance coverage, the policyholder is in a strong position to obtain compensation for their damages.

We have the experience and expertise to assume diverse roles, from advisory services to dispute resolution. We have an experienced team of lawyers and legal experts in insurance law. Contact us to discuss the possibilities.

The legal basis: Article 7:928 of the Dutch Civil Code

The pre-contractual duty of disclosure is regulated in Article 7:928 of the Dutch Civil Code (BW). Before concluding the agreement, the policyholder must disclose all facts that he knows or ought to know and of which he knows or ought to understand that the insurer's decision depends on or may depend on them. An important nuance follows from Article 7:928, paragraph 6, BW: if the insurer has used a questionnaire (application form or health declaration), he cannot subsequently invoke the fact that a question remained unanswered or that an unsolicited fact was concealed. The questionnaire therefore limits the scope of the duty of disclosure. An exception applies when the policyholder has concealed facts with the intent to mislead the insurer.

The four requirements for a successful appeal based on concealment

Whether an insurer can successfully invoke a breach of the duty of disclosure depends on four requirements. We critically assess each of them:

• The knowledge requirement: the policyholder knew the fact or ought to have known it.
• The knowability requirement: the policyholder knew or ought to have understood that the fact was of importance to the insurer.
• The relevance requirement: a reasonably acting insurer would have made a different decision had it been aware of the true state of affairs.
• The excusability requirement: the concealment must not be attributable to the policyholder. The burden of proof for this lies with the policyholder; the insurer must prove the first three requirements.

If the insurer's reliance on one of these requirements fails, the insured retains the right to benefits. Small business owners and private individuals often have gains to make here, as insurers underestimate the heavy burden of proof.

The consequences: the tiered system of Article 7:930 of the Dutch Civil Code

Contrary to popular belief, a breach of the duty of disclosure does not automatically lead to the complete forfeiture of the right to benefits. Article 7:930 of the Dutch Civil Code features a tiered system:

• Full payment: if the facts not disclosed or incorrectly disclosed are irrelevant to the assessment of the risk as it materialized (the principle of causality).
• Proportional payout: if the insurer, knowing the true state of affairs, would have stipulated a higher premium or a lower insured sum, the payout shall be reduced proportionally. For example, if the premium had been twice as high, the payout shall be halved.
• No payment: if the insurer, had it been aware of the true state of affairs, would not have entered into an agreement at all, or if the policyholder acted with the intent to mislead the insurer.

Intentional deception borders on insurance fraud and must be proven by the insurer, a difficult burden of proof that we make sharp use of.

The insurer's two-month term

An insurer who discovers that the duty of disclosure has been breached must notify the policyholder of this pursuant to Article 7:929 of the Dutch Civil Code within two months of the discovery, stating the possible consequences. If the insurer allows that period to expire unused, it can no longer invoke the concealment. We verify in every file whether the insurer has correctly complied with this formal requirement; this often offers a direct avenue to have a rejection overturned.

Cancellation, premium refund and change of risk

In addition to refusing payment, the insurer may terminate the agreement pursuant to Article 7:929 paragraph 2 of the Dutch Civil Code if, had it been aware of the true state of affairs, it would not have entered into an insurance contract. Following a legislative amendment, the policyholder is, in principle, also entitled to a refund of overpaid premiums in the event of pre-contractual concealment, except in cases of intent to deceive. Furthermore, pursuant to Articles 7:941 and 7:942 of the Dutch Civil Code, the insured must report the realization of the risk in a timely manner; late notification may result in the loss of the payment if the insurer suffers damage to a reasonable interest as a result.

Assistance from a lawyer and in-house counsel at MKB Juristen

A dispute regarding concealment or a breach of the duty to disclose often touches upon a broader coverage dispute and the interpretation of the policy conditions. Our mixed teams of lawyers and in-house counsel handle these cases for the entire business sector, from international corporations to the baker on the corner, as well as for private individuals. We review the policy, the questionnaire, and the correspondence, verify the four requirements and time limits, and choose together with you between negotiation, a complaint procedure at Kifid , or proceedings in court.

Part of our expertise in Insurance Law

Violation of the duty of disclosure or information is one of the topics within our broader expertise in Insurance Law. View that page for related topics such as policy disputes and underinsurance.