To disclose or not to disclose? Beware of a one-size-fits-all approach
A person seeking to obtain, renew or change insurance has an obligation to disclose all information material to the assessment of the risk that an insurer is being asked to take on.
One may ask: “What is material?” Enter the reasonable, prudent person. If such person would consider that the particular information should be disclosed to the insurer so that the insurer can form its own view as to the effect of such information on the assessment of the relevant risk, then the information is material.
The latest decision on the consequences for an insured who fails to disclose information of a previous incident to his insurer was made by Judges Chetty, Vahed and Poyo-Dlwati sitting as a full bench of the Kwa-Zulu Natal High Court in Pietermaritzburg in the matter of Jerrier v Outsurance Insurance Company Limited (AR 4160/2010)  ZAKZPHC 34. The judgment was in respect of an appeal brought by Mr Jerrier against the judgment of Koen J in which he dismissed Mr Jerrier’s claim against Outsurance in March 2013.
The court on appeal had to decide whether Outsurance could deny being liable to indemnify Mr Jerrier for damage caused to his Audi R8 in a collision on the basis of his failure to disclose a previous incident involving a collision which resulted in damage to his Audi R8 a few months after his policy with Outsurance incepted.
Mr Jerrier did not claim for or notify Outsurance of this incident as he believed that he was at fault, he had paid for the damage caused to the other vehicle, the damage to his Audi R8 would fall within his excess, and if he lodged a claim he would lose his OUTbonus.
In the trial court, Koen J held that Mr Jerrier’s failure to disclose the previous incident amounted to a material non-disclosure because a reasonable person would have regarded its occurrence as indicating a change in circumstances, from a claims history perspective, and a moral risk, that may have influenced the cover that Outsurance would have given him, the conditions of cover, or the premium charged. The non-disclosure amounted to a breach of the terms of his policy and Outsurance was absolved from liability.
On appeal, Outsurance was found, through the wording of its policy, to have regarded changes in a client’s individual profile or financial position as being material to the assessment of the risk as opposed to changes in the condition of the vehicle.
The Outsurance policy was accepted as being unconventional in that it is not subject to an annual renewal or a reassessment of the risk based on information required regarding changes in circumstances. It provides an indefinite insurance facility for as long as the premiums are paid. The policy incentivises clients not to lodge claims. The longer a client remains insured without lodging claims, the greater the OUTbonus. The OUTbonus is a feature that sets the Outsurance policy apart from the rest and its attraction cannot be underestimated.
It was held that Mr Jerrier’s failure to disclose the previous incident had no bearing on the conditions of cover or the premiums charged, and even if it did, the failure of Outsurance to specifically spell out, in unambiguous terms, what it required a client to report created uncertainty.
Mr Jerrier succeeded on appeal and Outsurance was declared liable to indemnify him under the policy.
At first glance, the findings of the appeal court appear to sanction non-disclosure.
But on further reading it becomes clear that Mr Jerrier’s victory is his alone. This judgment is on the facts. It is not a one-size-fits-all solution to the question of disclosure.
One must be mindful, as it was accepted by the appeal court in this case, that not all policies of insurance are the same. One person’s risk profile is not another’s. Each and every case of non-disclosure will need to be scrutinised in the context of the particular policy and the law.
For the cautious insured – if in doubt, disclose. For those who would rather throw caution to the wind, they do it at their peril.