Duty of full disclosure in health insurance

Health insurance is a vital sector directly linked to the protection of the insured’s health and life. The conclusion of an insurance policy is not a mere formality; it rests on the principles of good faith and honesty.

The insured is under a duty to disclose fully and accurately all facts concerning his or her state of health and that of any covered dependents, as any omission may affect the insurer’s decision to assume the risk.

The failure to disclose a material health condition, whether intentional or due to negligence, constitutes a breach of the duty of good faith and may result in the avoidance of the insurance contract. The law offers no protection to an individual who seeks coverage while concealing material information.

On the contrary, case law consistently supports the right of insurance companies to deny coverage when a breach of this duty is established.

In legal terms, a ‘material fact’ is any information that would reasonably influence the judgment of a prudent insurer as to whether to accept the risk and on what terms. The concealment of such a fact is inherently misleading and renders the contract voidable at the discretion of the insurer.

Supreme Court judgment

The Supreme Court, in its recent judgment in Civil Appeal No. 271/2016, dated September 30, reiterated with clarity the importance of full disclosure by the insured. The case concerned an insured woman who applied for a family health insurance policy covering herself, her husband and their daughter.

Following the issuance of the policy, the husband was hospitalised and found to be suffering from diabetes mellitus, a pre-existing condition that had not been declared in the insurance application.

The insurance company refused to pay compensation and terminated the husband’s coverage, invoking a breach of the duty of full disclosure.

Both the District Court and the Supreme Court upheld the insurer’s position, and the insured’s appeal was dismissed. The court held that the failure to disclose a pre-existing illness amounted to a serious breach.

It found that the insurance contract expressly required the insured to disclose fully and truthfully all circumstances necessary for the insurer to properly assess the risk, and that such information formed an integral part of the application for insurance, which itself constituted an inseparable component of the contract.

The policy also stipulated that the insurer would be released from any obligation to pay compensation where the insured made a false statement or concealed facts known to him or her, which, had they been disclosed, would have led the insurer either to decline coverage altogether or to provide different terms.

Contracts of the utmost good faith

The Supreme Court emphasised the well-established legal principle that insurance contracts are contracts of uberrimae fidei, of the utmost good faith, where nondisclosure of material information renders the contract void, regardless of whether the omission was made in error or without fraudulent intent.

The test is an objective one. A material fact is any circumstance that would affect the judgment of a prudent insurer in determining the premium or deciding whether to accept the risk.

When the accuracy and truthfulness of the insured’s statements constitute the foundation of the contract, there is no need to examine whether the misrepresented fact was material or not.

This judgment reinforces Cypriot jurisprudence in the field of insurance law and reaffirms three fundamental principles: (a) the duty of disclosure lies solely with the applicant and the insurer is entitled to rely fully on the statements made in the application,
(b) the materiality of a fact is assessed objectively, with the key question being whether a prudent insurer would have been influenced by the omission, irrespective of the insured’s intent or knowledge, (c) the insurer’s right to repudiate the contract arises when the policy has been concluded on the basis of incomplete or inaccurate information that materially affected the assessment of the risk.

The court reaffirmed that the liability of the insured is independent of any element of fault or intent. The decisive factor is the objective significance of the undisclosed information in the risk-assessment process.

The insurer’s right to void the contract on grounds of nondisclosure, whether intentional or negligent, is not punitive in nature but a necessary safeguard to protect the integrity of contractual consent.