My small heart bleeds with ire whenever insurance consumers complain about being given a raw deal by insurers vis-à-vis insurance claims. Insurance people have in the past been given unpublishable names. In some cases, they have received unfavourable publicity. If you examine the issues closely, you will agree with me that most disputes or disagreements in insurance arise from a misinterpretation or ignorance of key insurance doctrines.
For most of us, this is not strange. Insurance is a highly technical and complicated subject. It is for this reason that you find insurance employees enrolling in large numbers with The Chartered Insurance Institute of London to study and unpack weighty areas of the subject. Yes, who does not want to be an expert in his or her area of craft?
The doctrine of ‘uberrima fides,’ which due to lack of proper awareness, often causes disagreements between insurance consumers and insurers.
Under ordinary contract law, the principle of ‘caveat emptor’ - the Latin expression for ‘let the buyer beware’ - generally applies. What this means is that it is the responsibility of each party from a contract to ensure that they make reasonable bargains of business transactions. For instance, if you are buying a car, the vendor allows you to test drive the car. It is in pursuit of the same principle that tobacco buyers at auction floors examine the leaf before accepting the price set by auctioneers.
Stated differently, each party is at liberty to examine the item, which is the subject of the contract. Since both parties - buyer and seller - are allowed to physically examine the subject matter, there is no need to disclose information that is not asked for.
Insurance law is different. The person buying insurance – the proposer - is deemed to know all about his or her circumstances, problems, property, or any item to be insured. It is only he or she who knows about the risk that is being proposed for insurance. The insurer knows nothing about the risk. Similarly, it is only the insurer that has knowledge about how insurance being proposed by the prospective insured operates or responds to claims. The insurer and insured come to the formation of the insurance contract from different product understandings. Given this, the doctrine of ‘caveat emptor’ does not apply. A different doctrine, commonly referred to, as uberrima fides - the Latin expression for utmost good faith - applies. Under the doctrine of uberrima fides, the insured and the insurer both have a legal duty to disclose material facts to each other about the risk being proposed and insurance being offered, respectively.
Ignorance of the doctrine of uberrima fides is one of the major causes of disagreements between insurers and the insuring public, especially at the claiming stage of an insurance transaction. Put simply, the doctrine of uberrima fides imposes a legal and positive obligation on both parties, insurer and insured, to voluntarily disclose accurately and fully all facts, which are material to the insurance that is being proposed. It does not matter whether the facts are asked for or not.
In insurance, a fact is material, if it would influence the judgment of a prudent or reasonable underwriter in deciding whether or not to enter contractual relations and if so, on what terms and conditions. For example, when you are buying life insurance cover, the insurer will ask questions relating to your health, lifestyle, and occupation. If you smoke disclose it. If you take alcohol, say it. These are material facts. Failure to disclose material facts will risk policy benefits forfeiture, especially when there is a claim.
I always advise my clients to disclose everything they know about a risk being proposed. The rule of thumb is that if you are in any doubt as to whether a fact is material or immaterial, it is recommended that it be disclosed.
Views from the top are that to test what is or is not material is contentious. The bottom line is that matters which insurers have commonly found to be material are usually the subject of clear questions on an insurance proposal form. It goes without saying that an insurance proposal form must always and in all circumstances be completed when the buyer of insurance or his agent is sober and level-headed.
Lester Chinyang’anya ǀ General Manager - Operations ǀ Minet Malawi
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