By Javed Mohammed
Advocate Attorney at law at Pollonais Blanc de la Bastide & Jacelon.
Introduction
Insurance offers peace of mind that if disaster strikes, your losses will be covered. But many people do not realize that an insurance policy is not an unconditional guarantee. In reality, an insurance policy is a contract; it is a promise to pay claims only if certain conditions and warranties are satisfied by the insured. In simple terms, an insurer’s obligation to compensate you is conditional on you meeting your end of the bargain.
This article explains why it’s vital for you to read and understand your policy, to be truthful and thorough in disclosing information, and to maintain good faith throughout the life of the policy. We focus on motor insurance, though the principles apply generally to all types of insurance.
The Policy
An insurance policy is a legal contract in which the insurer promises to pay you upon the occurrence of certain events, but only if the specific conditions of the policy are met. Those conditions can include obvious things like paying your premiums (the regular fee to keep your policy active), but they also include abiding by various terms and warranties written into the policy. If you breach those terms, even unintentionally, the insurer may have the right to decline your claim or treat the policy as void.
For example, your motor policy might state that only drivers named on the policy are covered. If someone not named in the policy drives your car and has an accident, the insurer may deny liability. In Presidential Insurance Co. Ltd. v. Resha St. Hill [2012] UKPC 33, the Privy Council upheld the insurer’s right to refuse a claim where an unnamed person was driving. The coverage “will apply only when the vehicle is operated strictly by the person(s) named on the insurance policy”. Because insurance is a contract, courts generally enforce its terms. The fine print matters.
Read and understand your Policy
Many people don’t read their insurance policies until they face a claim. Insurance contracts are long and often technical, but you must read and understand the coverage, terms, conditions, and exclusions. Ask your insurer or broker for clarification if needed. It’s important to understand who you are dealing with. An insurance agent typically represents a single insurer, while an insurance broker acts as your representative to find the best terms from various insurers.
At the very least, you ought to know the following as it relates to your policy:
- Who is covered?
- What is covered? (For example, is it a comprehensive policy that covers your own vehicle’s damage as well as damage you cause to others, or a third-party policy that only covers damage you cause to others?)
- What is the use of the vehicle?
- What is the deductible or excess? This is the amount you must pay out-of-pocket before the insurer begins to pay.
- The conditions you must follow to make a claim.
Full and Frank Disclosure (The Duty of Utmost Good Faith)
Insurance contracts are based on “utmost good faith”. This means you must disclose all material facts when completing your proposal form. Material facts are any facts that would influence an insurer’s decision to insure you or on what terms. While proposal forms contain questions to guide you, the burden falls upon you to disclose any other matters you know of that might influence the insurer’s decision. When you fill out a proposal form, you sign a declaration that your answers are true and complete.
Failure to disclose or a misrepresentation of facts can result in the insurer taking a decision to void the policy. For instance, in Civ. App. 58 of 2004 Alleyne v. Colonial Fire & General Insurance Co. Ltd, the Trinidad and Tobago Court of Appeal upheld the insurer’s right to avoid a policy on the basis of material non-disclosure. The appellant, Alleyne, who was blind in his left eye, answered “no” to a question on the proposal form asking whether he suffered from defective vision. The Court found that the loss of an eye was obviously material to assessing risk. The Court affirmed that the duty of utmost good faith required full disclosure of all material facts, even if the proposer did not appreciate their significance.
The Continuing Duty of Disclosure
The duty of good faith does not end once the policy is issued; it is a continuing duty. At each renewal, you must update your insurer about any changes in material facts. For motor insurance, this could include modifying your vehicle, changing its primary use from personal to business, or a new driver in your household. For property insurance, it might include starting a home business or undertaking major renovations.
If you breach your duty of disclosure, the insurer may avoid the contract, treating the policy as void from inception. You may be refunded your premium, but your claim will not be paid.
Making a Claim
When an incident occurs, your duty of good faith continues. The insured is expected to report the claim as soon as reasonably practicable, honestly disclose all matters related to it, and avoid fraudulent or exaggerated claims. You must also comply with the claims procedure in your policy, which often includes a duty to not admit liability without the insurer’s consent and to cooperate fully with their investigation.
A practical checklist to follow after an incident includes:
- Never admit liability at the scene.
- Take detailed photos of the damage and the scene.
- Exchange contact and insurance information with all other parties.
- Notify your insurer immediately as per the terms of your policy.
What happens if a claim is denied?
If your claim is denied, you have options. First, ask the insurer for their reasons in writing, referencing the specific policy condition they believe you have breached. If you disagree, you can initiate a formal complaint through the insurer’s internal dispute resolution process. Should that fail, you can seek advice from a regulatory body or a legal professional.
The Insurer’s Duty
The duty of good faith is mutual. An insurer must handle your claim fairly and promptly and not unduly reject claims on technicalities. In Ramsook v Crossley [2018] UKPC 9, while the insurer had the right to control the defence of a claim, the Board criticized it for failing to act in good faith by not keeping the insured informed, especially when she risked personal liability for sums beyond her coverage.
Conclusion
Insurance is a promise to pay, but a conditional one. The insurer’s duty to pay arises only when you, the insured, meet your responsibilities by disclosing material facts, complying with all terms, and acting in good faith. This information is not intendedto scare you, but to make you an informed consumer who knows how to secure the benefit of that promise. Armed with this information, you can avoid the common pitfalls and ensure your policy serves its purpose when you need it most.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice.
