Guided by her fair knowledge of insurance, she reduced her age on the proposal form in order not to pay a relatively high premium. Further to that, she refused to disclose certain health conditions on the same form.

Two and half years into the life of the cover, Josie suffered a stroke that disabled her permanently. As part of the benefits of the policy, in the event of permanent total disability owing to the occurrence of stroke, apoplexy, cancer and any other including accident, the expected amount, in this case the GH¢10,000 would be paid regardless of the fact that the maturity period had not been reached.

Josie makes a claim

In making a claim, Josie forgot what she stated on the proposal form two and a half years earlier and disclosed her real age which was more than what was on the form. As fate would have it, she now stated her medical conditions prior to having taken the policy and attached proof.

The insurance company refused to pay the total claims but on humanitarian grounds considered an ex gratia settlement of refunding the total premiums she had paid, less than the risk component for the two and half years.

Josie’s family was dissatisfied and went about bad mouthing the company with the popular cliché, ‘Insurance companies are thieves.’

Interesting revelations

Investigations revealed later that Josie was very much aware of her medical conditions prior to the policy inception and this included high blood pressure. It was also discovered that she was constantly on sleeping pills and other depressants which she failed to disclose on the proposal form.

Utmost Good Faith compromised

Here again, the principle of Utmost Good Faith had been compromised, this time from the client.

Utmost Good Faith can be defined as ‘a positive duty to voluntarily disclose, accurately and fully all facts material to the risk being proposed whether requested or not’. In insurance contracts, Utmost Good Faith means that ‘each party to the proposed contract is legally obliged to disclose to the other all information which can influence the other’s decision to enter the contract’. The following can be inferred from the above two definitions:

1. a) Each party in an insurance contract is required to tell the other the truth, the whole truth and nothing but the truth.
2. b) Unlike normal contracts, such an obligation is not limited to the questions asked.
3. c) Failure to reveal information, even if unsolicited, gives the aggrieved party the right to regard the contract as void.

Insurance companies take non-disclosure of information into serious consideration when underwriting policies. There is, therefore, the need to state the fact on everything ab initio. This will help the insurer to quote the right premiums and also indicate whether the life to be insured is worth accepting as a risk or otherwise.

What constitutes a material fact in insurance?

Material fact in insurance is every condition or information which will influence the judgment of a prudent insurer in accepting the risk in terms of the rating of the risk or the terms and conditions of the contract, and must be disclosed.

 Why does non- disclosure happen?

• Ignorance on the part of the policyholder.
• Taking insurance for the sake of it – because it is required by law.
• Intentions to have premiums reduced to make it affordable.
• Intention to fleece the insurer by ‘playing smart’.
• Poor underwriting or no medical examination by the insurer before putting clients on cover.
• Pre-conceived intention to defraud the insurance company.
• Haste by the insurance agent just to get the proposer to quickly state ‘No’ ‘No’ to every question, especially in relation to health and occupation. (It is unfortunate that some insurance agents do not take these portions of proposal forms seriously as they could even get a pregnant woman saying ‘NO’ to an ‘Are You Pregnant?’ question).

Analysis of the scenario

Many times, the insured has a greater knowledge about himself / herself when proposing to have an insurance policy. Since insurers need to have such information to determine the insurability of the person(s) and the rate to charge, the client is required to provide it.

If in the event of a loss the insurer finds that information to be false, claims could be repudiated or subjected to a cumbersome process before being considered, if at all.

Utmost Good Faith, also known as ‘uberrimae fidei’ or ‘let the buyer beware’, applies to the buyer as well. In this case, ‘let the seller (insurer) beware’. Akin to disclosing your exact medical condition to a medical doctor in order to obtain the most appropriate treatment, there is the need for absolute honesty or else insurance could suffer an economic setback to the client, as well as the insurer.

Not many insurance companies may have sufficient time to check the facts before they issue the policy.  The farthest they could sometimes go is subjecting such proposers who intend paying very high premiums to medical examinations – the more reason the principle of Utmost Good Faith to make life easier for all parties.

If a material fact indicated in the insurance proposal form is false or was not revealed, then the insurance company will be able, in most cases, to repudiate any claims made even if premiums have already been paid.

Breaches of Utmost Good Faith

Breaches of Utmost Good Faith occur in either of two ways.

(1) Misrepresentation, which again may be either inadvertent or intentional; if intentional, then it is fraudulent.

(2) Non-disclosure, which may be innocent or fraudulent. If fraudulent, then it is called concealment.

Clearly if the truth were known, the insurance company might decide not to issue the policy, or would have issued it with certain caveats, and probably load the premiums. However, claims can only be repudiated subject to establishing the fact that the client deliberately provided false information in an apparent attempt to defraud.

Advice to clients – existing and prospective

Indeed, as the Vandals of the University of Ghana’s mantra say, “Truth Stands”; clients should be able to disclose every information necessary for the insurability of a life (person) or property in order to avoid any unhealthy experiences that could mar the relationship between them and their insurers.