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Duty Of Disclosure

Most insurance products are underwritten by the insurer before accepting the application for insurance. The insurer considers and, in some cases, makes enquiries into the subject of the insurance.

Before you enter into a contract of insurance with an insurer, you have a duty, under the Insurance Contracts Act 1984, to disclose to the insurer every matter that you know, or could reasonably be expected to know, is relevant to the insurer’s decision whether to accept the risk, and, if so, on what terms.

You have the same duty to disclose those matters to the insurer before you renew, extend, vary or reinstate a contract of insurance.

An insured has a duty to disclose matters the insured knows to be relevant to the insurer’s decision to accept the risk or that a reasonable person could be expected to know to be relevant to the insurer, except for matters:

• That diminish the risk;
• That are of common knowledge;
• That the insurer knows or in the ordinary course of the insurer’s business ought to know;
• As to which compliance with the duty of disclosure is waived by the insurer;

If the non-disclosure is fraudulent, the insurer can cancel the policy and refuse to pay any claim. If it is “innocent” then the insurer may reduce the amount of any claim to the amount that would have been paid had the disclosure been made.

It is important that you fully understand the duty of disclosure and the implications of failing to do so before a product is issued.