Why full insurance disclosure is important

When an insurance policy is purchased the property owner (insured) enters into a legally binding contract with the insurer to acquire indemnification against financial loss. This is subject to the relevant policy terms and conditions.

There are two documents that represent the contract:

  1. The policy wording which comprises most of the terms and conditions of the contract.
  2. The policy schedule that contains specific detail related to the insured as well as some of the more flexible terms and conditions.

When we refer to the insured, we are including all parties covered by their insurance. In a sectional title environment, this includes all members of the scheme and not just the trustees who are appointed to represent the scheme and its members.

All property insurance policy wordings include a general condition relating to disclosure. This reiterates the insured’s responsibility to make full disclosure to the insurer upon application. This disclosure relates to elements such as the current state of the property in question as well as any know faults, defects or characteristics of the property that may adversely affect the risk profile. In addition, the insured should also declare the existing insurance history of the relevant property including underwriting restrictions imposed, claims paid, claims rejected and significant damage not claimed for.

While the insurer expects full disclosure, the policy wordings will state that the insured must disclose all facts and circumstances that they are reasonably expected to be aware of. A property owner who simply ignores problematic issues while reasonably aware of it cannot plead ignorance when making his declaration to the insurer. This is why it is so important that all body corporate members notify trustees of all problems concerning their sections and exclusive use areas.

Where an incomplete disclosure is made to the insurer the insurance cover may be compromised but the insurer may also reject future claims. Where it is proven that a declaration was intentionally falsified or information was held back to secure more favourable insurance terms, some insurers reserve the right to void the insurance policy and refund all premiums. This will render the insurance contract as if it had never existed at all.

While some forms of insurance are quite simple and require relatively basic or standard forms of declaration, others are more complex and clients would do well to seek professional assistance. Communal property insurance is one such form of insurance where the appointment of a qualified broker goes a long way towards protecting the interests of the insured. Such a representative will be knowledgeable about the insurers and their requirements, and will provide adequate advice to the client to ensure full disclosure is made correctly and timeously.

 

Author:  Bruce Gibson, Addsure

Contact Addsure – The Leaders in Sectional Title Insurance – for fit and proper advice from advisors who understand Sectional Title. Contact us in Johannesburg (011) 704-3858; Durban (031) 459-1795; Cape Town (021) 551-5069