Insurance Law: The duty to disclose

The duty to disclose

Published Date: 6 July 2023

In South African contract law, there is no obligation on contracting parties to provide insight to one
another concerning any circumstances of which they have knowledge that may influence the other
party’s agreement or the stipulations of the agreement. This type of obligation only exists if the legal
convictions of the community (boni mores) expect it.

The mere omission of a material fact is not prima facie wrongful. An omission is wrongful only if it is
committed in breach of a presumed duty resting on the party concerned to act positively.

In the case of Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality [1985] 1 All SA 324 (A),
the Court found that the obligation to reveal information is related to an entitlement to disclosure,
which is an essential legal concept in insurance law. It has been determined that this obligation is
not a characteristic of all agreements but only of specific agreements, such as insurance contracts.

The main reason behind a potential insured being obligated to disclose information is that the
insurer requires the information to properly and fairly assess the risk and determine the appropriate
premium payable.

This duty continues throughout the duration of the insurance contract. The insured has the
responsibility to inform the insurer about any significant information that may impact the risk taken
on by the insured.

In the recent decision of Maharaj NO v Discovery Life Limited, the defendant, Discovery Life Limited,
was sued by the plaintiffs for various sums of money owed based on the insurance policies they
issued. The First, Third, and Fourth Plaintiffs, being Trustees of the Jai Ambe Family Trust, owned the
policies that insured the principal, the Second Plaintiff, Mr. Maharaj.

Two policies were involved, namely policy 312 concluded on 1 May 2005, and policy 160 concluded
on 1 November 2007. Both policies were governed by the same standard terms and conditions and
provided life cover, cover for severe illness, cover for family illness, disability benefits, a retirement
optimizer, and a philanthropy fund.

Mr. Maharaj, who practiced as a clinical technologist specializing in cardiology, submitted a disability
claim stating that he could not perform his occupation. The claim was repudiated by Discovery Life
Limited because the Plaintiff failed to disclose that he had been diagnosed with depression, received
psychiatric treatment, and had been admitted due to his depression between 2010 and 2012.

The key question that had to be determined was whether the plaintiff had depression at the time
when certain updates were made to the policies. The Plaintiff failed to disclose that he had been
diagnosed with depression during the time of the updates to the policies, giving Discovery Life the
option to repudiate or cancel the amendments. Discovery Life Limited argued that if they had been
made aware of the Plaintiff’s diagnosis, they could have properly assessed the risk and made an
informed decision on whether to accept such a risk. The court accepted the testimony of three
doctors that confirmed the plaintiff’s history of being diagnosed and treated for depression between
2010 and 2012.

The court confirmed that it was clear the plaintiff knew of his depression and that his health had
worsened when he sought changes to the policy, yet he failed to disclose this fact to Discovery Life
Limited. The court found that his failure to disclose entitled Discovery to repudiate the contracts that
amended the policies.

The duty to disclose is reciprocal, and according to the Policyholder Protection Rules (PPRs), an
insurer has the responsibility to assess claims fairly and provide reasons for the repudiation of

The PPRs are regulations issued that industry role-players, such as insurers, need to comply with.

The PPRs focus on the protection of policyholders against abuse or unfair treatment by industry role-

PPR 17.6.3 sets out the minimum requirements that a notice of repudiation has to comply with, such
as the reasons for the decision and the internal escalation process. This rule places a duty on the
insurer to disclose to the insured.

In another recent decision, Slabbert v Liberty Group Limited 2022 JDR 3416 (ECP), the court had to
decide if Liberty Group Limited properly evaluated the claim and if they were strictly limited to the
explanation furnished in a repudiation letter issued to the insured or if they could provide other
reasons as well (not set out in their letter). Additionally, the court had to determine if the applicant,
being the insured, was entitled to their policy benefits as outlined in the policy.

The applicant submitted a claim for a 100% impairment benefit linked to a list of health conditions or
disorders on 14 February 2018. The claim was assessed by Liberty Life Limited and found to be
ineligible due to the malignant hypertension diagnosis not being included in the listed benefit
categories. Liberty Life Limited wrote to the applicant on multiple occasions requesting updated
medical reports and assessments by a specialist physician. The applicant and his attorneys objected
and repeatedly demanded payment. Correspondence between the applicant’s doctors and Liberty
Life Limited followed, with one of the applicant’s doctors indicating that the applicant may not be
taking the required medication and that further adjustments may improve his condition. Despite
requests for updated reports from the applicant, nothing was received, and the case was dismissed
by the Ombudsman for Long-term Insurance. The applicant’s case is that Liberty Life Limited failed to
treat him fairly in the circumstances and in accordance with the Policyholder Protection Rules.

The court recognized the applicant’s argument that the second medical report found him impaired
according to the policy as logical but held that the second medical report could not be accepted as
the said report could not only be judged upon face value. Further evidence was needed by Liberty
Life Limited, and it was held that Liberty Life Limited had the reasonable right to ask for such
evidence. The applicant’s failure to heed the requests of Liberty Life Limited was the basis for the
repudiation, which was justified under the circumstances.

It is evident that both the insurer and the insured have a duty to disclose material facts, and failure
to disclose may result in the risk not being covered or a claim being repudiated by the insurer.

We are dedicated to providing our clients with the highest level of service and expertise. Please feel
free to reach out to our legal team for any of your insurance-related needs.

Written by Bianka Oosthuizen
References: South African Insurance Law, MFB Reinecke, 2013