The insurance contract is characterized by the principle of maximum good faith. In fact, it is well known that the parties must share all the relevant information for the conclusion of the contract, using correctness and without reticence.
In particular, the insured must provide the insurer with a true representation of the circumstances that characterize the risk, in order to allow the latter to evaluate whether or not to insure said risk and, in case of acceptance, to correctly determine the premium.
The Italian Civil Code sets out a strict and rigorous discipline regarding the cases in which an insured has made incorrect or reticent statements to the insurer26.
But what happens if, after the conclusion of the contract, changes occur that reduce or increase the insured risk?
Even in this case, the Italian Civil Code provides for a specific discipline. In particular, Article 189727 of the Italian Civil Code regulates the event of risk reduction while Article 189828 of the Italian Civil Code regulates the event of increase in risk.
The Italian Supreme Court has recently addressed the issue of increase of risk29 by assessing the legitimacy of a contractual clause, which provided that the occurrence of certain circumstances (duly specified in the contract) undoubtedly represented an increase of the risk and that, therefore, upon occurrence of said circumstances – regardless of the objective factual situation resulting therefrom - the insured were required to pay a higher premium.
In order to better appreciate the decision of the Supreme Court, we must first of all briefly clarify what Italian case-law considers as relevant "increase of risk" pursuant to Article 1898 of the Italian Civil Code.
According to established case-law, the increase of risk under Article 1898 of the Italian Civil Code consists in an increase in the probability of occurrence of the uncertain event compared to the probabilistic calculation taken into consideration by the parties at the time the contract was taken out, such as to alter - beyond the limit of the physiological contractual risk - the balance between the insured risk and the agreed premium.
What is important to notice is that, according to case law, the assessment of the increase of risk must be carried out on the basis of a subjective criterion (the choices that the insurer would have made if he had been aware of the new circumstances) and not of an objective criterion (the effect of the new circumstances on the likelihood that the insured event will occur).
In the light of the above, the Supreme Court held that the parties of an insurance contract may expressly provide that the occurrence of certain circumstances constitutes an increase of the risk, regardless of the concrete influence of the new circumstances on the likelihood that the insured event will occur (taking into account the subsequent contractual modifications such as, for example, possible adjustments to the premium that the parties might have agreed in case of increase of the risk)30. Therefore, according to the Supreme Court, it is possible to contractually regulate the increase in the agreed premium in case of increased risk.
Hence, in the presence of such a clause, there is no need to prove the influence of the new circumstances (already specified in the contract) on the insured risk, but (more) simply to prove that such circumstances occurred.
Finally, we cannot but remind our readers of the importance of immediately notifying the insurer of any changes that increase the insured risk. Given the practical relevance of the obligation at issue, whose violation could also result in the loss or reduction of the compensation, oursuggestion - in case of doubt about the possible relevance of a change pursuant to Article 1898 of the Italian Civil Code – is to give anyway immediate notice thereof to the insurer.