The Act regulating insurance contracts was passed on 16 April 2008. One of its most important aspects is the regulation of the role of the policyholder and their pre-contractual duty of disclosure.
The policyholder is required to disclose all material information affecting the assessment of the risk.
If the policyholder negligently fails to disclose all material facts, insurers may take one of the following steps:
- They may avoid the contract within a three month period if the discovery of the omission of the policyholder’s non-disclosure was fraudulent. Premium is owed by the policyholder up to the end of the three month period, when the insurer may annul the contract. If the loss occurs before the insurer acknowledges the policyholder’s fraudulent breach, the loss will not be covered.
- If the non-disclosure was not fraudulent, the insurer has three months to notify the policyholder that:
- They will modify the insurance contract, giving the policyholder 14 days to accept or to issue a counterproposal, or
- They will terminate the contract due to the fact that the non-disclosure induced them to cover a risk it would not have covered if it had been disclosed correctly.
The termination of the contract takes place 30 days after the notification by the insurer, or 20 days if the policyholder receives a modification offer and does not present a counterproposal. The premium is calculated pro rata temporis, in proportion to the period of coverage effectively granted.
If a loss takes place before the modification or termination of the policy, and connected to the non-disclosure, the insurer can choose to either:
Cover the loss in proportion to the difference between the premium paid and what should have been paid had the non-disclosed circumstance been known
- Not cover the claim, demonstrating they would not have entered the contract if it was not for the non-disclosure. In this case, the insurer would have to return all premium received.
If a policyholder’s claim is fraudulent, the insurer does not have to cover the loss.
Likewise, beneficiaries who are aware of the fraud do not have the right to receive an indemnity payment.