Introduction
Under Article 4 of the Insurance Contract Act, an insured party has a duty to disclose all information relevant to an assessment of the risk to be insured. Under Article 6 of the act – in the event that the insured fails to or insufficiently discloses the relevant information – the insurer can terminate the insurance contract, after which it has no payment obligation for already incurred damages that are causally linked to the insufficiently disclosed information.
While so-called 'indicating circumstances' do not directly cause an insured event, they enable conclusions to be drawn in regards to risks that could directly cause the event. For example, the fact that an insured person has concluded several life insurance contracts points to a higher risk of suicide. However, the conclusion of a life insurance contract cannot directly cause such suicide. In a decision of October 29 2015 (4A_150/2015), the Federal Court considered whether no or insufficient disclosure of indicating circumstances falls under Article 6 of the Insurance Contract Act, and thus allows the insurer to refuse payment for already incurred damages.
A limited liability company ('A GmbH') concluded a motor vehicle insurance contract with an insurer ('B') for one of its two managers ('C'). In the insurance application, C stated that neither she nor the other manager ('D') who would regularly drive the car had incurred any damages or had their driving licence revoked in the past five years. She also stated that she would be driving the car most often.
In fact, C had been involved in a car crash the day before filing the insurance application. In addition, D later stated that he:
- used the car more often than C;
- had been involved in a car accident caused by his carelessness; and
- had received a warning for drunk driving in the five years before the insurance application was filed.
One year after the insurance contract had been concluded, D caused a car accident with the insured vehicle because he was adjusting the radio and not paying enough attention to the road. The vehicle's repair cost approximately Sfr 50,000, which A GmbH then claimed from B before the Federal Court.
Under Article 6 of the Insurance Contract Act, in order for an insurer to be free of its contractual payment obligation for already incurred damages it must have terminated the insurance contract within four weeks of becoming aware of a misrepresentation. Termination requires that the insured failed to or insufficiently disclosed information that was relevant to the conclusion of the insurance contract. In addition, the insufficiently disclosed information must have a causal link to the incurred damages.
According to the Federal Court, the insured will breach his or her duty to disclose relevant information to the insurer if he or she does not or incorrectly answers the questions in the insurance application. In this regard, the Federal Court held that – according to Article 4 of the Insurance Contract Act – the applicant must disclose all relevant information so that the insurer can correctly determine the insured risk. Thus, the insurer must be able to ask all questions which will allow it to directly or indirectly determine this risk, including questions concerning indicating circumstances. In the present case, the Federal Court concluded that C should have been aware of D's previous accident due to their longstanding business relationship, and since this was assumed it was not contested by A GmbH. Thus, C had breached her duty for disclosure.
In order for information to be relevant it must be influential to the insurers' decision either to conclude the insurance contract or to conclude it under certain conditions. According to Article 4(3) of the Insurance Contract Act, it is assumed that any information that the insurer specifically and unambiguously asks for in the application is considered relevant. This assumption can be overturned only by showing that either the information was objectively irrelevant or that the insurer would have concluded the same insurance contract if it had known of the non-disclosed information. As neither of these could be shown, the Federal Court ruled that the non-disclosed previous car accident caused by D was relevant information.
If the two requirements above are met, the insurer may terminate the insurance contract within four weeks of becoming aware of the insufficiently disclosed information. Unfortunately, the Federal Court did not definitively answer the question of whether the insured must receive the termination letter within this period or if it is sufficient for the insurer to have sent the letter within this period. This question was left unanswered by the Federal Court as A GmbH had received the termination letter within the four weeks.
The key issue for the Federal Court was whether incorrectly disclosed indicating circumstances can have a causal link to incurred damages. According to the court, it would be unreasonable if an insurer could refuse payment for incurred damages only if the applicant had incorrectly answered questions about direct causes for the insured event. The same must be applied to incorrect answers about indicating circumstances where this information was relevant in determining the probability of the specific risk which later was actually realised and caused damage. According to the Federal Court, this is especially the case with motor vehicle insurance as the risk assessment mostly happens through indicating circumstances.
The Federal Court noted that the assessment in this case concerning indicating circumstances may not necessarily be applied as a general rule for all insurance contracts. However, this decision still shows that indicating circumstances can fall under Article 6 of the Insurance Contract Act, especially if they play an important part in risk assessment for the specific insurance type.
The Federal Court ruled that no or insufficient disclosure of indicating circumstances by an insured party falls under Article 6 of the Insurance Contract Act if this information was relevant in determining the probability of the specific risk which later was actually realised and caused damage. Further, if indicating circumstances relevant to the conclusion of the insurance contract were not or were insufficiently disclosed, the insurer is freed from its contractual payment obligation if it terminated the insurance contract within the required time.
For further information on this topic please contact Markus Dörig or Alexandra Bösch at BADERTSCHER Rechtsanwälte AG by telephone (+41 44 266 20 66) or email ([email protected] or [email protected]). The BADERTSCHER Rechtsanwälte AG website can be accessed at www.b-legal.ch.
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