Dutch Supreme Court provides more clarity on when the two-month period commences within which an insurer can invoke the consequences of non-disclosure

Relevant legal provisions and introduction

Article 7:928 paragraph 1 of the Dutch Civil Code (DCC) states that prior to entering into the insurance agreement, the policyholder has an obligation to disclose to the insurer all facts of which he is aware, or ought to be aware, and on which, as he knows or ought to understand, that the decision of the insurer whether, and if so, on what terms, the latter is willing to enter into the insurance, will or may depend. Article 7:929 paragraph 1 DCC states that an insurer that discovers non-compliance with a disclosure obligation described in Article 7:928 DCC may involve its consequences only if it informs the policyholder of the non-compliance as well as any possible consequences within two months of this discovery.

On 7 July 2023, a judgment of the Dutch Supreme Court was published, which provides more clarity regarding the commencement of the two-month period under Article 7:929 paragraph 1 DCC. The question addressed in this judgment revolved around the interpretation of "discovery" in Article 7:929 paragraph 1 DCC.

Relevant facts

The case involves a dispute between a Dutch courier company and a Dutch insurer. During the application of a car insurance, the insured did not answer one of the insurer's questions about previous damages correctly. After the insured filed a claim for theft-related damage, the insurer rejected coverage since the damage history of the car was not reported truthfully.

Legal proceedings and decision

After the coverage rejection, the insured initiated legal proceedings. The Dutch district court and the Court of Appeal rejected the claim of the insured. During the proceedings at the Dutch Supreme Court, the central question was whether the concept of "discovery" in Article 7:929 paragraph 1 DCC should be interpreted subjectively ("has the insurer actually discovered?") or objectively ("should the insurer have reasonably discovered?").

Although the Dutch Supreme Court does not provide a direct answer to the previous question, the judgment offers more clarity on the matter. The Supreme Court ruled that the two-month period mentioned in Art. 7:929 DCC only commences once the insurer has obtained sufficient certainty that the policyholder has failed to comply with the duty of disclosure. This judgment appears to implicitly refer to a subjective interpretation of the term "discovery". The Supreme Court, however, also ruled that it depends on the specific circumstances of each case regarding when the insurer obtained the necessary certainty, and whether and to what extent it can be expected of the insurer to conduct investigations once they have received indications that the policyholder has not fulfilled their duty of disclosure. With this judgment, the Supreme Court seems to provide room for an objective interpretation.

Comment: relevance for insurance practice and the London market insurers

This Dutch Supreme Court judgment holds significant relevance for all parties involved in the insurance sector. Even though there seems to be room for debate after the issuance of this judgment, we believe that it provides practitioners with additional tools to assess the commencement of the two-month period mentioned in Article 7:929 paragraph 1 of the Dutch Civil Code. While the judgment of the Supreme Court is based on Dutch law, it is also of interest to London market insurers.

The two-month timeframe for invoking the consequences of non-disclosure under Dutch law is short. Our expectations are that in practice, establishing the moment at which the two-months period commences (i.e. when the insurer has sufficient certainty about the non-disclosure), will still pose difficulties. Activities such as receiving the relevant documents, and analysing and evaluating these documents are necessary however they can complicate (the efficiency and speed of) the process. Therefore, it can be challenging for insurers to determine whether non-disclosure has occurred, in order to timely invoke the consequences.

This judgment underscores the importance for insurers to promptly initiate an investigation as soon as there is reason to suspect non-disclosure. By doing so, insurers can ensure that they invoke the consequences of non-disclosure within the required time frame.

For more information on this judgment and the Dutch insurance sector, contact your CMS client partner or local CMS experts.

Sasagar B.V. v Nationale Nederlanden ECLI:NL:HR:2023:1050