Netherland’s court rules insurers must investigate and act in a timely manner for violations of duty of disclosure

A 23 July 2024 ruling by the Dutch court of appeal (ECLI:NL:GHSHE:2024:2400) addressed the obligations of insurers when an insured violates the pre-contractual duty of disclosure under Dutch law. The case concerned an insurer's claim of breach of the insured's duty of disclosure for failing to disclose diabetes on a health certificate. The court of appeal dismissed the claim even though the insurer relied on non-disclosure within the prescribed two months of the discovery. The court found that the insurer breached its duty to investigate, and as a result its reliance on non-disclosure was unacceptable by the standards of reasonableness and fairness. Despite violation of the duty of disclosure and timely reliance, the court ruled the insurer is obliged to pay the insured’s claim. 

Relevant facts

The insured had taken out disability insurance in 2004, indicating no diseases, illnesses, defects or medication use on his health certificate. At some point, the insured became disabled and applied for disability benefits because of – among other reasons – diabetes. The claim form that the insurer received on 11 January 2020 stated that the insured had been under treatment by a physician for diabetes since 1986. On 8 April 2020, the insurer invoked a breach of the insured's duty of disclosure after the insurer had received a medical report from the instructed medical adviser. 

The insured claimed that the insurer is obliged to provide cover since the non-disclosure claim lapsed after the expiration of two months from discovery by the insurer.

Legal proceedings and decision

The court of appeal emphasised – in line with the judgment of the court – that article 7:929 of the Dutch Civil Code (DCC) states an insurer’s possibility to invoke the legal consequences of the non-disclosure expires after two months from discovery. The two-month period begins when the insurer has obtained sufficient certainty (not necessarily absolute certainty) that the insured has not fulfilled its obligation to disclose, which depends on all relevant circumstances of the case. 

If the insurer does not invoke the breach of the duty to disclose in a timely manner, the insurer loses the ground to reject coverage of the claim for non-disclosure. This is because the rationale behind the duty to notify in Article 7:929(1) DCC is that the insurer may not leave its counterparty in uncertainty whether it intends to rely on non-disclosure.

The insurer has argued that they were not aware of the discrepancy between the health certificate and the claim form until their medical expert flagged this in the report of 26 March 2020. Hence, they did not “discover” the non-disclosure until 26 March 2020, thus rendering their letter of 8 April 2020 invoking non-disclosure as timely. Contrary to the district court, the court of appeal ruled that indeed the insurer relied on non-disclosure within the two-month period.

The insurer, however, still came up short. The insurer should have suspected a breach of disclosure after reading the insured's claim form of 11 January 2020. The court of appeal argued that the form required further investigation by the insurer because of the contradictory information regarding the medical situation. Assessment of the medical information that had been requested after receiving the claim form from the insured was not necessary to establish the breach of the duty to disclose. The court stated that a brief review of the policy and accompanying documents, such as the health declaration, and just one interaction with the insured would have sufficed to verify this. Since the insurer failed to investigate when it had sufficient evidence and reason to do so, the reliance on the consequences of a breach of the duty of disclosure is unacceptable by standards of reasonableness and fairness, according to the court of appeal.

Comment: relevance for insurance practice

The expiration period of article 7:929 DCC begins when an insurer has obtained sufficient certainty that the insured has failed to fulfill the duty of disclosure, which need not be absolute certainty. The beginning of the period depends on the circumstances of the case when an insurer has obtained certainty, and whether and to what extent an insurer may be expected to investigate after it has received indications that the policyholder has breached its duty of disclosure. A mere suspicion that the duty to disclose has been breached does not trigger the two-month period, and gives insurers leeway to conduct investigations in this context. An insurer, however, cannot remain idle in the event of a suspicion.

If the insurer failed to investigate the case when it could have been expected to do so given the circumstances of the case (i.e. when sufficient indications were disclosed), the insurer can no longer invoke the consequences of a breach of the duty of disclosure because such reliance would then be unacceptable by the standards of reasonableness and fairness – even if they invoke the consequences of non-disclosure within two months of actual discovery of the non-disclosure. This ruling emphasises the importance of taking an active stance as an insurer.

This judgment may be appealed before the Supreme Court to assess whether the court of appeal correctly applied criterion. The case, however, does show that insurers writing policies governed by Dutch law need to be aware of the rules surrounding non-disclosure, particularly the two-month period after discovery and the duty to investigate. Even a relatively short overrun of either can lead to a full lapse of an insurer's rights to rely on non-disclosure. For example, in this case the insurer did not sit idle for years or even months. The claim form was dated 11 January 2020, the insurer sent the information to their expert without any significant delay, received the expert report on 26 March 2020 and sent their letter invoking non-disclosure on 8 April 2020. Nevertheless, they breached their duty to investigate, according to the court of appeal. Considering the two-month period to invoke non-disclosure, and the fact that 8 April 2020 apparently was already too late, the insurer's duty to investigate commenced almost immediately upon receipt of the claim form. The acceptable investigation period is shorter than a month. (The actual discovery should have occurred between 11 January and 8 February 2020).

The take away is that under Dutch law an insurer, which obtains information of suspected non-disclosure must investigate that non-disclosure without any delay. If an insurer fails to do so, it runs the risk of not being able to rely on non-disclosure at a later time.

For more information on this court ruling and the Dutch Civil Code as it pertains to the duty of insurers and the insured, contact your CMS client partner or these CMS experts.