Netherlands' Court rules on two-month notice period for non-disclosure

There is a new episode in the flurry of case-law on the Netherlands’ statutory two-month notice period (ECLI:NL:GHDHA:2024:2538), which relates to the obligations of insurers if a policyholder violates the pre-contractual duty to disclose. Once an insurer “discovers” non-disclosure, they must inform the policyholder within two months by lack. If they fail to do so, the right to rely on non-disclosure lapses. This tight time period gives rise to a number of questions, particularly on the commencement of this period. (See our previous Law-Now articles on a Supreme Court case on this topic in 2023 and Court of Appeal case last year).

The two-month period: legal test

Article 7:929 of the Dutch Civil Code (DCC) states that an insurer’s right to rely on the legal consequences of non-disclosure, expires after two months from discovery. The two-month period begins when an insurer has obtained sufficient certainty, not necessarily absolute certainty, that the policyholder has not fulfilled its obligation to disclose. Circumstances of the case will determine when an insurer has obtained this certainty, and to what extent the insurer may be expected to investigate after it has received indications that the policyholder has breached the duty to disclose.

If an insurer does not rely on the breach of the duty to disclose in a timely manner, it loses the rights to do so. In creating this severe sanction, the Dutch legislator wanted to prevent insurers from keeping policyholders in uncertainty whether an insurer intends to rely on non-disclosure.

Relevant facts

The policyholder took out a disability policy in 2014. In August 2020, he claimed under the policy because of disability due to neck and back problems.

After assessment by the insurer's medical advisor, the insurer sent a letter to the policyholder on 5 November 2020 stating that the information showed that the insured had certain health problems that were not mentioned during the application process, the insurer requested additional information and stated this omission could affect policy coverage.

On 19 February 2021, the insurer's medical advisor received a letter from a surgeon, who notes that the policyholder had a one-off consultation with him on 15 June 2012, and previous consultations with a colleague prior to that. The surgeon concludes in this letter that the policyholder suffers from chronic back pain due to congenital kyphoscoliosis. 

The medical advisor states to have read this letter on 1 March 2021. On 25 March 2021, the insurer sent an e-mail to the policyholder pointing out the discrepancies between the information received during the underwriting process and the medical information, invoked non-disclosure and set out the possible legal consequences. To complete its investigation, the insurer requested that the policyholder answer additional questions. 

The policyholder responded to those question on 20 April 2021. On 29 April 2021, the insurer sent a letter to the policyholder concluding that there is no policy cover due to non-disclosure. 

Legal proceedings and decision

The insurer argued that the policyholder breached the duty to disclose, and that the insurer did not obtain a sufficient degree of certainty of this non-disclosure until the medical advisor read the letter from the orthopedic surgeon on 1 March 2021. Since the insured received the denial of coverage on 29 April 2021, the notice was received within the two-month period after discovery on 1 March 2021.

The Court of Appeal sided with the insurer that the policyholder breached its duty to disclose. The court rejected the insurer's timeline, however, and found that the moment of discovery of the non-disclosure was 19 February 2021, the date of receipt of the surgeon’s letter. The Court of Appeal stated that since the insurer requested the medical information, it should have monitored when the relevant medical information was received, and ensured the information was processed smoothly. They found that it was necessary to inform the policyholder of the consequences of the non-disclosure no later than 19 April 2021. The letter of 29 April 2021 therefore was too late. By this date, the insurer had lost the right to refuse cover due to the non-disclosure.

Comment and relevance for insurance practice

We question whether the Court of Appeal properly applied the 2023 Supreme Court ruling. The Supreme Court ruling is clear that the moment of discovery is a subjective test, and the only objective aspect is whether and to what extent it can be expected from the insurer to conduct investigations once receiving indications of a non-disclosure. The Court of Appeal, however, explicitly rejected the subjective test and finds the moment of receipt of the letter decisive. 

In addition, we question whether the Court of Appeal applied the correct test when they attributed the knowledge of the medical advisor of the insurer to the insurer’s claims handler. Whether the medical advisor was an in-house advisor or an external advisor could be relevant, as well as the question how medical confidentiality relates to medical information shared with the advisor (and not directly with the insurer). The ruling, however, is silent on those topics.

Finally, based on our understanding of the facts the insurer did fulfil its obligations even if the Court of Appeal is followed in their conclusion that the period lapsed on 19 April 2021. On 25 March 2021, the insurer invoked non-disclosure and set out the possible legal consequences. By doing so, they acted in conformity with art. 7:929 DCC and there is no statutory provision stating a time limit to inform the policyholder of the consequences of the non-disclosure. Still, the Court of Appeal apparently did not find the e-mail of 25 March 2021 sufficient.

Regardless of whether the Court of Appeal applied the correct test, this case once again emphasises the importance of taking an active stance as an insurer when there is a potential breach of the duty to disclose under Dutch law. Even though a mere suspicion of a breach does not constitute a discovery and thus in principle does not trigger the commencement of the two-month period, an insurer must investigate and inform the policyholder swiftly. If not, the insurer runs a risk that the right to invoke non-disclosure will have lapsed.

For more information on this ruling and how it could affect your Netherlands-based business, contact your CMS client partner or these CMS experts: