Material Facts – Facts which need to be disclosed and facts which need not be disclosed?

What is a Material Fact?

Any fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract is material and must be disclosed by a proposer, or by the insurer to the insured.

Material Facts in other words

Material facts are based on the legal principal of “utmost good faith,” which requires a person who is seeking insurance of any kind to disclose any and all information that could be deemed relevant by an insurer. This information, known as material fact, may be any fact or facts that an insurance underwriter could use to assess the level of risk associated with insuring a particular individual. This degree of risk is what an insurer uses to determine your coverage and your premium, or cost.

Facts required to be disclosed

1. A fact which is earlier immaterial but becomes material later on must be disclosed if it has been expressly mentioned in the terms and conditions of the policy. Eg. Fire insurance of ones house. Earlier, vacant plot located nearby. Later on a petrol pump is constructed on such plot.
2. A fact which increases the risk must be disclosed in all circumstances. E.g. incase of theft insurance, if a person lives alone in an isolated place, the same needs to be compulsorily disclosed as it increases the risk.
3. Previous losses incurred and claims under previous policies needs to be disclosed. This is mainly in case of double insurance where it needs to be ascertained as to whether the subsequent insurance company is willing to insure and to what extent.
4. Special terms and conditions under previous policies if any.
5. Fact of existence of non-indemnity is to be disclosed. This relates to any charge or encumberance on the policy in the form of a loan security or otherwise.
6. The description of the subject matter must be stated properly. This is mainly to locate the property if it is immovable and to recognize it if it is movable.
7. Facts which suggest any special motive to take the insurance.
8. Facts which suggest the existence of any moral hazards which relate to the moral integrity of the proposer, etc.

Facts which need not to be disclosed

1. Fact lessening the risk need not be disclosed.
2. Public knowledge. E.g. facts regarding govt. policies, taxes, subsidies, etc. which are expected to be known to all.
3. Fact of law like rules, regulations, etc. which have already been made available to all by way of the notification in the official gazette.
4. Superfluous facts or such information which is not logical.
5. Facts which are inferred information.
6. Fact waived by the insurer himself.
7. Facts governed by the policy itself.