When an insurer avoids for non-disclosure
The commonest reason given for refusing a claim is that the insured failed to disclose something. But the provision that grants that right also limits it in time, and the limit is shorter than most people expect.
What makes the contract voidable
Section 865 of the Civil and Commercial Code provides that where, at the time of contracting, the insured knowingly omits to disclose facts which might have induced the insurer to demand a higher premium or to decline the contract, or knowingly states those facts falsely, the contract is voidable. The elements that matter are knowledge on the insured's part, and that the facts carried enough weight to have induced a higher premium or a refusal.
Voidable, not void
Voidable is not the same as void. A voidable contract remains effective until it is avoided, so the insurer must actually exercise the right to avoid before it can decline liability on this ground. Where a company refuses a claim citing non-disclosure, the next question is therefore whether the right to avoid was exercised at all, and when.
One month, from learning of the ground
The second paragraph of section 865 sets two limits. If the right to avoid is not exercised within one month from the day the insurer learns of the ground for avoidance, or is not exercised within five years from the date of the contract, the right lapses. The month therefore runs from the day the company learned of the ground — often the day an investigation report or medical record came back — rather than from the day it wrote to refuse.
Two years from the date of the loss
Section 882 sets the limit on the claimant's side: an action for indemnity may not be brought after two years from the date of the loss, and an action to pay or to refund premium may not be brought after two years from the day that right fell due. The period runs from the date of the loss, not from the day the company refused — a point commonly misunderstood.
Negotiating does not stop the clock
Read together, the two provisions mean that both sides' clocks run while the argument continues. A claimant still sending documents and waiting for an answer is still inside the two years from the date of the loss under section 882, and an insurer that has learned of a ground but not yet acted is inside the month under section 865. Recording the date of each event is therefore worth more than it appears.
PREPARE
What to bring
- The full policy with annexes and the proposal form
- The date of the loss and evidence establishing it
- The insurer's refusal letter and the reason it gives
- What the insurer relies on as the undisclosed fact
- A dated sequence of every submission and reply
QUESTIONS
Questions this raises
The insurer avoided the policy only months later.
The second paragraph of section 865 ties the month to the day the insurer learned of the ground for avoidance, not the day it told the insured. The fact to establish is therefore when the company knew, which often appears from the dates on an investigation report, on medical records it obtained, or in internal notes referred to in the refusal letter.
We are still negotiating. Does the two years still run?
Section 882 bars an action after two years from the date of the loss and says nothing about the state of negotiations. Continuing to send documents and await a reply therefore does not stop the period running. A claimant in a long negotiation should know their own expiry date from the outset and plan what to do before it arrives.
LAW
The legislation
- Civil and Commercial Code, section 865
- Civil and Commercial Code, section 882
ENQUIRIES
