The Spanish Insurance Contract Law establishes the policyholder’s duty to declare the relevant circumstances for the assessment of the risk by the insurer, before signing the policy. Subsequently, it also establishes the obligation to communicate the circumstances that may aggravate the risk during the validity of the policy, but what does this duty of information really imply?
At Insuralex Spain (Belzuz Abogados), as experts in Insurance Law, we receive frequent queries in relation to current issues in insurance matters. Likewise, we take care of our continuous training and updating in this legal branch, in order to be able to offer our clients the best possible advice.
In this sense, we have been confronted with practical cases in relation to the fundamental question of what the duty to inform on the part of the insured actually entails, in application of the law and jurisprudence.
Introduction to the problem and brief legal framework
This duty to inform has its origin in the Insurance Contract Law (LCS), more precisely in its articles 10 and 11. Article 10 of the LCS, in its paragraph 1, establishes that:
“The policy holder has the duty, before the conclusion of the contract, to declare to the insurer, in accordance with the questionnaire that the latter submits to him, all the circumstances known to him that may influence the evaluation of the risk. They will be exonerated from this duty if the insurer does not submit a questionnaire to them or when, even if they do submit it, it is a question of circumstances that may influence the evaluation of the risk and that are not included in it“.
On the other hand, Article 11 LCS, also in its paragraph 1, states:
“The policy holder or the insured person must, during the validity of the contract, communicate to the insurer, as soon as possible, the alteration of the factors and circumstances declared in the questionnaire foreseen in the previous article that aggravate the risk and are of such a nature that if they had been known by the latter at the moment of the perfection of the contract they would not have concluded it or would have concluded it under more onerous conditions“.
The conclusion that can be drawn from these two precepts seems quite clear and simple: on the one hand, the policy holder is obliged to declare to the insurance company all the known circumstances that can influence the evaluation of the risk, before signing the contract. On the other hand, subsequently, the policy holder is also obliged to inform the insurer as soon as possible of any variation of these circumstances that could suppose an aggravation of the risk. These questions are also in accordance with logic and common sense. The insurance company is a company that is professionally dedicated to providing a service, consisting of compensating the insured person in the event of the occurrence of the risk expressly contemplated in the contract. In order to evaluate essential elements for the existence of the contract, such as whether it is in the company’s interest to insure that risk and the calculation of the premium accordingly, the so-called “actuarial tools” need to know, as precisely as possible, the existing risk. Hence, the law obliges the policy holder to make a truthful declaration about the elements known to them that can influence both the insurer’s decision to cover the risk and the valuation of the premium.
However, the problem lies in the fact that in many policies, it is common to observe clauses that establish that it is the insured person’s responsibility, in the expiry periods of the policy, to fully inform the insurer of any variation in the circumstances taken into account to assess the risk. That is to say, some policies shift to the policy holder the burden of informing the insurer, at each expiry period of the policy, of the variation of any circumstance relevant to the risk. This obliges the policy holder to be attentive to the moment of maturity, to prepare the information for the insurer and even to know and evaluate the circumstances that the insurer considers important for the evaluation of the risk.
The consequences of not doing so can sometimes be problematic for the policy holder, given that sometimes the insurance companies, if the claim occurs, opt for a reduction or even a denial of the coverage, due to non-fulfilment of the duty of information, taking refuge in the effects foreseen in Article 10 LCS.
Faced with these situations, a fundamental question arises: can the insurer shift the burden of the duty of information to the policy holder?
What do the law and jurisprudence say in this respect?
On the one hand, it could be affirmed that, in our Law, the principle of the autonomy of the will in contracts, enshrined in Article 1255 of the Civil Code, governs. Article 1 of the Insurance Contract Law also defines this as that by which the insurer is obliged, by means of the collection of a premium and in the event of the risk occurring, to compensate the damage produced within the agreed limits.
Nevertheless, it is also true, as we have seen, that Article 10.1 LCS establishes that the policy holder is exonerated when the insurer does not submit a questionnaire with the questions that they consider relevant. However, article 11 LCS seems to establish that the policy holder or the insured have the duty to inform, once the insurance contract is in force, of the alteration of the relevant circumstances.
The jurisprudence has dealt with this question, and thus the Supreme Court Ruling (STS) of 31st May 2004 states: “It is true that if the insurer does not demand the corresponding questionnaire or declaration, they must bear the consequences”. But even more relevant for the case in question is the statement contained in the Judgement of the Provincial Court of Barcelona (16th Section) no. 182/2002, of 28th April, analysing the legislation and jurisprudence on the subject:
“In any event, the same binding effect would also apply to the insurer’s absolute passivity in this respect. It should be noted that during the three years of the relationship they did not make the slightest attempt to regularise the amount of the premium: nor did they request the insured party to provide information on the invoicing obtained, nor did they make use of the right, provided for in stipulation 11 of the Special Conditions, to carry out inspections to ascertain the data necessary for such purposes. Significantly, it was only after the contract was terminated on 18 March 2020, by decision of Gaptec 2011 SL, that, on the basis of the data provided by the insurance intermediary, HDI Global proceeded to recalculate and request the amount claimed in the lawsuit“.
This question is very important, since the Insurance Contract Law establishes in article 12 a whole procedure to be followed by both parties in the event of a variation in the circumstances relevant to the determination of the risk. Thus, succinctly, once the policy holder has declared an aggravation of the risk, the insurance company has a period of two months to propose a modification of the contract and, once this has been done, the policy holder has 15 days to accept or reject it. In the event of silence, the insurer can warn the policy holder and if they do not reply within 15 days, the insurer can take the definitive decision to cancel the policy, notifying the policy holder.
Therefore, the lack of information would have deprived the insurer of the possibility of varying the premium but, on the other hand, it would also deprive the policyholder of the power to accept or refuse this modification.
Moreover, this question could come into contact with the requirement of good faith in Article 7 of the Civil Code, as well as with the so-called “doctrine of own acts”. Basically, the fundamental argument would be that if the insurance company has not shown any interest during the validity of the policy and its successive renewals, neglecting to ask for updated information, it cannot deny coverage at the moment when a claim occurs, hiding behind the breach of the duty to inform. This is the opinion of the Judgment of the Provincial Court of Las Palmas de Gran Canaria (5th Section), no. 319/2008:
“This Court does not appreciate this non-fulfilment, due to the insurer’s own actions, since after the expiry of the disputed policy, not only did it admit subsequent renewals without any objection, but it also did not carry out any activity aimed at finding out the real invoicing of the defendant despite being protected by the contents of the conditions of the insurance policy whose validity it is now claiming. Therefore, either it already knew the actual turnover, or it decided not to demand knowledge of the actual turnover.
The above allows us to conclude that the Insurance Contract Law imposes a generic obligation on the policy holder to declare all the circumstances known to them before signing the contract that may influence the evaluation of the risk. However, this obligation is in reality a legal obligation to truthfully answer the questionnaire that the insurer submits to them, with the questions that they consider relevant for the evaluation of the risk. The lack of this questionnaire exonerates the policy holders from their obligation to inform.
On the other hand, although article 11 of the Insurance Contract Law obliges the policyholder to declare the circumstances that may aggravate the risk, during the term of the contract, the truth is that if the insurer does not show at any time interest in requiring this updated information, and even renews the policy automatically, upon expiration, without worrying about whether there has been a variation or aggravation of these circumstances, it is bound by its own actions and by the principle of good faith, and cannot subsequently, in the event of an accident, deny coverage alleging non-compliance with the duty of information, when no interest was shown in its compliance during the entire duration of the contract.
From the Insurance Law Department of Insuralex Spain (Belzuz Abogados), we are at your disposal to analyse and defend your problem in matters of civil liability and insurance law in the most professional and efficient manner.