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The insured's duty of disclosure

Under the duty of disclosure, a consumer applying for insurance (the insured) must disclose relevant information to the insurer. The duty of disclosure is extremely important to the insurance company’s decision to agree to the contract of insurance.

Common Law Position

At common law, an insurance company (the insurer) is entitled to avoid a contract if the insured has:

  • Not complied with the duty of disclosure; and
  • Made a false statement that is material to an insurer’s decision to accept the contract.

Based on the information volunteered by the insured, an insurer may decide not to accept the contract, may impose conditions and may adjust the premium. But the onus is on the insured to disclose every fact that is material to the insurer’s decision.

The failure to disclose a material fact may be innocent, but at common law the insurer is entitled to avoid the contract which may have drastic consequences when a claim is made.


Part IV of the Insurance Contracts Act 1984 (Cth) creates a statutory code replacing the common law. Recent reforms to the legislation simplify the consumer’s duty of disclosure recognising that there is a gap in the information known to the insurer and that known by the consumer.

Section 20B states that a consumer must take reasonable care not to make a misrepresentation to the insurer when entering into a contract of insurance, including renewal, extension, variation or reinstatement of a consumer insurance contract. Under the legislation, a consumer insurance contract is one for personal, domestic or household purposes and includes general and life insurance contracts.

Whether or not a consumer has complied with the duty depends on the relevant circumstances of each case. Factors that may be considered include:

  • The type of contract
  • Materials provided by the insurer
  • The questions asked by the insurer
  • How clearly the insurer stated the importance of answering the questions and the possible consequences of failing to do so

In addition, the characteristics of the individual consumer can be considered when determining if the consumer has taken reasonable care not to make a misrepresentation.

Section 20B (4) provides that a consumer is not taken to have made a misrepresentation if they did not answer a question or gave an obviously incomplete or irrelevant answer.

Division 3 of Part IV sets out the remedies for an insurance company if a consumer breaches the duty not to make a misrepresentation. Depending on the circumstances of the breach, the insurance company can reject a claim, reduce a payout on a claim, increase premiums or cancel the contract. The insurance company must prove that the consumer made a misrepresentation to the insurer.

An insurance contract can also be cancelled under section 60 in a range of circumstances, including breaches of the duty not to make a misrepresentation.

The insured's duty of disclosure  :  Last Revised: Fri Mar 19th 2021
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.