Duty of Disclosure
The term "duty of disclosure" refers to a duty that a party (e.g., an individual or a company) has to disclose (that is, to reveal or tell) information. Disclosure is an important concept in many business deals, but it's especially important in insurance contracts, whether the insurance is for health, disability, life, property, or another matter.
Insurers Have a Duty of Disclosure
For example, insurance companies have fiduciary duties as members of the insurance industry's "good faith and fair dealings" standards. Fiduciary duties mean that an insurance company and its representatives must act in a position of trust, good faith, responsibility, and truthfulness on behalf of their policyholders. Among an insurer's fiduciary responsibilities is the duty of disclosure.
Disclosing All Relevant Information
Insurance companies' duty of disclosure requires that they provide certain information to their prospective and current policyholders, such as:
- the scope and limitations of the insurance coverage being agreed to
- the consequences of various events
- deadlines that must be met
- the responsibilities of the insurance company
- all other terms of the insurance policy
As Outlined in State and Federal Insurance Laws
An insurer has the duty to be forthright and honest in all transactions, as outlined in both federal and state laws. These laws describe exactly what type of information must be provided to a prospective or current policyholder. In general, any information that must be conveyed in order to ensure that all business is conducted in good faith falls under the duty of disclosure.
Disclosure On Time, Too
The duty of disclosure also relates to disclosing information in a timely manner. This means that an insurance company should provide time-sensitive information as soon as it becomes available, so as to insure that the policyholder's interests are protected. Examples of such information are:
- any changes to a policy
- documentation requirement notifications (with regards to insurance claims)
- responses to a policyholder's contacts (e.g., phone calls, letters and e-mail)
The insurance company's failure to disclose information in a timely manner may constitute a breach of fiduciary duty.
A "Bad Faith" Insurance Practice
When an insurance company doesn't meet its duty of disclosure, it is considered an act of bad faith that gives actionable cause to the policyholder to seek relief for any resulting losses. The injured policyholder has the legal right to seek compensation for any losses suffered, including:
- denied or lost benefits
- interest on financial losses
- emotional distress
- other adjudicated damages
When a failed duty of disclosure is willful or malicious, punitive damages may also be awarded. Punitive damages are intended to punish a defendant (insurance company) for its bad faith duty of disclosure breach and to deter others from committing such acts in the future.
The Policyholder's Duty of Disclosure
The person or family being insured also has a duty of disclosure when they apply for or renew insurance coverage. Policyholders are required to be honest about matters relevant to their insurance plan. Failure to meet disclosure requirements can result in an insurance company dropping the policyholder's coverage. In extreme cases, a failure to meet the duty of disclosure may be found fraudulent and punishable in court.
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