The Constitutional Court’s Landmark Ruling
Last year, Indonesia’s Constitutional Court made a significant decision regarding insurance policies. The court ruled that insurers can no longer cancel their insurance policies unilaterally. This decision came after the court declared Article 251 of the Commercial Code (KUHD) unlawful, as it was deemed to be against the 1945 constitution. Previously, this article allowed insurance policies to be canceled if the insured was dishonest when disclosing information that could affect the insurance risk.
With the court’s ruling, a policy can now only be canceled through a mutual agreement between both parties or a court decision. This change has been met with positive responses, as it could increase protection for policyholders and improve transparency within the insurance industry. However, it has also sparked a discourse on the importance of honesty in insurance agreements.
The Principle of Utmost Good Faith
In the insurance world, honesty is not just a moral value but a legal principle known as the principle of utmost good faith. Kornelius Simanjuntak, an insurance law expert at the University of Indonesia, explained that this principle requires customers to submit material facts, which are relevant pieces of information such as name, age, occupation, income, and medical history. Insurers take these material facts into account when deciding whether to cover the insured object and determining the amount of reasonable insurance money and premiums.
“If an insurance customer violates this principle by providing dishonest information, the policy becomes void. In such cases, the insurance company has the right to issue a policy cancellation and is not required to pay the claim. This is generally written in every life insurance policy,” Kornelius said.
A Historical Perspective on Honesty in Insurance
The importance of honesty in insurance dates back to an 18th-century dispute between the East India Company and The London Assurance Company. The case involved a rejected claim for a spice warehouse in Bengkulu that was destroyed by a French attack. The claim was denied because the East India Company’s director, Roger Carter, had received early warning of the planned attack but failed to disclose this information. This case, heard at The Court of King’s Bench in London, led to the establishment of the principle of good faith in insurance contracts by Justice Lord Mansfield.
“This historical case is why honesty remains the foundation of all insurance agreements to this day,” Kornelius noted.
The recent court ruling has brought the issue of honesty in insurance to the forefront, emphasizing its critical role in the industry.
