Jakarta. Last year, the Constitutional Court decided that insurers could no longer cancel their insurance policies unilaterally. 

The court declared that Article 251 of the Commercial Court (KUHD) as unlawful, and was against the 1945 constitution. According to the said article, insurance policies can be canceled if the insured was dishonest when disclosing their information that may affect the insurance risk. With the court’s ruling, a policy can only get canceled through an agreement between both parties or a court decision. The ruling sparked positive responses, as it could increase the protection for policyholders and improve the transparency within the insurance industry. But this decision also sparked a discourse on the importance of honesty in insurance agreements.

In the world of insurance, honesty is more than 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, said this would require customers to submit the material facts, namely relevant information (name, age, occupation, income, medical history). The insurer will take into account all these material facts or information before deciding whether to cover the insured object. The data also helps insurers determine the amount of the reasonable insurance money and premium.

"So if an insurance customer violates Article 251 of the Commercial Code by providing dishonest information, the policy will become void. In this case, 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.

Concrete Impact, Disputed Claim Cases

The case that triggered this judicial review began with the rejection of a claim by an insurance company against the heirs of a customer who was deemed not to have honestly disclosed their health condition upon registering. The company considered that the hidden health information had a significant impact on the risk insurance policy, and would likely have resulted in the policy not being issued if it had been known from the start. The heirs later took the case to the Constitutional Court, demanding that the principle of good faith in Article 251 of the Commercial Code be revoked because it was considered to hinder the constitutional rights of citizens.

From Bengkulu to London: The Roots of Honesty in Insurance

Kornelius also touched on the long history of the principle of honesty in insurance which began with a dispute in the 18th century between the East India Company and The London Assurance Company. This dispute occurred when Charles Boehm rejected a claim for a spice warehouse in Bengkulu that was destroyed by a French attack. The reason: East India Company’s director Roger Carter, did not reveal important information that he had received early warning of the planned attack.

The case was heard at The Court of King's Bench, London, and decided by Justice Lord Mansfield who then established the importance of the principle of good faith in insurance contracts.

"This case was the reason why honesty became the foundation of all insurance agreements to this day," Kornelius said.