Contract Signed as Office Worker for Daily Construction Site Laborers
Termination Not Allowed if 'Notification Duty' Violation Period Has Passed
In cases where the insured conceals their high-risk occupation when entering into an insurance contract, the insurer may terminate the contract within the statutory limitation period under commercial law due to a breach of the 'duty of disclosure,' but cannot terminate the contract on the grounds of a breach of the 'duty to notify,' which applies when the risk of an accident increases, according to a Supreme Court ruling.
If the insured has continuously engaged in the same occupation from the time of contract conclusion until the occurrence of the insured event, it cannot be considered a case of 'significant change or increase in the risk of accident occurrence.' Furthermore, recognizing such a right of termination would be unfair as it would place the insured who violated the duty of disclosure in a position where the contract could be terminated at any time even after the statutory limitation period under commercial law has passed.
According to the legal community on the 29th, the Supreme Court's Second Division (Presiding Justice Kwon Young-jun) upheld the lower court's ruling in favor of the plaintiff in the appeal trial of an insurance claim lawsuit filed by three bereaved family members?B, the spouse of A, and their two children?against Meritz Fire & Marine Insurance.
The court stated, "The lower court found that the deceased (A) and the plaintiff B violated the duty of disclosure by reporting the deceased's occupation as a low-risk job at the time of entering into each insurance contract in this case, but since the actual occupation did not change during the insurance period, even if the occupation differed from what was disclosed to the defendant at the time of contract conclusion, it cannot be considered a violation of the 'duty to notify' under Article 652(1) of the Commercial Act or the 'post-contract notification duty' stipulated in each insurance policy in this case." The court added, "The lower court's judgment is proper, and there is no error in the legal interpretation of the duty to notify under Article 652 of the Commercial Act and the relevant insurance policies," thereby dismissing Meritz Fire & Marine Insurance's appeal.
A worked as a daily laborer at construction sites, and along with their spouse B, entered into three accidental death insurance contracts with Meritz Fire & Marine Insurance in 2009, 2011, and 2016, respectively. The contracts stipulated that in the event of accidental death or similar incidents involving the insured A, the legal heirs B and their children would receive the insurance benefits.
However, when entering into the insurance contracts, the couple did not truthfully state A's occupation. Instead, they falsely recorded the workplace as 'office worker' and the industry or job description as 'management,' 'construction,' 'representative,' or 'administrative and business support office manager.'
A died in July 2021 due to an accident while working at a construction site.
B filed a claim for insurance benefits under the three contracts against Meritz Fire & Marine Insurance, but when the insurer refused payment citing termination of the contracts due to violation of the 'duty to notify' under Article 652(1) of the Commercial Act, B filed a lawsuit.
The legal issue was whether concealing a high-risk occupation and falsifying the occupation at the time of contract conclusion constitutes a violation of the 'duty of disclosure' under Article 651 of the Commercial Act and simultaneously a violation of the 'duty to notify' under Article 652(1) of the same law.
Article 651 of the Commercial Act (Contract Termination Due to Breach of Duty of Disclosure) states, "If the policyholder or the insured intentionally or through gross negligence fails to disclose or misrepresents important matters at the time of entering into the insurance contract, the insurer may terminate the contract within one month from the date of knowing the fact and within three years from the date of contract conclusion." The right of termination expires if either period elapses first.
Thus, the Commercial Act stipulates that if the policyholder fails to disclose important matters at the time of contract conclusion, the insurer may terminate the contract within three years from the contract date. The first-instance court acknowledged that in this case, A and B violated the duty of disclosure during the contract process. However, since the insured event occurred more than three years after the last of the three insurance contracts was concluded, the insurer could not terminate the contract on the grounds of breach of the duty of disclosure.
Ultimately, Meritz Fire & Marine Insurance cited a breach of the duty to notify under Article 652(1) of the Commercial Act as the reason for termination.
Article 652(1) of the Commercial Act (Notification of Change or Increase in Risk and Contract Termination) states, "If the policyholder or the insured becomes aware during the insurance period that the risk of accident occurrence has significantly changed or increased, they must notify the insurer without delay. If they fail to do so, the insurer may terminate the contract within one month from the date of knowing the fact."
Meritz Fire & Marine Insurance argued, "A engaged in a different occupation than the one reported to the insurer, increasing the risk of an insured event, but failed to notify the insurer after contract conclusion, violating the duty to notify under the Commercial Act."
However, the first-instance court rejected this argument and ruled in favor of B and the children. The court ordered Meritz Fire & Marine Insurance to pay B 94.8 million KRW and each of the two children 63.2 million KRW plus interest.
The court stated, "The 'change or increase in risk' subject to the duty to notify under Article 652(1) of the Commercial Act is limited to those occurring during the insurance period, which is a faithful interpretation of the text. If the actual occupation did not change during the insurance period, even if it differs from the occupation disclosed to the insurer, it cannot be considered a violation of the duty to notify under the Commercial Act."
The legislative intent of the duty to notify when risk increases, separate from the duty of disclosure, is to impose an obligation to notify when circumstances change compared to the time of contract conclusion, not to impose overlapping notification obligations for risks existing from the time of contract conclusion.
Regarding Meritz Fire & Marine Insurance's claim that the contract should be terminated according to the policy terms, the court pointed out, "If it is considered, as the defendant claims, that the deceased violated both the 'pre-contract notification duty' and the 'post-contract notification duty' under the insurance policy by disclosing an occupation different from the actual one at the time of contract conclusion and failing to notify during the insurance period, the policyholder would be subject to overlapping sanctions, resulting in an unfair outcome."
The court also stated, "If the two duties are applied concurrently, the insurer could exercise the right of termination without any time limit, placing the policyholder in an unstable position where the contract could be terminated at any time. Such an interpretation cannot be accepted as it contradicts the content of the insurance policies limiting the right of termination for breach of the pre-contract notification duty and the legislative intent of Article 651 of the Commercial Act."
Meritz Fire & Marine Insurance appealed, but the appellate court's ruling was the same.
The Supreme Court also found no problem with this judgment.
The court explained, "Article 651 of the Commercial Act stipulates that if the policyholder or the insured intentionally or through gross negligence fails to disclose or misrepresents important facts at the time of contract conclusion, the insurer may terminate the contract within one month from the date of knowing the fact and within three years from the contract date. Article 652(1) of the Commercial Act requires the policyholder or the insured to notify the insurer without delay if they become aware during the insurance period of a significant change or increase in the risk of accident occurrence, and if they fail to do so, the insurer may terminate the contract within one month from the date of knowing the fact."
It continued, "Considering that these provisions are separate and regulate the exercise period of the right of termination differently, and based on the wording of each provision, the duty of disclosure under Article 651 arises when important facts exist at the time of contract formation, whereas the duty to notify under Article 652 arises when the risk of accident occurrence, which did not exist at the time of contract formation, newly changes or increases during the insurance period."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
