Criteria for Determining the Fulfillment of the Duty to Notify Alteration or Increase in Risks When Multiple Insurance Contracts Are Concluded with the Same Insurer - Supreme Court Judgment 2022Da238633, Delivered on November 28, 2024 -

In June 2006, X entered into an accident insurance contract with Y Insurance Company, designating A as the insured. At the time, A disclosed his occupation as a police officer. In October 2015, A changed his occupation to a truck driver but failed to notify Y of this change. Subsequently, in October 2017, X purchased a driver’s insurance policy with A as the insured. Upon reviewing the insurance certificate, X noticed that A’s occupation was still recorded as “police officer.” X then informed an insurance agent affiliated with Y about A’s occupational change, leading Y to impose an additional premium for the driver’s insurance policy. However, neither X nor A notified Y of the occupational change concerning the 2006 accident insurance contract. In September 2018, an insured event occurred, prompting A to claim accident insurance benefits. Y, citing a violation of the duty to notify alteration or increase in risks (i.e., occupational change) under the 2006 contract, asserted its right to reduce the insurance payout. Nevertheless, the Supreme Court ruled that the duty to notify had been fulfilled in this case and remanded the case to the lower court. This Supreme Court ruling is inconsistent with the statutory provisions on the duty to notify under Articles 652 and 653 of the Commercial Act. It also diverges from the standard policy terms that concretize the requirements for fulfilling the duty to notify. Given this precedent, similar disputes are likely to arise in the future. However, considering advancements in technology, concerns over potential privacy violations, and the broader trend toward enhanced consumer protection in the insurance industry, future court decisions are expected to align with this ruling. The critical issue is the legal basis for the Supreme Court’s decision. The Court highlighted that the insurance agent involved in the case was aware of the existence of the first insurance contract. However, the ruling implies that even if the agent had been unaware of the earlier contract, the insurer is deemed to have received notification of the risk change across all contracts involving the same insured. Notably, neither statutory law nor policy terms explicitly provide such a rule. If a legal basis were to be sought, it might be found in Article 2 of the Civil Act, which enshrines the principle of good faith. Even if insurers, in practice, can relatively easily access information on multiple insurance contracts held by the same insured, imposing a duty to review all such contracts and update their terms when necessary would require an explicit provision, at the very least, in the policy terms. Therefore, standard policy terms should explicitly provide that when a change in occupation is notified under one insurance contract, the notification is deemed valid for all contracts involving the same insured with the same insurer. While such a provision would increase the administrative burden on insurers, it would also provide insurers with opportunities to justify premium adjustments and reductions in insurance payouts across all relevant policies. Accordingly, such a rule would not be entirely unfavorable to insurers. In this case, all three courts-the court of first instance, the appellate court, and the Supreme Court-concluded that the policyholder had fulfilled the duty to notify regarding the second insurance contract. However, this conclusion seems legally flawed. All three rulings are premised on a “common error” in their interpretation and application of the relevant legal principles.