What is the primary purpose of the duty of disclosure in insurance contracts?

The primary purpose of the duty of disclosure in insurance contracts is to ensure fair assessments of risk. This duty obliges both the insurer and the insured to share relevant information. The insured must disclose all material facts that could influence the insurer’s decision-making process regarding the policy issuance, coverage limits, and premium rates. By doing so, insurers can accurately assess the risk associated with the individual policyholder and provide appropriate coverage and pricing.

When this duty is upheld, it helps create a balanced and equitable insurance framework. It minimizes the chances of misunderstandings or disputes at the time of a claim, as both parties have a clear understanding of the risks involved and the nature of the coverage provided. This principle is fundamental to maintaining the integrity of the insurance market and ensuring that the products are priced fairly based on the actual risk presented.