Why does the duty of disclosure apply to insurance contracts?

The duty of disclosure applies to insurance contracts primarily because the proposer (the person or entity seeking insurance) typically has more knowledge of the risk than the underwriter (the insurance company assessing the risk). This principle stems from the nature of insurance whereby the proposer is often in a better position to understand the various factors that may affect the risk being insured, such as their own health, property conditions, or business operations.

Insurance operates on the foundation of mutual trust and transparency. The information that the proposer possesses is critical for the underwriter to make informed decisions regarding coverage, terms, and pricing of the insurance policy. If the proposer does not fully disclose relevant information, it can lead to a mis-calculation of risk, ultimately affecting the insurer's ability to provide adequate coverage and could also result in disputes at the time of a claim.

This imbalance of knowledge is why the duty to disclose is emphasized in insurance contracts. The responsibility lies with the proposer to provide all material facts, ensuring that the insurance contract is based on accurate and complete information.