What If the Information Affects the Acceptability of the Risk? An Analytical Reading of Article 791 of the Kuwaiti Civil Law

A legal colleague working in the insurance sector published a post addressing Article 791 of the Kuwaiti Civil Law, explaining the distinction drawn by the legislator between cases arising before the occurrence of the loss and those arising after it, where the insured has breached the duty of disclosure. I reposted the analysis with a comment highlighting the legislator’s silence on the mechanism for calculating the correct premium when the undisclosed information is revealed after the loss.

Subsequently, a thoughtful and important question was raised by another professional colleague working in the insurance sector:

What if the information affects the acceptability of the risk itself?

This question became the starting point for discussing the professional framework of the issue.

Scope of Application of Article 791 and Breach of the Duty of Disclosure

Article 791 of the Kuwaiti Civil Law addresses a fundamental issue relating to the insured’s breach of the duty of disclosure, whether by concealing a material fact or by providing incorrect information that would alter the nature of the risk or reduce its significance in the insurer’s assessment. The text clearly does not distinguish between concealment affecting the pricing of the risk and concealment affecting the acceptance of the risk itself.

Article 791 Within the General Framework of the Insurance Policy

This may appear unfair to insurers, but the legislator did not consider Article 791 in isolation from the broader legal framework governing insurance policies.

Formation of the Insurance Policy and the Role of the Proposal in Articles 779 and 780

Under Article 779, an insurance policy is not concluded unless the insurer signs the policy and delivers it to the insured, and the insurance proposal together with the statements and declarations contained therein form an integral part of the policy. Article 780 then grants the insured a thirty-day period to review the policy and request corrections, failing which the insured’s silence is deemed an express acceptance of its terms.

Duty of Disclosure and the Limits of the Insurer’s Responsibility Article 790

Conversely, Article 790 obliges the insured to disclose all known circumstances that are material to the insurer’s assessment of the risk, with particular emphasis on facts that the insurer has made the subject of specific written questions. This requirement is not merely formal, as it shifts part of the responsibility to the insurer, who is expected to ask the essential questions necessary to properly evaluate the risk.

From Good Faith to Utmost Good Faith in Insurance Policies

Accordingly, insurance policies are not governed by the standard concept of good faith applicable to ordinary contracts, but rather by the stricter doctrine of utmost good faith. This doctrine imposes mutual positive obligations, particularly in relationships that are inherently imbalanced. It requires not only refraining from concealing information but also adopting a proactive approach by the parties to the policy to ensure transparency of the risk and fairness of the contractual relationship.

The Principle of Balance After the Occurrence of the Loss

Therefore, even in cases where the undisclosed information affects the acceptability of the risk, the legislator, once the loss has occurred, opted for a principle of balance rather than exclusion. The insurer is prevented from fully evading liability, in exchange for a financial mechanism that reflects what the contractual outcome would have been had proper disclosure been made at the time of formation.

The Technical Role of the Licensed Loss Adjuster in Achieving Fair Claim Settlement

This approach explains why courts accept the recalculation of the premium using the same pricing methodology applied prior to the loss, and it simultaneously highlights the importance of the technical role of a licensed loss adjuster in reaching a fair and balanced claim amount that accurately reflects the true nature of the risk, without excess or deficiency.