The period during which an insurer can terminate a policy should be calculated from the point it becomes aware that the policyholder breached the duty to notify, the Supreme Court has ruled. Merely receiving an insurance claim does not constitute knowledge of such a breach, the court found.
According to legal sources on Wednesday, the third division of the Supreme Court, presided over by Justice Oh Seok-jun, overturned a lower court ruling that had favored the bereaved family of the deceased, identified as A, in their insurance claim lawsuit against DB Insurance. The case was sent back to the Busan District Court for retrial.
A had signed an insurance contract with DB Insurance in 2014 that would pay 150 million won ($109,000) in the event of accidental death. At the time, A reported his occupation as a security guard. In April 2022, A boarded a vessel as a chief engineer and died in an accident in waters off Taiwan. The bereaved family filed a claim on June 3 of the same year, but on July 13, the insurer notified them of the contract's termination, citing a breach of the duty to notify regarding A's change of occupation to a seaman, and refused to pay the insurance money.
The central issue in the case was when the one-month exclusion period, during which the insurer could terminate the contract, began. Under the Commercial Act, an insurer must terminate a contract within one month from the date it becomes aware of a change in risk.
The first and second trials both sided with the bereaved family. The courts determined that the insurer had already become aware of the increased risk on June 3, when it received the claim. Accordingly, they ruled that the termination notice issued on July 13, more than a month later, had no legal effect.
The Supreme Court overturned the lower court's decision. The ruling holds that the termination period does not begin simply because the insurer learns of the accident. "The starting point for the period of exercising the right to terminate should not be merely when the insurer learns of the increased risk, but the day when the insurer becomes aware that the policyholder has failed to fulfill the duty to notify," the Supreme Court said. The court further noted that because the bereaved family claimed the boarding was a "one-time" occurrence when filing the claim, it would have been difficult for the insurer to immediately recognize, upon receiving the claim, that there had been a breach of the duty to notify regarding the change of occupation.
