Supreme Court Decision 2011Da54631, 54648 Decided June 13, 2013 about Insurance Proceeds

Main Issues and Holdings

[1] Meaning of “gross negligence” by the policyholder or the insured, which is an element for termination of insurance contract by the insurer due to breach of duty of disclosure, the criterion to determine such negligence, and the party to bear the burden of proof (i.e., the insurer)

[2] Where the insured differs from policyholder, whether policyholder is grossly negligent merely because policyholder does not disclose personal matters or physical conditions which only the insured himself/herself could know accurately by actively asking the insured (negative in principle)

Summary of Decision

[1] If a policyholder or the insured, with intent or gross negligence, fails to disclose or misrepresents material fact at the time of making an insurance contract, the insurer may terminate the contract within a certain period (Article 651 of the Commercial Act). Gross negligence here means unawareness of presence of material fact with considerable carelessness or unawareness of disclosure duty as to the fact with a wrong decision regarding its importance. Gross negligence is determined in light of all circumstances such as insurance contract contents, importance of the matter to be disclosed, circumstance leading to insurance contract formation, and relation between the insurer and the insured, and shall be determined individually and specifically in light of social norms. The insurer who wants to terminate the insurance contract based on breach of disclosure duty bears the burden of proof.

[2] If the insured differs from policyholder, barring special circumstance where policyholder already knew or should have known personal matters or physical condition only the insured himself/herself could know accurately due to the relation with the insured, a policyholder cannot be deemed as grossly negligent merely because s/he did not ask the insured actively and make disclosure. Further insurance contract requires policyholder as well as the insured respectively to notify important matters to the insurer. Moreover, if the method of disclosing the insured’s personal matters is to check the answer “yes” or “no,” a policyholder’s answer of choosing “no” does not necessarily mean absence of the fact. S/he could have meant that s/he does not know about it. Thus it cannot be easily determined from such expression alone that a duty of disclosure was breached with intent or gross negligence.

Reference Provisions

[1] Article 651 of the Commercial Act, Article 288 of the Civil Procedure Act /

[2] Article 651 of the Commercial Act

Article 651 of the Commercial Act (Termination of Contracts due to Breach of Duty of Disclosure) If, at the time of making an insurance contract, a policyholder or the insured, with intent or gross negligence, failed to disclose or misrepresented material facts, the insurer may terminate the contract within one month after it becomes aware of the non-disclosure or misrepresentation or within three years after the contract was made: Provided, That this shall not apply where at the time of making the insurance contract the insurer knew the non-disclosure or misrepresentation or failed to do so due to gross negligence.

Article 288 of the Civil Procedure Act (Facts not Requiring Attestation) The facts confessed by the parties in the court and the evident facts do not require any attestation: Provided, That confession contrary to the truth may be revoked when it is attested that it has been made due to any mistake.

Plaintiff (Counterclaim Defendant)-Appellee Meritz Fire & Marine Insurance Co., Ltd. (Law Firm Hyowon, Attorneys Choi Jung-hyun, et al., Counsel for plaintiff-appellee)

Defendant (Counterclaim Plaintiff)-Appellant Defendant

Judgment of the court below Seoul High Court Decision 2010Na94917, 94924 decided June 9, 2011

Disposition The judgment below is reversed. The case is remanded to Seoul High Court.

Reasoning The grounds of appeal are examined.

1. If a policyholder or the insured, with intent or gross negligence, fails to disclose or misrepresents material fact at the time of making an insurance contract, the insurer may terminate the contract within a certain period (Article 651 of the Commercial Act). Gross negligence here means unawareness of presence of material fact with considerable carelessness or unawareness of disclosure duty as to the fact with a wrong decision regarding its importance. Gross negligence is determined in light of all circumstances such as insurance contract contents, importance of the matter to be disclosed, circumstance leading to insurance contract formation, and relation between the insurer and the insured, and shall be determined individually and specifically in light of social norms. The insurer who wants to terminate the insurance contract based on breach of disclosure duty bears the burden of proof.

Especially if the insured differs from policyholder, barring special circumstance where the policyholder already knew or should have known personal matters or physical condition only the insured himself/herself could know accurately due to the relation with the insured, a policyholder cannot be deemed as grossly negligent merely because s/he did not ask the insured actively and make disclosure. Further insurance contract requires policyholder as well as the insured respectively to notify important matters to the insurer. Moreover, if the method of disclosing the insured’s personal matters is to check the answer “yes” or “no,” a policyholder’s answer of choosing “no” does not necessarily mean absence of the fact. S/he could have meant that s/he does not know about it. Thus it cannot be easily determined from such expression alone that a duty of disclosure was breached with intent or gross negligence.

2. According to judgment below, the court below held that policyholder Nonparty 1 or her agent Nonparty 2 did not know that the insured Defendant/Counterclaim Plaintiff (“Defendant”) was diagnosed with thyroid nodule on June 12, 2007 prior to this case’s insurance contract formation, but they could have confirmed diagnosis by calling Defendant, but did not do so. Thus it held that false disclosure was gross negligence.

3. In light of the above legal principle, we don’t accept the judgment below as it is.

A. First, the judgment below reasoning and evidence submitted to the court below showed the following circumstances. At this case’s insurance contract formation, policyholder (Defendant’s mother) Nonparty 1 lived in Gyeongnam, Kimhae; the above Nonparty 1’s agent in insurance contract formation (Defendant’s aunt Nonparty 2) lived in Busan; and the insured Defendant lived in Seoul Gangdonggu, Cheonho-dong. Defendant was diagnosed with thyroid nodule on June 12, 2007 which is about 15 days before June 29, 2007 when this case’s insurance contract was formed. Statistically, woman’s thyroid nodule prevalence rate is 25.3% ~ 42.2% in high definition thyroid ultrasound. No circumstance was shown that Defendant promptly may have informed family that the diagnosis was serious enough to get treatment.

At this case’s insurance contract formation, Plaintiff and Counterclaim Defendant (“Plaintiff”)’s agent Nonparty 3 had the above Nonparty 2 fill out the document “disclosure prior to contract formation” listing items subject to duty of disclosure. One of them is question whether Defendant “diagnosed within recent 3 months by doctor through medical exam or test, and as a result, treated, hospitalized, received surgery, or took medicine.” Nonparty 2 checked “no” between “yes” and “no” and submitted it. policyholder and the insured should affix “signature” at its bottom, but Nonparty 3 received signature only from Nonparty 2, and neither received signature from the insured Defendant herself nor inquired as to matters in the question.

B. We examine the facts In light of the above legal principle. Although Nonparty 1 is Defendant’s mother, and Nonparty 2 is Defendant’s aunt, it cannot be easily determined that at this case’s insurance contract formation, they knew Defendant’s thyroid nodule diagnosis as a matter of course or easily. The disclosure form requires that the insured Defendant’s physical condition should be asked to the insured in addition to policyholder and signature must be obtained from the insured himself/herself. Thus just because Nonparty 1 or 2 did not actively inquire Defendant’s recent diagnosis when filling out the above contract form and stated the fact differently, it did not become violation of gross negligence or disclosure duty. Furthermore, although Nonparty 2 as policyholder’s agent checked Defendant’s diagnosis with “no,” it is questionable whether it necessarily means absence of diagnosis. Thus, circumstance presented by the court below alone does not justify finding of gross negligence in Nonparty 1 or 2’s false disclosure regarding Defendant’s thyroid nodule diagnosis three months prior to this case’s insurance contract.

C. This judgment below erred in the misapprehension of the legal principle as to gross negligence and erred in insufficient deliberation and determination, which affected the conclusion of the judgment. The ground of appeal assigning this error has merit.

4. Therefore, without examining Defendant’s remaining grounds of appeal, we reverse the judgment below. The case is remanded to the court below for further proceedings consistent with this Opinion. It is decided as per Disposition by all participating Justices’ assent.

Justices  

Kim Chang-suk (Presiding Justice)

Yang Chang-soo

Park Byoung-dae (Justice in charge)

Ko Young-han