System of spontaneous risk declaration in marine insurance 

Marine insurance is among the most specific forms of insurance protection, in which the relationship between the parties is based on particular trust and professionalism. Maritime trade, which by its nature is commercial trade between entities providing their services on a professional basis, must guarantee a certain level of certainty for the parties, including the insurer. 

Unlike typical non-marine insurance, where the initiative in gathering information and the responsibility for proper regulation the legal relationship rests mainly with the insurer, in marine insurance it is the policyholder who is obliged to actively disclose all circumstances known to them that may affect the ultimate assessment of the risk. 

This duty, referred to as the system of spontaneous risk declaration, follows directly from article 304 of the Maritime Code and constitutes a development of the general principle of good faith (bona fides) in maritime trade. 

This principle has its roots in the tradition of English law, which treats the contract of insurance as a contract of utmost good faith. In practice, this means that both parties – the insurer and the policyholder – are obliged to act loyally and in a manner that enables a proper assessment of the risk. The result of applying this principle is that the policyholder obtains adequate insurance cover, while on the insurer’s side the risk is minimised and profit maximised. 

Essence of the duty of disclosure 

The duty to disclose material circumstances is one of the elements of the process of concluding a marine insurance contract. The policyholder should inform the insurer of all facts known to them that may have an impact on the assessment of the risk. This duty is of an active nature – it is not limited to answering the insurer’s questions, but requires the autonomous disclosure of all data that are material from the point of view of the risk, including those whose impact on the assessment may appear marginal. 

In marine insurance it is of particular importance that the policyholder is treated as a professional party, possessing knowledge and experience in navigation, including the risks associated with it. Consequently, it is the policyholder who bears responsibility for assessing which circumstances are material and should be disclosed. 

Material circumstances 

A material circumstance is any fact that could influence the insurer’s decision to accept or reject the risk, as well as the determination of the amount of the insurance premium. This covers a wide range of information, including: 

• data concerning the vessel and its technical condition,
• the crew’s qualifications,
• the nature of cargo,
• the planned route,
• and the season of the year. 

In insurance practice, material circumstances also include previous casualties, breakdowns, repairs or other events that may indicate an increased navigational risk. 

The limits of the duty of disclosure are determined by the reasonableness and scope of the policyholder’s professional knowledge. They are not obliged to disclose information that is objectively irrelevant to the assessment of the risk, or information that they could not have known even when exercising due diligence. 

On the other hand, non-disclosure of material facts — even without any intention to mislead — may lead to serious consequences, including releasing the insurer from the obligation to pay indemnity. 

Under Polish maritime law, a breach of the duty to disclose material circumstances when concluding the insurance contract entails serious consequences for the policyholder. 

Pursuant to the relevant provisions (article 305 of the Maritime Code), in such a situation the insurer may withdraw from the contract and at the same time retain the right to the full insurance premium. This means that failure to perform the duty of disclosure – even if the contract is terminated – does not release the policyholder from the obligation to pay the premium for the period during which the insurance risk existed. 

However, the legislature has provided for an exception to this rule: where the lack of information or its inconsistency does not result from the fault of the policyholder or the insured, the insurer may not exercise the right of withdrawal. In such a case, they are only entitled to demand an appropriate increase in the premium reflecting the actual level of risk. 

It follows that the policyholder must not only refrain from concealing data, but must also consider such data carefully and present them to the insurer, in an appropriate form, for further analysis. Moreover, the policyholder cannot hide behind the alleged irrelevance of facts that were not passed on to the insurer, because they are not entitled to unilaterally decide whether a given fact could be significant from the point of view of risk assessment. 

Conclusion 

The system of spontaneous risk declaration in marine insurance is based on the assumption that the policyholder is a professional and possesses the knowledge necessary to independently disclose all material circumstances that affect the insurer’s assessment of risk. Unlike in non-marine insurance, where the insurance company asks the questions, in marine insurance the informational burden rests on the policyholder. 

A breach of the duty of disclosure results in the insurer being able to withdraw from the contract while retaining the right to the full premium. 

In this context, it must be remembered that the rules discussed above are primarily intended to facilitate commercial trade. It is the entrepreneur who is obliged to analyse everything which, within their field of expertise, may be relevant to the insurer, while the insurer limits its activity to calculating the risk and the premium. Consequently, each party to the insurance relationship focuses on the matters specific to it, without intruding upon the competences of the other party.