Insurance agreements have a unique and distinctive character. An insurance contract, which is classified as an aleatory agreement (“konsovereenkomst”—an act whose outcome, whether advantageous or disadvantageous to all or certain parties, depends on an uncertain future event) as regulated under Article 1774 of the Indonesian Civil Code (KUHPerdata), has legal consequences that require the contract to comply with specific legal principles. These include the principle of insurable interest, the principle of indemnity, the principle of utmost good faith (uberrimae fidei), and the principle of subrogation, all of which align with Articles 250, 251, 252, 253, and 284 of the Indonesian Commercial Code (KUHD). With respect to the principle of utmost good faith (uberrimae fidei) as regulated under Article 251 KUHD.
In early 2025, the Constitutional Court delivered Decision Number 83/PUU-XXII/2024 concerning the judicial review of Article 251 of the Commercial Code (Staatsblad 1847 No. 23) against Article 1(3), Article 27(1), Article 28D(1), and Article 28G(1) of the 1945 Constitution. The Petitioner argued that Article 251 KUHD reflects the Principle of Insurer Protection, considered the original intent of the article. This principle was formulated and popularized by English Judge Scrutton L.J in Rozannes vs. Bowen (1982), essentially stating that “as the underwriter knows nothing and the man who comes to him to ask him to insure knows everything, it is the duty of the assured… to make a full disclosure to the underwriter without being asked of all the material circumstances.”
In practice, this Principle of Insurer Protection has allowed insurance companies (insurers) to unilaterally and immediately cancel a policy if the insured is suspected of providing inaccurate information or failing to disclose material facts that could influence the insurer’s underwriting decision. The wording of Article 251 KUHD, which embodies this principle, has created legal uncertainty and unfair protection for
policyholders. Insurance companies are often considered to have failed to provide adequate education to policyholders regarding material fact disclosure during underwriting. Yet, once the premium is paid, the insurer may attempt to cancel the policy or deny policy benefits—particularly after a claim is filed—using the allegation of nondisclosure.
After examining submissions from various institutions, the Constitutional Court ruled that Article 251 KUHD is conditionally unconstitutional to the extent that it is not interpreted as follows “including that cancellation of coverage must be based on an agreement between the insurer and the insured, or based on a court decision.”
We note that the insurance industry has shown significant growth. Although Covid-19 once weakened several general and life insurance companies—particularly those offering credit insurance, health insurance, and life insurance—the industry is recovering due to the rise of online platforms that facilitate insurance product search and distribution. Additionally, the expansion of Peer-to-Peer Lending services and increased e-commerce transactions have driven demand for insurance products related to credit default protection and shipment protection.
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