February 2025
On 3 January 2025, Indonesia's Constitutional Court issued a decision that provides a statutory interpretation of Article 251 of the Indonesian Commercial Code, concerning the cancellation of insurance policies.
The court ruled that Article 251 of the Commercial Code is conditionally unconstitutional unless it is interpreted to mean that the cancellation of insurance policies due to material non-disclosure must be based on mutual agreement between the insurer and the insured, or based on a court decision. While Article 251 of the Commercial Code remains in effect, it must now be understood and enforced according to this statutory interpretation. The decision applies as of 3 January 2025, and is final, with no avenue for appeal.
The court did not diminish the insured's obligation to disclose information with utmost good faith, but now the cancellation of insurance policy on the basis of material non-disclosure can no longer be unilateral. Arguably, withholding claim payment subject to the resolution of a dispute is acceptable, but there may be certain risk worth considering as we elaborate below. Noting this development, there appears to be a need for quick and efficient resolution of disputes with insureds to manage potential financial impact due to a lengthy settlement of disputes about the validity of policies and insurance claims.