In early January 2025, the Indonesian insurance industry experienced a major shift in the interpretation and implementation of the principle of utmost good faith, driven by the Constitutional Court’s decision in Case No. 83/PUU-XXII/2024.

The ruling declared that Article 251 of the Indonesian Commercial Code (KUHD) is conditionally unconstitutional to the extent that it allows insurance companies to unilaterally cancel insurance contracts on the grounds of misrepresentation or non-disclosure.

The Court emphasised that cancellation may only be carried out with mutual agreement between the parties or through a court decision based on a proper legal process.

This interpretation offers stronger safeguards for policyholders, while also requiring insurers to rethink how they manage disclosure obligations.

Previous practice: insurers’ reliance on Article 251 KUHD

Historically, Article 251 KUHD has been viewed as giving insurers wide discretion to rescind a policy if they found material discrepancies or omissions in the policyholder’s disclosure at inception.

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