Introduction
Insurance business activities in Indonesia are regulated by various legal sources. As an agreement, insurance is governed by the Indonesian Civil Code (“KUHPer”) and the Indonesian Commercial Code (“KUHD”) under Book I, Titles IX and X, and Book II.1

The definition of insurance in the KUHD is found in Article 246, which essentially states that insurance is an agreement whereby the insurer, in exchange for a premium, compensates the insured for losses, damages, or the failure to gain expected benefits due to uncertain events.2 Insurance or coverage agreements are also recognized in the KUHPer, classifying insurance as a type of aleatory contract. Article 1774 of the KUHPer defines aleatory contracts as legal actions where the outcome is contingent on uncertain events.3

One of the prominent principles in insurance law is the principle of Utmost Good Faith. This principle is reflected in Article 251 of the KUHD. However, the article has been subjected to judicial review which has been decided through the Constitutional Court (“MK”) Decision Number 83/PUU-XXII/2024.

The Petitioner, Maribati Duha, argued that Article 251 of the KUHD contradicts the 1945 Constitution of the Republic of Indonesia (“UUD 1945”) as it creates legal uncertainty and infringes upon the constitutional rights of the Petitioner. The Petitioner, as the heir of the late Sopan Santun Duha, the beneficiary of the insurance agreement, argued that this article enables insurance companies, such as Prudential, to evade claim payments through practices like post-claim underwriting, which disadvantages the insured and their heirs. The Petitioner experienced this directly when Prudential refused to pay the remaining insurance benefit of IDR 510.5 million after Sopan Santun Duha passed away on 7 January  2024. Prudential claimed to have undisclosed medical records of the insured during the post-claim underwriting process.4

MK, through its decision, then partially granted the Petitioner’s request by declaring Article 251 of the KUHD conditionally unconstitutional unless interpreted to mean that “the cancellation of insurance coverage must be based on the agreement between the insurer and the insured or by court decision.”5

Discussion

  1. Key Principles in Indonesian Insurance Law
    One of the primary provisions and foundational principles underpinning insurance in Indonesia is the Principle of Utmost Good Faith. This principle is universally applicable across the global insurance industry, including Indonesia. The principle is enshrined in Article 251 of the KUHD, which states:“Any misrepresentation or concealment of circumstances known to the insured, even if done in good faith, which is of such nature that the agreement would not have been made, or would not have been made under the same terms, had the insurer known the true state of affairs, renders the insurance contract void.” 6This principle obliges the insured to provide clear and accurate information regarding all material facts related to the insured object. Similarly, insurance companies are required to transparently and accurately disclose the risks covered, exclusions, as well as all terms and conditions of the policy.7This principle plays a crucial role as the insured generally possesses more detailed knowledge about the insured object compared to the insurer, while the premium amount is significantly influenced by the level of risk involved. Therefore, the insured’s obligation to disclose material facts applies from the negotiation stage until the insurance contract is finalized.8 However, the provisions of Article 251 of the KUHD are also considered burdensome for the insured, particularly in two aspects: (i) the threat of nullification of the insurance agreement for insured parties acting in good faith and (ii) the absence of an opportunity for the insured to rectify errors if they provide inaccurate information.9

    In addition to the Principle of Utmost Good Faith, insurance law recognizes several other fundamental principles. One such principle is the Principle of Insurable Interest, which mandates that the insured must have a financial interest in the insured object. This means the insured would suffer a financial loss if the object were damaged or destroyed.10 Another key principle is the Principle of Indemnity, which stipulates that the insurer must compensate the insured based on the amount of loss suffered, determined by the value of the loss immediately prior to the incident.11

    Additionally, there is the Principle of Subrogation, which states that once the insurer has compensated the insured, the insurer is entitled to assume the rights of the insured to recover damages from the party responsible for the loss12 Subsequently, the Principle of Proximate Cause requires the insurer to identify the primary cause that sets in motion a chain of events leading to the loss or accident. This principle is used to determine the insurer’s liability for claims submitted by the insured.13

    Furthermore, from the insurer’s perspective, there is a principle known as the Know Your Customer (“KYC”) principle. The applicability of this principle is evident in the Minister of Finance Decree Number 45/KMK.06/2003 on the Implementation of Know Your Customer Principles for Non-Bank Financial Institutions, which mandates that Non-Bank Financial Institutions (including insurance companies) apply the KYC principle.14

    This principle is implemented through a process known as Customer Due Diligence (“CDD”). Insurance companies, as financial service providers, are obligated to carry out CDD procedures, including during the establishment of business relationships with prospective customers, when the insurer doubts the accuracy of information provided by prospective customers, customers, or beneficiaries, as well as under other specified circumstances.15

  2. Jurisprudence on Article 251 of the KUHD – Principle of Utmost Good Faith
    During the Dutch colonial era, jurisprudence related to Article 251 of the KUHD and the Principle of Utmost Good Faith was established in the case of D. Tilkema v. De Bataafsche Verzekering Maatschappij N.V., known as Arrest Tilkema’s Duim. In its decision, the Supreme Court of the Netherlands (Hoge Raad – “H.R.”) provided a more lenient interpretation of Article 251 KUHD.16The decision stated that although an insurance agreement may be null and void if the insured conceals information, such annulment can only be determined by a judge at the request of the insurer, particularly if the insured provides false or inaccurate information. According to this decision, inaccurate or false statements do not automatically void an insurance agreement under Article 251 KUHD. Additionally, the H.R. affirmed that Article 251 KUHD does not apply if the insured fails to disclose material information due to a lack of awareness of its relevance, especially if the insurer does not explicitly request such information.17The H.R. also issued a significant decision in a fire insurance case between X in Belgium and De Naamloze Vennootschap Goudse Verzekering Maatschappij N.V. in Amsterdam. In this case, the H.R. stated that the importance of the information provided by the insured, as referred to in Article 251 KUHD, must be assessed from the perspective of a prudent insurer. This means that the insurer should not excessively seek reasons to deem the information necessary but must evaluate its relevance reasonably and proportionately.18In the present times, judicial considerations regarding the application of Article 251 KUHD can be observed. In Case Number 70/Pdt.G/2023/PN Blg, the Plaintiff (as the Insured) sued PT Asuransi Jiwa Generali Indonesia over the rejection of a life insurance claim following the death of the Insured. The Defendant rejected the claim on the grounds that, under Article 251 KUHD, the Insured had provided inaccurate information regarding their medical history in the Life Insurance Application Form (SPAJ).19

    The panel of judges found that the Defendant failed to verify the accuracy of the SPAJ data before issuing the policy and did not reassess the data during the policy term. The Defendant was declared in breach of contract for failing to fulfill the claim, as there was no medical evidence supporting the grounds for rejecting the Insured’s claim. The court partially granted the Plaintiff’s claim, affirming the validity of the policy agreement and ordering the Defendant to pay Rp. 266 million in claims to the Plaintiff.20

    In addition to this decision, data from the Financial Services Authority (Otoritas Jasa Keuangan – “OJK”) recorded that in 2024 alone, 63 litigation cases related to insurance claims were handled by the OJK. The majority of these cases pertained to the application of the Principle of Utmost Good Faith. Other notable cases include Case Number 2030/Pdt.G/2024/PA.JS, in which the insurer was found in breach of contract and ordered to compensate the insured for material losses, and Case Number 2306/Pdt.G/2024/PA.JS in the South Jakarta Religious Court, where the insurer was similarly found in breach of contract and ordered to pay insurance benefits as stipulated in the policy. Several other cases of this nature have also been documented.21

  3. Reviewing the Impact of Decision Number 83/PUU-XXII/2024 on the Insurance Industry in Indonesia
    In Indonesia, the provisions of Article 251 KUHD have long been a subject of public concern, as reflected in the Simposium Hukum Asuransi Dalam Kenyataan dan Harapan held by the Faculty of Law at Atma Jaya Catholic University on 20 October 1987. During the symposium, many expressed the view that Article 251 was overly favorable to insurer and placed an undue burden on insured, highlighting the need for better protection for insured. One proposed solution was to amend the law by revising Article 251 KUHD so that claim rejections based on this article must be assessed in accordance with the good faith principle under Article 1338 paragraph (3) of KUHPer, which applies at the time of insurance contract execution.22MK emphasized that the principle of utmost good faith is a fundamental requirement in insurance contracts, serving as a legal safeguard for both insurer and policyholders. This principle is essential because insurance contracts are inherently unique and based on uncertainty, relying on events that may or may not occur. To prevent information misuse and risk imbalance, protection for both parties must be ensured.23MK found that Article 251 KUHD had the potential to create multiple interpretations regarding the annulment of insurance contracts due to concealed information by the insured, even if done in good faith. MK noted that the article did not explicitly regulate the annulment mechanism, only mentioning consequences such as contract termination or modification. This lack of clarity undermined the balance of rights and obligations between both parties, failing to meet the principles of justice and legal certainty for insured. If an insurer doubts the information provided by the insured, it should exercise greater caution before proceeding with the contract rather than using Article 251 as a justification to evade obligations.24 Consequently, MK provided that any contract annulment by the insurer must be based on mutual agreement between both parties or a court decision.25Furthermore, following the decision, Wahyudin Rahman, Chairman of the Indonesian Insurance Writers Community (Kupasi), stated that the MK’s decision could significantly impact the insurance industry, particularly regarding the interpretation of contract annulments, which may affect underwriting and risk management. Insurance companies must review policy terms and conditions to ensure compliance with the principles set forth by MK. Additionally, they must conduct training, update their systems, and adjust internal policies to align with the decision. Insurer are also expected to develop more detailed risk assessment methods and establish legal or mediation teams to handle disputes efficiently.26

Closing
The MK Decision Number 83/PUU-XXII/2024 brings changes to the applicability of Article 251 of the KUHD in insurance practices. Previously, this article stipulated that an insurance contract could be nullified if the insured failed to disclose certain information, even in good faith. However, MK ruled that this provision creates legal uncertainty and could be unfairly used by insurance companies to reject insured claims.

In its decision, MK stated that the annulment of an insurance contract under Article 251 KUHD can only be carried out based on mutual agreement between the insurer and the insured or through a court decision. The MK emphasized the importance of the utmost good faith principle as a fundamental basis of insurance law, highlighting the need to maintain a balance of rights and obligations between insurer and insured.

Sang Rafi Syuja

References

Books:

  • Ganie, A. Junaedy. Hukum Asuransi Indonesia. (Jakarta: Sinar Grafika, 2011).
  • Rastuti, Tuti. Aspek Hukum Perjanjian Asuransi. (Jakarta: Pustaka Yustisia, 2011).
  • Sastrawidjaja, Man Suparman. Hukum Asuransi: Perlindungan Tertanggung, Asuransi Deposito, dan Usaha Perasuransian. (Bandung: Alumni, 2010).

Legislations:

  • Indonesia. Kitab Undang-Undang Hukum Dagang. Staatsblad of 1847 Number 23.
  • Indonesia. Kitab Undang-Undang Hukum Perdata. Staatsblad of 1847 Number 23.
  • Kementerian Keuangan. Keputusan Menteri Keuangan Nomor 45/KMK.06/2003 tentang Penerapan Prinsip Mengenal Nasabah Bagi Lembaga Keuangan Non Bank.
  • Otoritas Jasa Keuangan. Peraturan Otoritas Jasa Keuangan Nomor 8 Tahun 2023 tentang Penerapan Program Anti Pencucian Uang, Pencegahan Pendanaan Terorisme, dan Pencegahan Pendanaan Proliferasi Senjata Pemusnah Massal di Sektor Jasa Keuangan.

Judicial Decisions:

  • Mahkamah Konstitusi. Decision Number 83/PUU-XXII/2024.
  • Pengadilan Negeri Balige. Decision Number 70/Pdt.G/2023/PN Blg.

Internet:

Sources

  1. A. Junaedy Ganie, Hukum Asuransi Indonesia, (Jakarta: Sinar Grafika, 2011), p. 5.
  2. Indonesia, Kitab Undang-Undang Hukum Dagang, Staatsblad of 1847 Number 23, hereinafter referred to as KUHD, Art. 246.
  3. Indonesia, Kitab Undang-Undang Hukum Perdata, Staatsblad of 1847 Number 23, hereinafter referred to as KUHPer, Art. 1774.
  4. Mahkamah Agung Republik Indonesia, “Ahli Waris Asuransi Uji Materi KUHD,” can be accessed athttps://www.mkri.id/index.php?page=web.Berita&id=21372&menu=2.
  5. Mahkamah Konstitusi Republik Indonesia, Decision Number 83/PUU-XXII/2024, p. 463.
  6. KUHD, Art. 251.
  7. Tuti Rastuti, Aspek Hukum Perjanjian Asuransi, (Jakarta: Pustaka Yustisia, 2011), p. 49.
  8. Ibid.
  9. Man Suparman Sastrawidjaja, Hukum Asuransi: Perlindungan Tertanggung, Asuransi Deposito, dan Usaha Perasuransian, (Bandung: Alumni, 2010), p. 30.
  10. Rastuti, Aspek Hukum Perjanjian…, p. 48.
  11. Ibid, p. 50.
  12. Ibid, p. 52.
  13. Ibid.
  14. Kementerian Keuangan, Keputusan Menteri Keuangan Nomor 45/KMK.06/2003 tentang Penerapan Prinsip Mengenal Nasabah Bagi Lembaga Keuangan Non Bank, Art. 2.
  15. Otoritas Jasa Keuangan, Peraturan Otoritas Jasa Keuangan Nomor 8 Tahun 2023 tentang Penerapan Program Anti Pencucian Uang, Pencegahan Pendanaan Terorisme, dan Pencegahan Pendanaan Proliferasi Senjata Pemusnah Massal di Sektor Jasa Keuangan, Art. 19.
  16. Sastrawidjaja, Hukum Asuransi…, p. 32.
  17. Ibid.
  18. Ibid, p. 33.
  19. Pengadilan Negeri Balige, Putusan Nomor 70/Pdt.G/2023/PN Blg.
  20. Ibid.
  21. Mahkamah Konstitusi, Decision Number 83/PUU-XXII/2024, p. 164-167.
  22. Sastrawidjaja, Hukum Asuransi…, p. 34-35.
  23. Ibid, consideration section 3.18, p. 460.
  24. Ibid, consideration section 3.19, p. 460-461.
  25. Ibid, consideration section 3.20, p. 462.
  26. Finansial, “Kasus Sengketa Klaim Asuransi Diprediksi Makin Banyak Usai Putusan MK,” can be accessed at https://finansial.bisnis.com/read/20250104/215/1828860/kasus-sengketa-klaim-asuransi-diprediksi-makin-banyak-usai-putusan-mk/1.