The Duty to Explain - a gamble in insurance litigation

The Duty to Explain prescribed in the Korean Standardized Contracts Regulation Act is by far the most debated and controversial issue in the Korean insurance industry, likely owing to its unpredictability and the impact of the court judgments in Duty to Explain cases. This doctrine of the insurer’s Duty to Explain has facilitated the insured’s entitlement to insurance money solely because the insurer failed to explain material policy provisions to the insured, thereby nullifying these provisions. The doctrine is also a favored tool for the Korean courts because it extricated the Korean courts from the burdensome task of reviewing complicated legal issues and justifying their judgments. A close review of the nullification of contractual terms and conditions solely due to the breach of the Duty to Explain reveals that this doctrine is introduced only in Korea, while other legal systems in leading countries around the globe lack the same or similar doctrine. According to legal statistics between 1987 to 2023, 29.9% of Duty to Explain appellate court judgments have been reversed by the Korean Supreme Court, which is 5~9 times greater than the average Supreme Court’s reversal rate of 3.5~5.5%. It is also noteworthy that only 43.6% of the first instance court’s judgments in Duty to Explain cases are affirmed by both the appellate court and the Korean Supreme Court. Because each case of Duty to Explain entails a unique set of facts and trials are conducted solely based on the evidence submitted, it has become almost impossible for the parties or the Korean court to predict the outcome unless the case is tried up to its final stage at the Korean Supreme Court. In this review, the unpredictability of Duty to Explain cases is analyzed to shed light on the cause and to present a reasonable solution.