Pursuant to Art.1898 c.c. the Insurer is entitled to rescind the policy in the event of substantial increase of the risk covered. This article literally states as follows: "The contracting party shall give immediate notice to the insurer of the changes that increase the risk so that, if the new circumstances were in existence and had been known by the insurer at the time of the conclusion of the contract, the insurer would have not agreed with the cover or would have agreed with an higher premium.
The insurer may rescind the contract, giving notice in writing to the insured within one month from the date he has received the notice or become anyhow aware of the aggravation of the risk.
The rescission of the insurer takes immediate effect if the aggravation is as such he would have not agreed with the cover; it has effect after 15 days, if the aggravation of the risk is as such he would have required an higher premium.
The insurer will have title to the premiums related to the period of insurance at the time the rescission is communicated.
If a loss is suffered before the terms for the communication has elapsed, the insurer will not bear [the risk] whenever the aggravation of the risk be as such that he would have not agreed to bear the policy if the new state of affair were in existence at the time of the [conclusion of the] contract; otherwise, the sum due is decreased, bearing in mind the ratio between the premium agreed in the contract and that one it would have been agreed if the higher risk would have been in existence at the time of the same contract".
Italian Law entitles the Insurer to avoid completely the cover or reduce the obligations prescribed in the contract of insurance in the event that the transactions are unequal or very disadvantageous. In particular, if the increase of risk be so material that had it known before the Insurer would have not agreed to sign the policy, the insurer becomes entitled to notify the insured in writing that the insurer is terminating the cover with immediate effect.
This remedy at Law considers the increase of the probability that the risk covered may occur [1[ to be considered in respect of the "seriousness and greatness" of the risk so to dramatically alter the contractual balance between the same risk and the premium paid [2].
Case Law in recent years has developed specific conditions for the rule under Art.1898 c.c. to be applied in relation to this specific duty to disclose upon the policyholder, namely:
1. The aggravation shall be unexpected and could not be contemplated by the parties at the time of the agreement [3];
2. the considered circumstance shall be new;
3. the aggravation of the risk shall be persistent and not transitory;
4. the aggravation shall be of a kind that the insurer would have not signed the policy, had he known the new circumstance would be accrued during the inception of the policy.
The Underwriter has one month to notify the Insured from the date he becomes aware of the circumstance increasing the risk and upon the withdrawal he shall hand the pro quota premium back to the Insured.
If a loss occurs before the notification takes place the same rules above depicted for misrepresentation will come into operation.
[1] Supreme Court 2000 n°500 in D.Giust 2000, 355;
[2] Supreme Court 1987 n°3563 in Ass. 1988, II, 23;
[3] Supreme Court 11.2.1967 n°350.
