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When an insurance claim is filed, the insurer sometimes refuses to pay, saying that "the policy terms list this as a case where benefits are not paid." It is easy to assume that nothing more can be argued once the policy contains an exclusion clause, but whether that clause actually became part of the insurance contract has to be examined separately. This is because an insurer has a duty to explain the important terms of the policy at the time of subscription, and if it failed to do so, it cannot assert that clause as part of the contract.

In the video, five statements were checked as O (true) or X (false). Following that order, this article sets out how the duty to explain insurance policy terms applies to exclusion clauses, together with the governing statutes and Supreme Court decisions.

[Contents]

1. Where an Exclusion Clause Exists but Was Not Explained

2. Does Signing the Application Mean the Terms Were Explained?

3. Policy Terms That Need Not Be Explained

4. An Unexplained Exclusion Clause Drops Out of the Contract

5. What to Check If Your Claim Has Been Denied

Where an Exclusion Clause Exists but Was Not Explained

"If the policy says 'exclusion,' benefits are never payable" — X

When concluding an insurance contract, an insurer must deliver the policy terms to the policyholder and explain the important contents of those terms (Article 638-3(1) of the Commercial Act (상법)). The Act on the Regulation of Terms and Conditions (약관의 규제에 관한 법률) likewise provides that a business must explain the important contents of its terms and conditions so that the customer can understand them, and that if a contract is concluded in violation of this, the business may not assert the relevant terms as part of the contract (Article 3(3) and (4)).

Here, 'important contents' means matters that, in light of social norms, can directly affect the customer's decision on whether to enter into the contract or on the price, or on what action to take after the contract is concluded, and what counts as important is determined in each case in light of the individual circumstances (Supreme Court Decision 2023Da250746, March 13, 2025). That decision found that a clause setting the classification standard for cancer was an important content because it was a core matter directly tied to whether there is an obligation to pay benefits, the scope of coverage or the amount of benefits. An exclusion clause, which sets out the grounds on which benefits are not paid, should be examined from the same perspective.

Accordingly, the fact that an exclusion clause is written in the policy does not settle the matter. Whether that clause was explained at the time of subscription has to be confirmed first.

Does Signing the Application Mean the Terms Were Explained?

"A handwritten signature on the application is enough to fulfil the duty to explain" — X

It is the insurer that must prove it fulfilled the duty to explain. The Supreme Court has held that the burden of proving performance of the duty to specify and explain insurance policy terms lies with the insurer (Supreme Court Decision 2023Da293620, April 16, 2024).

In that case, in the written 'matters to be disclosed before the contract,' only 'passenger car (private use)' was marked in answer to the question on vehicles driven, and when the insured died while driving a vehicle registered as a cargo vehicle, the insurer cancelled the contract for breach of the duty of disclosure and refused to pay. The Supreme Court held that the insurer or its insurance solicitor had a duty to explain concretely and in detail, among other things, that every vehicle the insured might drive had to be listed without omission and that failure to disclose could lead to cancellation of the contract and non-payment of benefits, and it reversed the lower court's judgment, which had found the duty to explain fulfilled.

Signatures and check marks on the application form or product description are submitted by insurers as evidence that the duty to explain was fulfilled. However, the mere fact that a document bears a signature does not by itself establish that the clause in question was concretely explained. How the disputed clause was set out in the signed document and what explanation was actually given during the subscription process must be examined together.

Policy Terms That Need Not Be Explained

"General matters that everyone knows need not be explained separately" — O

"Policy terms that simply restate what the law provides must also be explained one by one" — X

The duty to explain does not apply to every policy term. Its basis lies in preventing a policyholder from suffering an unforeseen disadvantage because important policy terms became part of the contract without the policyholder knowing of them. The Supreme Court therefore holds that an insurer has no duty to specify and explain in the following two cases (Supreme Court Decision 98Da32564, November 27, 1998; Decision 2023Da250746 above).

• Matters that are general and common in transactions, so that the policyholder already knew them well or could have fully anticipated them without separate explanation

• Matters that merely repeat or elaborate on what is already provided by statutes and regulations

For example, as to a clause in automobile insurance terms requiring the policyholder to notify the insurer if an important matter such as the structure of the insured vehicle changes after the contract is concluded, the Supreme Court held that it merely elaborates in concrete terms on the duty of notification already laid down in Article 652 of the Commercial Act, so that no separate duty to explain is recognized (Decision 98Da32564 above). Conversely, as to a clause in cancer insurance classifying secondary cancers by the primary site, the Court found that it could not be regarded as a general and common matter that could have been fully anticipated, and recognized the duty to explain (Decision 2023Da250746 above).

When an insurer relies on an exclusion clause, the issue is whether that clause falls within these two exceptions. The conclusion differs depending on whether the content of the clause already exists in statutes and regulations, and whether an ordinary subscriber could have anticipated it without explanation.

An Unexplained Exclusion Clause Drops Out of the Contract

"An unexplained exclusion clause is treated as if it did not exist, and benefits must be paid" — O

Where an insurer concludes an insurance contract in violation of the duty to explain, it cannot assert the contents of those terms as part of the insurance contract. An unexplained exclusion clause does not become part of the contract, so whether benefits are payable is determined as if that clause were absent.

The Commercial Act provides that where the insurer violates the duty to deliver and explain the policy terms, the policyholder may cancel the contract within three months from the date the insurance contract was formed (Article 638-3(2)). For this reason, some mistakenly believe that nothing can be argued once three months have passed. However, the Supreme Court held that this provision is not a special provision excluding the application of the Act on the Regulation of Terms and Conditions, and that there is no basis for regarding a policyholder who did not exercise the right of cancellation as having ratified or approved the application of policy terms that were not explained (Decision 98Da32564 above). A policyholder can keep the contract in force without cancelling it and still argue that an unexplained clause is not part of the contract.

That said, the fact that a clause drops out does not mean that the amount claimed is always accepted as it stands. Whether benefits are payable and in what amount is determined again under the remaining policy terms and the law, without that clause. Decision 2023Da250746 above also stated that where the disputed clause cannot be asserted as part of the contract because of a breach of the duty to explain, benefits are paid on the basis of the general cancer benefit, and if thyroid cancer benefits have already been paid, only the difference needs to be paid.

What to Check If Your Claim Has Been Denied

If an insurer has refused payment on the basis of the policy terms, check the following in order.

• Clause relied on for the denial — confirm in writing which policy clause the insurer relied on to refuse payment

• Materials from the time of subscription — the application form, the product description, recordings of the subscription process and other materials showing how the terms were explained

• Nature of the clause — whether the disputed clause restates what is already provided by law, or is something that could have been anticipated without explanation

• Time limit for the claim — the right to claim insurance benefits is extinguished by prescription if not exercised for three years (Article 662 of the Commercial Act)

The policyholder is the person who knows the subscription process best, but it is the insurer that must prove it fulfilled the duty to explain. The starting point is to check whether the materials submitted by the insurer show a concrete explanation of the disputed clause.

Cheongchul Law Firm directly handles insurance disputes over denials of insurance claims, exclusion clauses and the duty of disclosure. If your insurance claim has been denied on the basis of the policy terms, please contact us through our consultation booking page.

This post is intended to provide legal information and does not constitute legal advice on any specific matter. Conclusions may differ depending on the facts of each case, so please consult a professional.