If you've ever filled out an insurance form, signed a shareholder agreement, or sat through a legal discovery process, you've already brushed up against the duty of disclosure.
Most people don't realize how serious it is until something goes wrong.
I've seen founders lose investor trust over one “minor” omission. I've seen insurance claims denied for facts the policyholder assumed were obvious. In almost every case, the same excuse came up:
“I didn't think that mattered.”
Here’s the hard truth: what you think matters and what the law considers material can be very different things.
Understanding how to comply with your duty of disclosure isn’t just about ticking boxes. It’s about protecting your credibility, your finances, and sometimes your freedom. Once you get this right, you reduce risk across every professional relationship you touch.
Let’s break it down in plain English.
The Concept of Material Circumstances
Material circumstances are the backbone of disclosure obligations.
In simple terms, a material circumstance is any fact that could influence another party’s decision. That decision might involve pricing risk, entering a contract, or assessing liability.
Courts across jurisdictions tend to apply a similar test:
Would a reasonable person consider this information unnecessary when making a decision?
That question alone should make you pause.
In the landmark UK case Carter v. Boehm (1766), the court held that failure to disclose material facts rendered the contract invalid. Over 250 years later, the principle still applies.
Materiality isn’t about intent. It doesn’t matter whether you meant to hide something. If the fact exists and it’s relevant, disclosure is expected.
When in doubt, silence is rarely your friend.
Context-Specific Materiality
Materiality changes based on context.
A small crack in a warehouse wall might be irrelevant in a casual lease. The same crack becomes critical when the property is used for heavy industrial storage.
Regulators recognize this nuance. The U.S. Securities and Exchange Commission has repeatedly emphasized that materiality depends on:
- Probability — how likely something is to happen
- Magnitude — how significant the impact would be
This explains why disclosure isn’t one-size-fits-all.
An early-stage startup doesn’t disclose risk the same way a publicly traded company does. A patent application demands different transparency than a courtroom affidavit.
A useful test is simple:
If I were on the other side of the table, would I want to know this?
If the answer is yes, disclose it.
Differentiating Between Moral Hazard and Physical Hazard
This distinction trips up even experienced professionals.
Physical Hazard
A physical hazard is a tangible risk:
- Faulty wiring
- Structural damage
- Unsafe machinery
These risks are visible and often underestimated.
Moral Hazard
A moral hazard involves behavior:
- Poor financial controls
- History of fraud
- Risky management practices
Insurers care deeply about both. An underwriter once told me that claims linked to moral hazards often cost more than those tied to physical risks—because bad behavior tends to repeat.
From a disclosure standpoint, both hazards matter. Failing to disclose a prior lawsuit can be just as damaging as hiding a physical defect.
Transparency builds trust. Omission destroys it quickly.
Diverse Contexts for Disclosure
Disclosure obligations don’t live in a vacuum. They appear in contracts, boardrooms, courtrooms, and innovation labs. Each context has unique rules, but the principle remains the same.
Insurance Contracts and Relationships
Insurance law makes disclosure explicit.
Policyholders must disclose all material facts before coverage begins, including:
- Past claims
- Known risks
- Changes in circumstances
Misrepresentation accounts for a significant share of claim denials, and most cases stem from misunderstanding—not fraud.
Many assume insurers will ask the right questions. That’s a dangerous assumption.
Modern insurance law increasingly places responsibility on the insured. If you know something affects risk, you’re expected to share it.
Over-disclosure may feel awkward. Under-disclosure is expensive.
Corporate Governance and Financial Reporting
Public companies live and die by disclosure.
Earnings reports, risk statements, and material event filings exist so investors can make informed decisions.
History offers painful lessons. Enron didn’t collapse because of missing data—it collapsed due to selective disclosure and strategic omission.
Private companies aren’t immune. Venture capital due diligence now includes deep disclosure audits. Miss something important, and deals evaporate fast.
Strong governance cultures treat disclosure as an asset, not a burden.
Intellectual Property (IP) Protection and Management
Disclosure plays a paradoxical role in IP.
- Patents require full disclosure of how an invention works
- Trade secrets demand strict confidentiality
Patent offices reject applications every year for insufficient disclosure. The irony is harsh—you lose protection because you didn’t explain enough.
Failing to disclose prior art can later invalidate a patent entirely.
Effective IP management depends on clear internal rules about:
- What gets disclosed
- When it’s disclosed
- Who receives it
Legal Proceedings and Litigation
Courts take disclosure seriously.
Discovery rules exist to prevent trial by surprise. Withholding material evidence can result in:
- Fines
- Case dismissal
- Professional discipline for attorneys
I’ve seen cases unravel when late-discovered emails surfaced. The legal damage was severe, but reputational harm lasted even longer.
In litigation, transparency is safer than clever concealment. Courts reward cooperation.
Establishing a Robust Disclosure Framework
Good disclosure doesn’t happen by accident.
Organizations that excel treat disclosure as a process, not an afterthought.
Developing a Comprehensive Disclosure Policy
A disclosure policy defines:
- What counts as material information
- Who is responsible for identifying it
- How decisions are escalated
Without clear rules, inconsistency reigns. One department discloses everything. Another discloses nothing.
Policies should evolve as laws and risks change. Static documents don’t survive dynamic environments.
Implementing Internal Procedures for Information Gathering
You can’t disclose what you don’t know.
Internal reporting systems help surface issues early, when disclosure is least painful. Effective tools include:
- Anonymous reporting channels
- Whistleblower protections
- Regular management check-ins
Silence often hides risk until it explodes.
Conducting Regular Risk Assessments
Risk assessments expose blind spots.
They examine:
- Financial risk
- Operational risk
- Legal exposure
- Reputational threats
According to PwC’s Global Risk Survey, companies conducting regular risk assessments are far less likely to face regulatory penalties.
That’s not luck. It’s preparation.
Training and Awareness Programs
People can’t comply with rules they don’t understand.
Training transforms abstract obligations into real behavior. The most effective programs rely on real stories and case studies.
A powerful training question:
If this appeared on the front page tomorrow, would we be comfortable with what we disclosed?
That mindset sticks.
Maintaining Compliance Over Time
Disclosure is not a one-time task.
Regulatory environments evolve constantly. New laws, technologies, and risks reshape disclosure obligations.
Think of it like SEO—you don’t optimize once and walk away. You monitor, adjust, and improve.
Regular reviews ensure your practices match reality. Waiting for a crisis is the most expensive way to learn.
Conclusion
Understanding how to comply with your duty of disclosure is about more than legal compliance.
It’s about trust.
Every relationship—commercial or personal—relies on honest, shared understanding. Disclosure protects that foundation.
Those who succeed long-term treat transparency as a habit. They don’t hide behind technicalities or gamble on silence.
Your challenge:
Review your current disclosure practices this week. Identify assumptions that may be hiding risk. Start those conversations early.
Your future self will thank you.
