Consumer Protection Act, 1986 – s.21 – Insurance – Repudiation of claim on ground of suppression or non-disclosure of material facts – Appellant intended to travel to the USA – Appellant was issued a overseas mediclaim business and holiday policy – The appellant was medically examined at the instance of respondent No. 1 insurance company prior to the consideration of his request for issuance of a mediclaim policy – The medical report categorically noted that the appellant had diabetes-type II (mellitusII) – No other adverse medical condition was found – In the medical exam report, specific queries were sought as to whether any abnormalities were observed in the electrocardiogram test of the appellant and any possible illness or disease for which the appellant may require medical treatment in the ensuing trip to the USA – To both these queries, the doctor who examined the appellant had answered “normal” and “no” respectively – The insurer thereafter accepted the proposal form – Thereafter, the appellant boarded a flight to USA, on exiting the airport, appellant felt weak and started sweating – He was admittted at a medical centre – Three stents were inserted to remove blockage from his heart vessels – Appellant claimed benefit under the mediclaim policy – However, appellant received a letter from respondent stating that his claim had been repudiated as the appellant had a history of hyperlipidaemia and diabetes and the policy did not cover pre-existing conditions and complications arising therefrom – Aggrieved, the appellant filed a complaint u/s.21(9) of the 1986 Act – The Commission held that concealment or non-disclosure of material facts regarding preexisting heart ailment was a valid ground for repudiation of the insurance claim by the respondent-insurer – On appeal, held: Appellant had in the proposal form disclosed that he was suffering from diabetes mellitus-II and for which the medical test reports were submitted along with the proposal form which were considered by the insurance company before the policy was issued to the appellant – In fact, the appellant stated in his representation against the repudiation of the policy that he was taking lipid-lowering medicines not because he was suffering from hyperlipidaemia but as it was customary to take such medication for prevention of cardio-vascular complications in diabetics – He also stated that he had informed the physician-doctor, who examined him prior to obtaining the policy, of the medicines he was taking – Therefore, the insurance company was well aware of the fact that the insured was a diabetic and was taking all necessary medication for preventing further complications and controlling the disease – Hence, there was no suppression of any material fact by the appellant to the insurer – The repudiation of the policy by the respondent insurance company was illegal and not in accordance with law – Consequently, the appellant entitled to be indemnified under the policy.
Insurance – Mediclaim Policy – After assessment of medical condition – Held: The insurer must be able to assess the likely risks that may arise from the status of health and existing disease, if any, disclosed by the insured in the proposal form before issuing the insurance policy – Once the policy has been issued after assessing the medical condition of the insured, the insurer cannot repudiate the claim by citing an existing medical condition which was disclosed by the insured in the proposal form, which condition has led to a particular risk in respect of which the claim has been made by the insured.
Insurance – Mediclaim Policy – Object of – Held: The object of seeking a mediclaim policy is to seek indemnification in respect of a sudden illness or sickness which is not expected or imminent and which may occur overseas – If the insured suffers a sudden sickness or ailment which is not expressly excluded under the policy, a duty is cast on the insurer to indemnify the appellant for the expenses incurred thereunder.
Doctrine/Principle – Principle of ‘uberima fides’ between insurer and insured – Held: The insured has a duty to disclose all material facts, the insurer must also inform the insured about the terms and conditions of the policy that is going to be issued to him and must strictly conform to the statements in the proposal form or prospectus, or those made through his agents – Thus, the principle of utmost good faith imposes meaningful reciprocal duties owed by the insured to the insurer and vice versa – This inherent duty of disclosure was a common law duty of good faith originally founded in equity but has later been statutorily recognised – It is also open to the parties entering into a contract to extend the duty or restrict it by the terms of the contract.
Insurance – Mediclaim Policy – Contra Proferentem Rule – Appellant claimed insurance under a mediclaim policy – Respondents contended that as per the terms and conditions of the policy “all the complications arising out of pre-existing condition is not payable” – Claim was repudiated – Held: Respondents were not right in stating that as per the terms and conditions of the policy “all the complications arising out of pre-existing condition is not payable” – Acute myocardial infraction can occur in a person who has no history of diabetes mellitus-II – One of the risk factors for the aforesaid cardiac episode is diabetes mellitus-II – The fact that the appellant had diabetes mellitus-II was made known to the insurance company – The aforesaid clause has to be read against the respondent insurer by applying the contra proferentem rule against it – Otherwise, the very contract of insurance would become meaningless in the instant case – Hence, the respondent-insurance company was not right in repudiating the policy in question. Words and Phrases – “Material Fact” in insurance policy – Held: What constitutes a material fact would depend upon the nature of the insurance policy to be taken, the risk to be covered, as well as the queries that are raised in the proposal form – If specific queries are made in a proposal form then it is expected that specific answers are given by the insured who is bound by the duty to disclose all material facts.
Allowing the appeal, the Court
HELD: Uberrimae Fidei
1. The insurance contracts are special contracts based on the general principles of full disclosure inasmuch as a person seeking insurance is bound to disclose all material facts relating to the risk involved. Law demands a higher standard of good faith in matters of insurance contracts which is expressed in the legal maxim uberrimae fidei. [Para 30][1157-B-C]
2. Just as the insured has a duty to disclose all material facts, the insurer must also inform the insured about the terms and conditions of the policy that is going to be issued to him and must strictly conform to the statements in the proposal form or prospectus, or those made through his agents. Thus, the principle of utmost good faith imposes meaningful reciprocal duties owed by the insured to the insurer and vice versa. This inherent duty of disclosure was a common law duty of good faith originally founded in equity but has later been statutorily recognised as noted above. It is also open to the parties entering into a contract to extend the duty or restrict it by the terms of the contract. [Para 34][1159-A-C]
3. Full disclosure must be made of all relevant facts and matters that have occurred up to the time at which there is a concluded contract. It follows from this principle that the materiality of a particular fact is determined by the circumstances existing at the time when it ought to have been disclosed, and not by the events which may subsequently transpire. The duty to make full disclosure continues to apply throughout negotiations for the contract but it comes to an end when the contract is concluded; therefore, material facts which come to the proposer’s knowledge subsequently need not be disclosed. [Para 40] [1160-D-F]
4. Thus, a proposer is under a duty to disclose to the insurer all material facts as are within his knowledge. The proposer is presumed to know all the facts and circumstances concerning the proposed insurance. Whilst the proposer can only disclose what is known to him, the proposer’s duty of disclosure is not confined to his actual knowledge, it also extends to those material facts which, in the ordinary course of business, he ought to know. However, the assured is not under a duty to disclose facts which he did not know and which he could not reasonably be expected to know at the material time. The second aspect of the duty of good faith arises in relation to representations made during the course of negotiations, and for this purpose all statements in relation to material facts made by the proposer during the course of negotiations for the contract constitute representations and must be made in good faith. [Para 41][1160-F-H]
5. The basic rules to be observed in making a proposal for insurance may be summarized as follows :
(a) A fair and reasonable construction must be put upon the language of the question which is asked, and the answer given will be similarly construed. This involves close attention to the language used in either case, as the question may be so framed that an unqualified answer amounts to an assertion by the proposer that he has knowledge of the facts and that the knowledge is being imparted. However, provided these canons are observed, accuracy in all matters of substance will suffice and misstatements or omissions in trifling and insubstantial respects will be ignored; (b) Carelessness is no excuse, unless the error is so obvious that no one could be regarded as misled. If the proposer puts ‘no’ when he means ‘yes’ it will not avail him to say it was a slip of the pen; the answer is plainly the reverse of the truth; (c) An answer which is literally accurate, so far as it extends, will not suffice if it is misleading by reason of what is not stated. It may be quite accurate for the proposer to state that he has made a claim previously on an insurance company, but the answer is untrue if in fact he has made more than one; (d) Where the space for an answer is left blank, leaving the question unanswered, the reasonable inference may be that there is nothing to enter as an answer. If in fact there is something to enter as an answer, the insurers are misled in that their reasonable inference is belied. It will then be a matter of construction whether this is a mere non-disclosure, the proposer having made no positive statement at all, or whether in substance he is to be regarded as having asserted that there is in fact nothing to state; (e) Where an answer is unsatisfactory, as being on the face of it incomplete or inconsistent the insurers may, as reasonable men, be regarded as put on inquiry, so that if they issue a policy without any further enquiry they are assumed to have waived any further information. However, having regard to the inference mentioned in head (4) above, the mere leaving of a blank space will not normally be regarded as sufficient to put the insurers on inquiry; (f) A proposer may find it convenient to bracket together two or more questions and give a composite answer. There is no objection to his doing so, provided the insurers are given adequate and accurate information on all points covered by the questions; (g) Any answer given, however accurate and honest at the time it was written down, must be corrected if, up to the time of acceptance of the proposal, any event or circumstance supervenes to make it inaccurate or misleading. [Para 42] [1161-A-H; 1162-A-C]
Contra Proferentem Rule
6. The Contra Proferentem Rule has an ancient genesis. When words are to be construed, resulting in two alternative interpretations then, the interpretation which is against the person using or drafting the words or expressions which have given rise to the difficulty in construction, applies. This Rule is often invoked while interpreting standard form contracts. Such contracts heavily comprise of forms with printed terms which are invariably used for the same kind of contracts. Also, such contracts are harshly worded against individuals and not read and understood most often, resulting in grave legal implications. When such standard form contracts ordinarily contain exception clauses, they are invariably construed contra proferentem rule against the person who has drafted the same. [Para 44][1162-F-H]
7. On a consideration of the aforesaid judgments, the following principles would emerge: (i) There is a duty or obligation of disclosure by the insured regarding any material fact at the time of making the proposal. What constitutes a material fact would depend upon the nature of the insurance policy to be taken, the risk to be covered, as well as the queries that are raised in the proposal form; (ii) What may be a material fact in a case would also depend upon the health and medical condition of the proposer; (iii) If specific queries are made in a proposal form then it is expected that specific answers are given by the insured who is bound by the duty to disclose all material facts; (iv) If any query or column in a proposal form is left blank then the insurance company must ask the insured to fill it up. If in spite of any column being left blank, the insurance company accepts the premium and issues a policy, it cannot at a later stage, when a claim is made under the policy, say that there was a suppression or non-disclosure of a material fact, and seek to repudiate the claim; (v) The insurance company has the right to seek details regarding medical condition, if any, of the proposer by getting the proposer examined by one of its empanelled doctors. If, on the consideration of the medical report, the insurance company is satisfied about the medical condition of the proposer and that there is no risk of pre-existing illness, and on such satisfaction it has issued the policy, it cannot thereafter, contend that there was a possible preexisting illness or sickness which has led to the claim being made by the insured and for that reason repudiate the claim; (vi) The insurer must be able to assess the likely risks that may arise from the status of health and existing disease, if any, disclosed by the insured in the proposal form before issuing the insurance policy. Once the policy has been issued after assessing the medical condition of the insured, the insurer cannot repudiate the claim by citing an existing medical condition which was disclosed by the insured in the proposal form, which condition has led to a particular risk in respect of which the claim has been made by the insured; (vii) In other words, a prudent insurer has to gauge the possible risk that the policy would have to cover and accordingly decide to either accept the proposal form and issue a policy or decline to do so. Such an exercise is dependant on the queries made in the proposal form and the answer to the said queries given by the proposer. [Para 52][1172-A-G]
8. The respondent insurance company could not have repudiated the policy on the ground that acute myocardial infraction suffered by the appellant on landing at San Francisco, USA was a “pre-existing and related complication” which was excluded under the policy. The insurer was informed about the pre-existing condition of the appellant, namely, diabetes mallitusII and it was for insurer to gauge a related complication under the policy as a prudent insurer and then issue the policy when satisfied. In the absence of the same, the treatment availed by the appellant for acute myocardial infraction in USA could not have been termed as a direct offshoot of hyperlipidaemia and diabetes mellitus so as to be labelled as a pre-existing disease or illness which the appellant suffered from and had not disclosed the same. At any rate, the appellant had in the proposal form disclosed that he was suffering from diabetes mellitus-II and for which the medical test reports were submitted along with the proposal form which were considered by the insurance company before the policy was issued to the appellant. In fact, the appellant stated in his representation dated 16th November, 2009, against the repudiation of the policy that he was taking lipid-lowering medicines not because he was suffering from hyperlipidaemia but as it was customary to take such medication for prevention of cardio-vascular complications in diabetics. He also stated that he had informed the physician, who examined him prior to obtaining the policy, of the medicines he had been taking. Therefore, the insurance company was well aware of the fact that the insured was a diabetic and was taking all necessary medication for preventing further complications and controlling the disease. Hence in view of this Court, there was no suppression of any material fact by the appellant to the insurer. [Para 66][1177-H; 1178-A-E]
10. Further on the disclosures made by the appellant with regard to his existing disease, namely diabetes mellitus-II, the insurance company considered the same and issued the policy in question to the appellant. The respondent insurance company as a prudent insurer considered the details given by the appellant in the proposal form and issued the policy. The insurance company did not think that the medical and health condition of the appellant was such which did not warrant issuance of a mediclaim policy. The insurance company therefore did not decline the proposal of the assured as a prudent insurer. [Para 67][1178-F-G]
11. Therefore, the respondents were not right in stating that as per the terms and conditions of the policy “all the complications arising out of pre-existing condition is not payable.” As already noted, acute myocardial infraction can occur in a person who has no history of diabetes mellitus-II. One of the risk factors for the aforesaid cardiac episode is diabetes mellitus-II. The fact that the appellant had diabetes mellitus-II was made known to the insurance company. Therefore, it is observed that any complication which would arise from diabetes mellitus-II was also within the consideration of the insurer. Despite the aforesaid facts regarding the medical record of the insured, the insurance company decided to issue the policy to the appellant. The aforesaid clause has to be read against the respondent insurer by applying the contra proferentem rule against it. Otherwise, the very contract of insurance would become meaningless in the instant case. Hence, in considered view of this Court, the respondent-insurance company was not right in repudiating the policy in question. [Para 68][1178-G-H; 1179-A-C]
General Assurance Society Ltd., v. Chandmull Jain AIR 1966 SC 1644; Delhi Development Authority v. Durga Chand Kaushish AIR 1973 SC 2609; Md. Kamgarh
Shah v. Jagdish Chandra AIR 1960 SC 953; United India Insurance Co. Ltd. v. Orient Treasures (P) (2016)
3 SCC 49 : [2016] 1 SCR 1; Central Bank of India v. Hartford Fire Insurance Co. Ltd. AIR 1965 SC 1288; Sushilaben Indravadan Gandhi v. New India Assurance Co. Ltd. (2021) 7 SCC 151 : 2020 (4) JT 539 – relied on.
Satwant Kaur Sandhu v. New India Assurance Co. (2009) 8 SCC316 : [2009] 10 SCR 560; Canara Bank v. United India Insurance Co. (2020) 3 SCC 455 : 2020
(3) SCALE 228;Oriental Insurance Co Ltd. v. Mahendra Construction (2019) 18 SCC 209; LIC of India v. Smt. G.M. Channabasamma (1991) 1 SCC 357 : 1991 ( 5) JT 73; Canara Bank v. United India Insurance Co. (2020) 3 SCC 455: 2020 (3) SCALE 228; Hari Om
Agarwal v. Oriental Insurance Co. 2007 (98) DRJ 246; Sushilaben Indravadan Gandhi and Ors. v. The New India Assurance Co. Ltd. and Ors. (2021) 7 SCC 151 : 2020 (4) JT 539; Export Credit Guarantee Society v. Garg Sons International (2014) 1 SCC 686 : [2013] 1 SCR 336; Satwant Kaur Sandhu v. New India
Assurance Co. (2009) 8 SCC 316 : [2009] 10 SCR 560; LIC of India v. Smt. G.M. Channabasemma (1991) 1 SCC 357 : 1991 (5) JT 73; Canara Bank v. United India Insurance Co. (2020) 3 SCC 455 : 2020 (3) SCALE 228; Reliance Life Insurance v. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175: [2019] 6 SCR 733; Life Insurance Corporation of India v. Manish Gupta, (2019) 11 SCC 371; Branch Manager Bajaj Allianz Life Insurance Co. v. Dalbir Kaur AIR 2020 SC 5210; Sulbha Prakash Motegaonkar and Ors. v. Life Insurance Corporation of India, Civil Appeal No. 8245/2015; Meenakshi Saxena & Anr. Vs. ECGC
Limited (formerly known as Export Credit Guarantee Corporation of India Limited) & Anr. – (2018) 7 SCC
479 : [2018] 5 SCR 421 – referred to.
Carter v. Boehm (1766) 3 Burr 1905; Reynolds v. Phoenix Assurance Co. Ltd. (1978) 2 Lloyd’s Rep. 440 – referred to.
Halsbury’s Laws of England, Fourth Edition, Para 375, Vol.25: Insurance; MacGillivray on Insurance Law (9th Edition, Sweet and Maxwell London, 1997 at p.280); Colinvaux’s Law of Insurance (6th Edi., 1990 at p.42) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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