Insurance – Insured – Duty of Disclosure – RespondentComplainant purchased hydraulic excavator machine in 2004-05– Excavator was insured with New India Assurance Company Limited (earlier insurer) from 15 Nov. 2004 to 14 Nov. 2005 – Claim lodged on 12 April 2005 on the ground that the excavator had been set on fire by Naxalites – Claim settled – On 10 Oct. 2006, the excavator was insured with the appellant-insurer from 11 Oct. 2006 to 10 Oct. 2007 – Excavator allegedly caught fire on 15 Oct. 2006 – Insurance claim repudiated on the ground that u/para.25(g) of the printed proposal form, the details of claims lodged during the preceding three years were required to be disclosed, but were not furnished and hence, the insurer was deprived of the opportunity to assess the risk profile of the vehicle at the time of accepting the proposal for insurance – Complaint before State Consumer Dispute Redressal Commission (SCDRC) – Allowed – National Consumer Dispute Redressal Commission (NCDRC) inter alia held that the insurer was not justified in repudiating the claim – On appeal, held: Insurance is governed by the principle of utmost good faith, which imposes a duty of disclosure on the insured with regard to material facts – Information regarding insurance claims lodged by the respondent for his excavator in the preceding three years was a material fact – Mere disclosure of previous insurance policy did not discharge the obligation cast on the respondent, as the proposer, to make a true and complete disclosure of the claims lodged under the previous policy in the preceding three years – Burden of establishing that the insured made false representation and suppressed material facts lies on the insurer – Insurer placed on record the best possible evidence in support of the plea that there was misrepresentation and suppression of material facts – Respondent was under bounden duty to disclose that the excavator was previously insured with another insurer and that a claim for damage to the excavator on 12 April 2005 was settled– It was only in the affidavit of evidence dtd.
6 Jan.2017, that the respondent disclosed that the earlier insurer had paid Rs 36.66 lakhs by cheque on 23 Sep. 2005 – This material fact was suppressed from the proposal form – Impugned order set aside.
Respondent-Complainant purchased a hydraulic excavator machine in 2004-05. The excavator was insured with the New India Assurance Company Limited (earlier insurer) from 15 Nov. 2004 to 14 Nov. 2005. Claim lodged by the respondent on the ground that the excavator had been set on fire by Naxalites. Claim was settled. On 10 Oct. 2006, the excavator was insured with the appellant-insurer from 11 Oct. 2006 to 10 Oct. 2007. Excavator allegedly caught fire on 15 Oct. 2006. Appellant repudiated the insurance claim. Complaint filed by the respondent before SCDRC, which was allowed. NCDRC, in appeal, inter alia held that the insurer was not justified in repudiating the claim. Hence, the present appeal.
Allowing the appeal, the Court
HELD: 1.1 Insurance is governed by the principle of utmost good faith, which imposes a duty of disclosure on the insured with regard to material facts. Information regarding insurance claims lodged by the respondent for his excavator in the preceding three years was a material fact. The burden of establishing that the insured made false representation and suppressed material facts lies on the insurer. The insurer has placed on record the best possible evidence in support of the plea that there was misrepresentation and suppression of material facts. Mere disclosure of previous insurance policy did not discharge the obligation which was cast on the respondent, as the proposer, to make a full, true and complete disclosure of the claims which were lodged under the previous policy in the preceding three years. It was only in the affidavit of evidence dated 6 January 2017, that the respondent disclosed that New India Assurance Company Limited had paid an amount of Rs 36.66 lakhs by cheque on 23 Sep. 2005. This material fact was suppressed from the proposal form. [Para 11][678-F-G; 680-F-H; 681-A-B]
1.2 The burden cannot be cast upon the insurer to follow up on an inadequate disclosure by conducting a line of enquiry with the previous insurer in regard to the nature of the claims, if any. It was the plain duty of the respondent while making the proposal to make a clear and specific disclosure. The insurance policy with earlier insurer was for the period from 15 November 2004 to 14 November 2005. The excavator remained uninsured from 15 November 2005 until 10 October 2006. The case of the respondent was that during that period, it was under repair. This fact, together with the receipt of the earlier insurance claim, was material to the decision of the insurer on whether to accept the proposal for insurance. The disclosures which were required in paragraph 25(g) of the proposal form were material to assess the risk profile of the vehicle at the time of accepting the proposal for insurance. Material information which was required to be disclosed was suppressed by the insured. The proposal form contains a declaration of the insured that the statements which are made are true to the knowledge of the proposer and the declaration forms the basis of the contract with the insurer. [Paras 12-14][681-C-E; G]
1.3 The respondent was under obligation to make full disclosure of the status of the previous insurance policy, together with the material facts relevant to the claim which had been lodged with the earlier insurer. The fact that such a claim was lodged and was settled at Rs 36.66 lakhs was suppressed. This suppression goes to the very root of the contract of insurance which would validate the grounds on which the claim was repudiated by the insurer. The impugned judgment and order of the NCDRC is set aside. The complaint filed by the respondent shall stand dismissed. [Paras 15, 16][682-A-C]
Mac Gillivray on Insurance Law Twelfth Edition, Sweet and Maxwell (2012)– referred to.
Life Insurance Corporation of India v Smt. G M Channabasamma (1991) 1 SCC 357 ; LIC of India v Asha Goel (2001) 2 SCC 160 : [2000] 5 Suppl.
SCR 646 ; Satwant Kaur Sandhu v New India
Assurance Co. Ltd. (2009) 8 SCC 316 : [2009]
10 SCR 560 – relied on.
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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