Consumer Protection Act, 1986: Deficiency of service – Insurance policy – Repudiation of claim – Spouse of the respondent took a policy from insurance company – Two months later he submitted proposal for life insurance policy of the appellantinsurance company and in the proposal form, on the query as to whether the proposer was currently insured or had applied for life insurance cover, his answer was in negative – Appellant issued a policy to him – After about a year he died – Appellant repudiated the claim of respondent on the ground of suppression of material fact relating to details of life insurance policies held by her husband – Consumer complaint by respondent – Held: s.45 curtails the common law rights of the insurer after lapse of two years from the date the cover for life insurance was effected – However, the repudiation in the instant case was within a period of two years from the commencement of the insurance cover – The contracts of insurance are governed by the principle of utmost good faith – The duty of mutual fair dealing requires all parties to a contract to be fair and open with each other to create and maintain trust between them – The duty of full disclosure requires that no information of substance or of interest to the insurer is omitted or concealed – Whether or not the insurer would have issued a life insurance cover despite the earlier cover of insurance is a decision which was required to be taken by the insurer after duly considering all relevant facts and circumstances – Prior to undertaking the risk, this information could potentially allow the insurer to question as to why the insured had in such a short span of time obtained two different life insurance policies – Such a fact is sufficient to put the insurer to enquiry – The information which was sought by the insurer was indeed material to its decision as to whether or not to undertake a risk – The proposer was aware of the fact, while making a declaration, that if any statements were untrue or inaccurate or if any matter material to the proposal was not disclosed, the insurer may cancel the contract and forfeit the premium – The failure of the insured to disclose the policy of insurance obtained earlier in the proposal form entitled the insurer to repudiate the claim under the policy – Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002 – Regn 2(d).
Insurance Act 1932: s.45 – Repudiation of policy of life insurance – Limitation period – Held: s.45 stipulates restrictions upon the insurer calling into question a policy of life insurance after the expiry of two years from the date on which it was effected – Beyond two years, the burden lies on the insurer to establish the inaccuracy or falsity of a statement on a material matter or the suppression of material facts – In addition to this requirement, the insurer has to establish that this non-disclosure or, as the case may be, the submission of inaccurate or false information was fraudulently made and that the policy holder while making it knew of the falsity of the statement or of the suppression of facts which were material to disclose – s.45 curtails the common law rights of the insurer after two years have elapsed since the cover for life insurance was effected.
Doctrines/Principles: Doctrine of uberrima fidei – Insurance is governed by the doctrine of uberrima fidei – This postulates that there must be complete good faith on the part of the insured – The relationship between an insurer and the insured is recognized as one where mutual obligations of trust and good faith are paramount – In a contract of insurance, the insured can be expected to have information of which she/he has knowledge – This justifies a duty of good faith, leading to a positive duty of disclosure – Insurance. Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002: Regn 2(d) – Proposal form – Held: Regn 2(d) specifically defines the expression “proposal form” as a form which is filled by a proposer for insurance to furnish all material information required by the insurer in respect of a risk – The purpose of the disclosure is to enable the insurer to decide whether to accept or decline to undertake a risk – The disclosures are also intended to enable the insurer, in the event that the risk is accepted, to determine the rates, terms and conditions on which a cover is to be granted.
Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002: Regn 2(d), Explanation – Furnishing of all material information in the proposal form – Meaning of expression ‘Material’ – Held: The explanation defines the expression “material” to mean and include “all important essential and relevant information” for underwriting the risk to be covered by the insurer – The expression “material” in the context of an insurance policy can be defined as any contingency or event that may have an impact upon the risk appetite or willingness of the insurer to provide insurance cover – In a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not accept the risk is a material fact – If the proposer has knowledge of such fact, she or he is obliged to disclose it particularly while answering questions in the proposal form.
Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002: Regn 2(d) – Consequence of inaccurate answer in the proposal form – Held: An inaccurate answer will entitle the insurer to repudiate because there is a presumption that information sought in the proposal form is material for the purpose of entering into a contract of insurance – In a proposal form the applicant declares that she/he warrants truth – The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer – The finding of a material misrepresentation or concealment in insurance has a significant effect upon both the insured and the insurer in the event of a dispute – In the instant case, the insurer had sought information with respect to previous insurance policies obtained by the insured – The disclosure of the earlier cover was material to an assessment of the risk which was being undertaken by the insurer – Prior to undertaking the risk, this information could potentially allow the insurer to question as to why the insured had in such a short span of time obtained two different life insurance policies – Such a fact was sufficient to put the insurer to enquiry – The information which was sought by the insurer was indeed material to its decision as to whether or not to undertake a risk.
Insurance: Plea of ignorance of contents of proposal form – Held: Proposer is not absolved of the consequence of appending his signatures to the proposal on the submission that he was unaware of the contents of the form that he was required to fill up – In the instant case, the proposer duly appended his signature to the proposal form and the grant of the insurance cover was on the basis of the statements contained in the proposal form – Barely two months before the contract of insurance was entered into with the appellant, the insured had obtained another insurance cover for his life in the sum of Rs 11 lakhs – The failure of the insured to disclose the policy of insurance obtained earlier in the proposal form entitled the insurer to repudiate the claim under the policy – The argument of the respondent that the signatures of the assured on the form were taken without explaining the details is not acceptable.
Allowing the appeal, the Court
HELD: 1. The repudiation in the instant case was within a period of two years from the commencement of the insurance cover. This assumes significance because of the provisions of Section 45 of the Insurance Act 1932, as they stood at the material time. Section 45 stipulated restrictions upon the insurer calling into question a policy of life insurance after the expiry of two years from the date on which it was effected. After two years have elapsed the insurer cannot call it into question on the ground that: (i) a statement made in the proposal; or (ii) a statement made in any report of a medical officer, referee or friend of the insured; or (iii) a statement made in any other document leading to the issuance of the policy was inaccurate or false, unless certain conditions are fulfilled. Those conditions are that : (a) such a statement was on a material matter; or (b) the statement suppressed facts which were material to disclose and that (i) they were fraudulently made by the policy holder; and (ii) the policy holder knew at the time of making it that the statements were false or suppressed facts which were material to disclose. The cumulative effect of Section 45 is to restrict the right of the insurer to repudiate a policy of life insurance after a period of two years of the date on which the policy was effected. Beyond two years, the burden lies on the insurer to establish the inaccuracy or falsity of a statement on a material matter or the suppression of material facts. Moreover, in addition to this requirement, the insurer has to establish that this non-disclosure or, as the case may be, the submission of inaccurate or false information was fraudulently made and that the policy holder while making it knew of the falsity of the statement or of the suppression of facts which were material to disclose. [Paras 12, 13][747-C; G; 748-A-D]
2.1 Insurance is governed by the doctrine of uberrima fidei. This postulates that there must be complete good faith on the part of the insured. The relationship between an insurer and the insured is recognized as one where mutual obligations of trust and good faith are paramount. [Para 15][748-G-H; 749-C] MacGillivray on Insurance Law Twelfth Edition,
Sweet and Maxwell (2012) – referred to
2.2 The Insurance Regulatory and Development Authority of India, by a notification dated 16 October 2002 issued the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002. Regulation 2(d) specifically defines the expression “proposal form” as a form which is filled by a proposer for insurance to furnish all material information required by the insurer in respect of a risk. The explanation defines the expression “material” to mean and include “all important essential and relevant information” for underwriting the risk to be covered by the insurer. Regulation 4(3) stipulates that while filling up the proposal, the proposer is to be guided by the provisions of Section 45. Where a proposal form is not used, the insurer under Regulation 4(4) is to record the information, confirming it within a stipulated period with the proposer and ought to incorporate the information in the cover note or policy. In respect of information which is not so recorded, the onus of proof lies on the insurer who claims that there was a suppression of material information or that the insured provided misleading or false information on any matter that was material to the grant of the cover. [Paras 23, 24][755-A-B, 756-B-E]
3. The expression “material” in the context of an insurance policy can be defined as any contingency or event that may have an impact upon the risk appetite or willingness of the insurer to provide insurance cover. Materiality from the insured’s perspective is a relevant factor in determining whether the insurance company should be able to cancel the policy arising out of the fault of the insured. Whether a question concealed is or is it not material is a question of fact. Materiality of a fact also depends on the surrounding circumstances and the nature of information sought by the insurer. It covers a failure to disclose vital information which the insurer requires in order to determine firstly, whether or not to assume the risk of insurance, and secondly, if it does accept the risk, upon what terms it should do so. In a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not accept the risk is a material fact. If the proposer has knowledge of such fact, she or he is obliged to disclose it particularly while answering questions in the proposal form. [Para 25][756-E-H; 757-A-D]
4. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant’s health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client. Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth. The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer. The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the contractual agreement. The finding of a material misrepresentation or concealment in insurance has a significant effect upon both the insured and the insurer in the event of a dispute. The fact it would influence the decision of a prudent insurer in deciding as to whether or not to accept a risk is a material fact. [Para 26] [757-H; 758-A-D]
5. In the instant case, the insurer had sought information with respect to previous insurance policies obtained by the assured. The duty of full disclosure required that no information of substance or of interest to the insurer be omitted or concealed. Whether or not the insurer would have issued a life insurance cover despite the earlier cover of insurance is a decision which was required to be taken by the insurer after duly considering all relevant facts and circumstances. The disclosure of the earlier cover was material to an assessment of the risk which was being undertaken by the insurer. Prior to undertaking the risk, this information could potentially allow the insurer to question as to why the insured had in such a short span of time obtained two different life insurance policies. Such a fact is sufficient to put the insurer to enquiry. The information which was sought by the insurer was indeed material to its decision as to whether or not to undertake a risk. [Paras 27, 28][758-F-H; 759-B]
6. The submission that the proposer was unaware of the contents of the form that he was required to fill up or that in assigning such a response to a third party, he was absolved of the consequence of appending his signatures to the proposal cannot be accepted. The proposer duly appended his signature to the proposal form and the grant of the insurance cover was on the basis of the statements contained in the proposal form. Barely two months before the contract of insurance was entered into with the appellant, the insured had obtained another insurance cover for his life in the sum of Rs 11 lakhs. The failure of the insured to disclose the policy of insurance obtained earlier in the proposal form entitled the insurer to repudiate the claim under the policy. The argument of the respondent that the signatures of the assured on the form were taken without explaining the details cannot be accepted. [Paras 29, 31][759-E-F; 760-B] VK Srinivasa Setty v. Messers Premier Life and General Insurance Co Ltd AIR 1958 Mys 53 – relied on.
Mithoolal Nayak v. LIC 1962 Suppl (2) SCR 531 – distinguished.
Satwant Kaur Sandhu v. New India Assurance Co Ltd. (2009) 8 SCC 316 : [2009] 10 SCR 560 ; Sahara
India Life Insuance Company Limited v. Rayani
Ramanjaneyulu (2014) CPJ 582 ; Sheoshankar
Ratanlalji Khamele v Life Insurance Corporation of India AIR 1971 Bom 304 ; LIC of India v. Vidya Devi (2012) 3 CPJ 288 (NC) ; Dineshbhai Chandarana v LIC (2010) 3 CPJ 358 (NC) ; Condogianis v. Guardian Assurance Company Ltd. AIR 1921 PC 195 ;
Lakshmishankar v. Gresham Life Assurance Society AIR 1932 Bom 582 ; Life Insurance Corporation of India v. Smt GM Channabasamma (1991) 1 SCC 357 ; Life Insurance Corpn of India v. Asha Goel (Smt) (2001) 2 SCC 160 : [2000] 5 Suppl. SCR 646 ; United India Insurance Co Ltd v. MKJ Corporation (1996) 6 SCC
428 : [1996] 5 Suppl. SCR 20 ; Modern Insulators Ltd v. Oriental Insurance Co Ltd. (2000) 2 SCC 734 : [2000]
1 SCR 1076 – referred to.
Carter v Boehm (1766) 3 Burr 1905 – referred to.
MacGillivray on Insurance Law Twelfth Edition,
Sweet and Maxwell (2012) – 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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