2019 (4) TMI 2048 - SC - Indian Laws

Insurance claim - Seeking direction to insurer to pay seventy-five percent of the amount awarded by the SCDRC - HELD THAT - The NCDRC entered a finding that since the previous insurance policy had been enclosed with the proposal form, the insurer could, upon further enquiry, have learnt of the status of the claims under the earlier policy. The NCDRC considered the exception to Section 19 of the Indian Contract Act, 1872 and held that the insurer could have easily verified the claims submitted by the insured under the previous policy. It was thus held that the insurer cannot deny the benefit of insurance on account of the information not having been disclosed in the proposal form. However, the NCDRC noted that the insured had not expressly disclosed the previous claim and in consequence, deducted twenty-five of the amount payable under the contract of insurance. This line of reasoning of the NCDRC is flawed. Insurance is governed by the principle of utmost good faith, which imposes a duty of disclosure on the insured with regard to material facts. In Satwant Kaur Sandhu v New India Assurance Co. Ltd 2009 (7) TMI 1375 - SUPREME COURT , a two-judge Bench of this Court held that under a contract of insurance, the insured is under a solemn obligation to make a true and full disclosure of information asked for in the proposal form - It was further held there is a clear presumption that any information sought in the proposal form is a material fact . 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, that were made under the earlier insurance policy. On the contrary, it was the plain duty of the respondent while making the proposal to make a clear and specific disclosure. The insurance policy with New India Assurance Company Limited 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 - it is evident on a bare reading of the proposal form that 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. The decision of the SCDRC to allow the claim was erroneous and the NCDRC equally erred in affirming the decision. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of duty of disclosure in insurance contracts
- Assessment of material facts and suppression of information in insurance proposal forms
- Burden of proof in cases of misrepresentation and suppression of material facts in insurance claims

Analysis:
1. The judgment revolves around the duty of disclosure in insurance contracts. The case involved an insurance claim for a hydraulic excavator machine that caught fire shortly after being insured. The insurer repudiated the claim, citing non-disclosure of material facts in the proposal form, specifically regarding previous insurance claims. The National Consumer Disputes Redressal Commission (NCDRC) partly allowed the appeal filed by the insurer against the State Consumer Disputes Redressal Commission's decision, directing the insurer to pay seventy-five percent of the awarded amount.

2. The key issue addressed was the interpretation of the duty of disclosure in insurance contracts. The Supreme Court emphasized the principle of utmost good faith governing insurance contracts, requiring the insured to disclose all material facts known to them. The Court cited various precedents highlighting the obligation of the insured to make full and true disclosures, emphasizing that any fact influencing the insurer's decision is deemed material and must be disclosed. The Court noted that the burden of proof lies on the insurer to establish misrepresentation and suppression of material facts by the insured.

3. The judgment analyzed the assessment of material facts and suppression of information in insurance proposal forms. The Court scrutinized the proposal form filled by the insured, which contained a handwritten endorsement "enclosed" regarding previous insurance policy details. However, the Court found that the insured failed to disclose crucial information about previous insurance claims, which was considered a material fact affecting the risk assessment by the insurer. The Court held that the mere disclosure of the previous policy did not discharge the duty of the insured to provide complete information about previous claims.

4. Another significant aspect addressed in the judgment was the burden of proof in cases of misrepresentation and suppression of material facts in insurance claims. The Court ruled that the insurer cannot be expected to follow up on inadequate disclosures by conducting inquiries with previous insurers. It reiterated that the duty of the insured is to make a clear and specific disclosure of all material facts, including previous claims. The Court concluded that the decisions of both the State and National Consumer Disputes Redressal Commissions were erroneous in allowing the claim, as the insured had suppressed crucial information relevant to the insurance contract.

5. Ultimately, the Supreme Court allowed the insurer's appeal, setting aside the judgments of the lower commissions. The Court dismissed the insured's complaint, emphasizing the importance of full disclosure in insurance contracts and holding that the suppression of material facts invalidated the claim. The judgment highlighted the significance of transparency and good faith in insurance dealings, underscoring the insured's duty to provide complete and accurate information to the insurer.