2019 (4) TMI 1454 - SC - Indian Laws

Insurance claim - disclosure of vital information - non-disclosure of a previous insurance policy - HELD THAT - In the present 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. We are not impressed with 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. 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 ₹ 11 lakhs. We are of the view that 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 SCDRC was in error in reversing the judgment of the District Forum. The NCDRC has similarly erred in affirming the view of the SCDRC - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Non-disclosure of a previous insurance policy.
2. Repudiation of the insurance claim within two years.
3. Materiality of the information not disclosed.
4. Duty of utmost good faith in insurance contracts.
5. Interpretation and application of Section 45 of the Insurance Act 1938.
6. The role of the insurance agent and the insured's understanding of the proposal form.

Issue-wise Detailed Analysis:

1. Non-disclosure of a Previous Insurance Policy:
The proposer failed to disclose an existing life insurance policy from Max New York Life Insurance Co Ltd in the proposal form for a new policy with the appellant. The proposer answered "NA" or "not applicable" to questions regarding other insurance covers held. The insurer argued that this non-disclosure was a material fact that justified repudiation of the claim.

2. Repudiation of the Insurance Claim Within Two Years:
The insurer repudiated the claim within two years from the commencement date of the policy, citing non-disclosure of a material fact. The repudiation was based on the assertion that the insured did not disclose a previous insurance policy, which was essential for the insurer to assess the risk.

3. Materiality of the Information Not Disclosed:
The court emphasized that the information regarding the previous insurance policy was material to the insurer's decision to underwrite the risk. The non-disclosure of this fact prevented the insurer from evaluating the risk accurately. The court held that materiality is determined by whether the information would influence the judgment of a prudent insurer in deciding to accept the risk.

4. Duty of Utmost Good Faith in Insurance Contracts:
The court reiterated the principle of uberrima fidei (utmost good faith) in insurance contracts, requiring the insured to disclose all material facts. The insured's failure to disclose the existing policy breached this duty, justifying the insurer's decision to repudiate the claim.

5. Interpretation and Application of Section 45 of the Insurance Act 1938:
Section 45 restricts the insurer's right to repudiate a policy after two years from its commencement, unless the insurer can prove that the non-disclosure was material and fraudulent. However, within the first two years, the insurer can repudiate the policy based on any inaccurate or false statement. The court held that the insurer was within its rights to repudiate the policy within two years due to the non-disclosure of a material fact.

6. The Role of the Insurance Agent and the Insured's Understanding of the Proposal Form:
The respondent argued that the insurance agent filled out the proposal form and that the insured, not being conversant with English, was unaware of the contents. The court rejected this argument, stating that the insured is responsible for the accuracy of the information provided in the proposal form, regardless of who filled it out. The insured's signature on the form indicated acceptance of its contents.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgments of the SCDRC and NCDRC, and dismissed the consumer complaint filed by the respondent. The court held that the insurer was justified in repudiating the claim due to the non-disclosure of a material fact within two years of the policy's commencement. The court also directed that the amount withdrawn by the respondent under the interim order should not be recovered, and there would be no order as to costs.