2024 (11) TMI 1 - SC - Indian Laws

Repudiation of insurance claim on the grounds of suppression of material information regarding existing policies with other insurers - burden of proof and the method of discharging that burden of proof to prove an alleged fact - Section 45 of the Insurance Act, 1938 - uberrimae fidei - plea of utmost good faith - HELD THAT - The repudiation of an insurance claim is largely governed by Section 45 of the Insurance Act, 1938. Section 45 is a special provision of law, which bars the calling in question of an insurance policy beyond expiry of the stipulated period, except in a few circumstances that have to be proved by the insurer. Since the present case deals with a policy and its repudiation before the 2014 amendment to Section 45 of the Insurance Act, the pre-amendment time period of two years would be applicable to the case. As per the aforesaid language and interpretation of Section 45, the insurer cannot question the policy after the expiry of the time period and if it does, then the burden rests on the insurer to establish materiality of the fact suppressed and the knowledge of the insured about such suppression, so that the repudiation of the claim could be justified by the insurer. Law demands a higher standard of good faith in matters of insurance contracts which is expressed in the legal maxim uberrimae fidei. The plea of utmost good faith has also been taken by the respondent, for contending that the insured-deceased had a duty to disclose the details of the previous policies, as the same was sought in the application form. However, the insured failed in his duty to correctly answer the question about his previous policies. The basic test hinges on whether the mind of a prudent insurer would be affected, either in deciding whether to take the risk at all or in fixing the premium, by knowledge of a particular fact if it had been disclosed. Therefore, the fact must be one affecting the risk. If it has no bearing on the risk it need not be disclosed and if it would do no more than cause insurers to make inquiries delaying issue of the insurance, it is not material if the result of the inquiries would have no effect on a prudent insurer - Whether a fact is material will depend on the circumstances, as proved by evidence, of the particular case. It is for the court to rule as a matter of law, whether, a particular fact is capable of being material and to give directions as to the test to be applied. In the present case, the date of birth declared are different and the date of issuance has not been stated except in respect of one policy. It is also not known from the table to whom the said policies were issued. However, the NCDRC has observed that the appellant-complainant had not alleged in her complaint that no other insurance policy had been taken by the deceased. In the affidavit of the complainant, the fact that insurance policies were taken from other insurers was not denied. The respondent insurance company had given details of the aforesaid policies by way of an affidavit. Therefore, NCDRC concluded that deceased insured had withheld information in respect of several insurance policies which he had taken from other insurers. There is an essential distinction between burden of proof and onus of proof; burden of proof lies upon a person who has to prove the fact and which never shifts but onus of proof shifts. Such a shifting of onus is a continuous process in the evaluation of evidence. For instance, in a suit for possession based on the title, once the plaintiff has been able to create a high degree of probability so as to shift the onus on the defendant, it is for the defendant to discharge his onus and in the absence thereof, the burden of proof lying on the plaintiff shall be held to have been discharged so as to amount to proof of the plaintiff s title. The respondent insurance company has produced no documentary evidence whatsoever before the District Forum to prove its allegation that the insured had taken multiple insurance policies from different companies and had suppressed the same. The District Forum had therefore concluded that there was no documentary evidence to show that the deceased-life insured had taken various insurance policies except an averment and on that basis the repudiation was held to be wrong - in the absence of any evidence to prove that the insured-deceased possessed some insurance policies from other insurance companies, the State Commission upheld the decision of the District Forum in setting aside the repudiation of the claim by the respondent. The impugned order dated 22.07.2019 passed by the NCDRC in Revision Petition No.1268 of 2019 is set aside. The respondent company is directed to make the payment of the insurance claim under both the policies to the appellant, amounting to Rs. 7,50,000/- and Rs. 9,60,000/-, with interest at the rate of 7% per annum from the date of filing the complaint, till the actual realisation. Appeal allowed.

Summary

Issues Involved:

1. Whether the respondent insurance company was justified in repudiating the insurance claim on the grounds of suppression of material information regarding existing policies with other insurers.
2. The applicability and interpretation of Section 45 of the Insurance Act, 1938, in the context of alleged suppression of material facts.
3. The principle of "uberrimae fidei" (utmost good faith) and its application in insurance contracts.
4. The burden of proof and its discharge in the context of alleged non-disclosure of material facts.
5. The application of the contra proferentem rule in interpreting ambiguous terms in insurance contracts.

Detailed Analysis:

1. Repudiation of Insurance Claim:
- The insurance company repudiated the claim on the grounds that the insured-deceased had suppressed material facts regarding existing life insurance policies with other insurers. The NCDRC upheld this repudiation, relying on the precedent set by the Supreme Court in "Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod," which supported repudiation due to non-disclosure of existing insurance policies.
- However, the Supreme Court found that the insurance company failed to provide adequate evidence to substantiate their claim of suppression. The details provided were incomplete, lacked corroborative evidence, and did not establish that the insured had indeed taken multiple policies from other insurers.

2. Section 45 of the Insurance Act, 1938:
- Section 45 restricts the insurer from questioning a policy after two years from its commencement, unless it can prove that a statement was on a material matter, suppressed facts which were material to disclose, and that it was fraudulently made by the policyholder.
- The Court emphasized that the burden of proof lies on the insurer to establish the materiality of the fact suppressed and the knowledge of the insured about such suppression. In this case, the insurer failed to discharge this burden adequately.

3. Principle of Uberrimae Fidei:
- Insurance contracts are governed by the principle of utmost good faith, requiring full disclosure of all material facts by the insured. The insurer argued that the insured had a duty to disclose all existing policies, which was not fulfilled.
- The Court reiterated that the principle requires both parties to the contract to make complete disclosures, and any suppression should be materially significant to the risk being insured.

4. Burden of Proof:
- The Court highlighted that the burden of proof rests on the party asserting the affirmative of the issue. In this case, the insurance company, which alleged suppression, had to prove it with evidence.
- The Court found that the insurance company did not provide sufficient evidence to prove the existence of other policies, as required under the law of evidence.

5. Contra Proferentem Rule:
- The Court applied the contra proferentem rule, which interprets any ambiguity in contractual terms against the drafter, in this case, the insurance company.
- The questions in the proposal form were found to be ambiguous, and thus, could not be used to negate the benefit of the policy by repudiation.

Conclusion:
The Supreme Court set aside the NCDRC's order, directing the insurance company to pay the claim amounts under both policies to the appellant, with interest. The appeal was allowed, emphasizing the need for clear evidence and proper interpretation of insurance contract terms.