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TMI Blog2019 (4) TMI 1454X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Civil Appeal No. 4261 of 2019 ( Arising out of SLP (C) No. 14312 of 2015 ) - - - Dated:- 24-4-2019 - Dr Dhananjaya Y Chandrachud And Hemant Gupta, JJ. JUDGMENT Dr Dhananjaya Y Chandrachud, J 1 Leave granted. 2 This appeal is from a decision of the Natio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not disclosed by me then the Company may cancel the contract and all the premiums paid, will be forfeited. 5 On 22 September 2009, the appellant issued a policy of life insurance to the spouse of the respondent based on the disclosures contained in the proposal form. The respondent s spouse died on 8 February 2010. On 24 May 2011, nearly fifteen months after the date of death, the respondent, who was a nominee under the policy issued by the appellant, submitted a claim of ₹ 10 lakhs under the terms of the policy. The claim was supported by a medical certificate stating that the policy holder had suffered from sudden chest pain prior to his death. On 7 June 2011, the appellant sought copies of medical reports including, as the case may be, death or discharge summaries together with previous medical records of the deceased. On 14 July 2011, in response to the appellant s e-mail dated 29 June 2011, Max New York Life Insurance Co Ltd informed the appellant that the spouse of the respondent had been insured with them for a sum of ₹ 11 lakhs and that the claim had been settled. The appellant repudiated the respondent s claim on 30 August 2011 stating thus: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of the previous life insurance policy held by the proposer. If the information sought by the insurer in the proposal form is not disclosed, is suppressed or if a false answer is furnished by the proposer, the insurer is entitled to repudiate the insurance policy or any claim arising from it under Sections 17 and 19 of the Contract Act 1872 (Mithoolal Nayak v LIC 1962 Suppl (2) SCR 531); (iii) In a case covered by (ii) above, the insurer is not required to establish that the non-disclosure, suppression or falsity of response by the proposer is material. This is for the reason that it is for the insurer, and not the proposer, to determine whether the information which has specifically been sought in the proposal form is material or otherwise (Satwant Kaur Sandhu v New India Assurance Co Ltd (2009) 8 SCC 316); (iv) It is only when an insurer seeks to repudiate a policy of life insurance or a claim arising under it after two years of the effective date of the policy that by reason of Section 45 of the Insurance Act 1938, the insurer will have to demonstrate that the information sought in the proposal form was material; (v) Disclosure of a pre-existing lif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants or their agent and the witness was unknown to the insured; (ii) Though in the letter of repudiation dated 30 August 2011, it was only the alleged suppression of a previous policy which was pressed in aid, the appellants sought to support the repudiation before the consumer forum on the ground that there was a pre-existing urinary bladder ailment. The insured had suffered from the infection in 2002, several years before the submission of the proposal form; (iii) A non-disclosure of a previous insurance policy cannot be a valid ground for repudiation of the claim. There is no prohibition in law from a person holding any number of life insurance policies from different insurers. The insurer has admitted that the death of the insured on 8 February 2010 was due to a heart attack and hence the claim was covered within the terms of the policy; (iv) The non-disclosure of a previous insurance cover is not of any material consequence under Section 45 of the Insurance Act 1932. The alleged omission or commission is not of any material consequence and would have not influenced the mind of the appellant while issuing the policy nor would it affect the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pressed in aid during the hearing before this Court. 12 The repudiation in the present 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: 45 No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this Act shall, after the expiry of two years from the date on which it was effected be called in question by an insurer on the ground that statement made in the proposal or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy-holder and that the policy-holder knew at the time of making it that the statement was false or that it suppressed facts which it was material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the nature of the authority of the insurer where a policy of life insurance or a claim under it is sought to be repudiated within two years. The insurer submits that within a period of two years, its right to repudiate the respondent s claim is untrammelled and is not subject to the conditions which apply beyond two years. On the other hand, the submission of the respondent is that even within a period of two years, a non-disclosure or suppression must be of a material fact to justify a repudiation. In other words, before a non-disclosure can be utilized as a ground to repudiate, it must pertain to a realm where it can be found that the non-disclosure was of a circumstance or fact which would have affected the decision of the insurer regarding whether or not to grant a cover. 15 The fundamental principle is that insurance is governed by the doctrine of uberrima fidei. This postulates that there must be complete good faith on the part of the insured. This principle has been formulated in MacGillivray on Insurance Law ( Twelfth Edition, Sweet and Maxwell (2012 )) succinctly, thus: [Subject to certain qualifications considered below], the assured must disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t where a representation is material it must be complied with-if immaterial, that immateriality may be inquired into and shown; but that if there is a warranty it is part of the contract that the matter is such as it is represented to be. Therefore the materiality or immateriality signifies nothing. 17 This principle was followed by the Bombay High Court in Lakshmishankar v Gresham Life Assurance Society (AIR 1932 Bom 582. Also see Great Eastern Life Assurance Company Limited v Bai Hira - 1930 ILR Vol.LV 124) where it was held: where the representations, statement and agreements made by an assured in his application for a policy of life assurance are made a basic condition of the contract by the policy of life assurance, the truth of the statements contained in the proposal are, apart from the question of their materiality, the condition of the liability of the assurance company. It would therefore follow that the defendant company was entitled to repudiate its liability on account of the untrue statement contained in the proposal form and in the examination by the medical examiner... 18 In Sheoshankar (supra), a Division Bench of the Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of this question will depend whether the repudiation by the insurer has been within two years or after a period of two years from the date on which the policy was effected. 19 In Mithoolal (supra), a Bench of three learned Judges of this Court dealt with a case where a policy had been issued on 13 March 1945. The policy came into effect from 15 January 1945. The amount insured was payable after 15 January 1968 or at the death of the insured, if earlier. The insurer repudiated its claim on 10 October 1947. Hence the provisions of Section 45 were applicable. The three Judge Bench rejected the submission that a period of two years had not expired from the date of the revival of the policy, holding that from Section 45 it was evident that the period of two years can only mean the date on which the policy was effected. From that date a period of two years had clearly elapsed when the insurer repudiated the claim. The significance of the decision in Mithoolal (supra) for this case lies in the fact that the Court specifically kept open the issue about what would govern a case where Section 45 did not apply: As we think that Section 45 of the Insurance Act app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act 1932. A Division Bench of the High Court held in appeal that there was some substance in the complaint that the insurer ought to have been given an opportunity to lead evidence to discharge the onus of justifying the rejection. The matter was accordingly remanded. The insurer then moved to this Court challenging the maintainability of a writ petition under Article 226 of the Constitution before the High Court. This Court held that where a dispute in regard to a repudiation of a claim raises a serious matter requiring oral and documentary evidence, the appropriate remedy would be a civil suit and not a writ petition. After elaborating the requirements of Section 45, this Court held: 12. ... The contracts of insurance including the contract of life assurance are contracts uberrima fides and every fact of material (sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion of the contract and also implies any material alteration in the character of the risk which may take place between the proposal and its acceptance. If there are any misstatements or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch would influence the judgment of a prudent insurer in fixing the premium or determining whether he would like to accept the risk. Any fact which goes to the root of the contract of insurance and has a bearing on the risk involved would be material . In a situation which was not governed by Section 45, this Court applied the fundamental tenet of insurance law namely, utmost good faith. 23 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. The expression proposal form is defined in Regulation 2(d) thus: 2(d) Proposal form means a form to be filled in by the proposer for insurance, for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted. Explanation: Material for the purpose of these regulations shall mean and include all important, essen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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. 25 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 MacGillivray on Insurance Law ( Twelfth Edition, Sweet and Maxwell (2012). See Pg. 493 for cases relied upon. )18 it is observed thus: The opinion of the particular assured as to the materiality of a fact will not as a rule be considered, because it follows from the accepted test of materiality that the question is whether a prudent insurer would have considered that any particular circumstance was a material fact and not whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er-writer into a belief that the circumstance does not exist, and to induce him to estimate the risque, as if it did not exist. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not disclosed, the insurer may cancel the contract and forfeit the premium. MacGillivray on Insurance Law ( Twelfth Edition, Sweet and Maxwell (2012). See Pg. 257 for cases relied upon. ) formulates the principle thus: In more recent cases it has been held that all-important element in such a declaration is the phrase which makes the declaration the basis of contract . These words alone show that the proposer is warranting the truth of his statements, so that in the event of a breach this warranty, the insurer can repudiate the liability on the policy irrespective of issues of materiality 29 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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