NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
NEW DELHI
REVISION PETITION No. 1585 of 2011
(From the order dated 25.11.2010 of the Odisha State Consumer Disputes Redressal Commission, Cuttack in CDA no. 344 of 2001)
Life Insurance Corporation of India
H – 39, Connaught Place Petitioner
New Delhi
versus
Smt. Kusum Patro
Wife of Late Narasingha Patro
Dalua Street, P.O. Behrampur Respondent
P.S. Behrampur Town
District Ganjam, Odisha
BEFORE:
HON’BLE MR. ANUPAM DASGUPTA PRESIDING MEMBER
HON’BLE MR. SURESH CHANDRA MEMBER
For the Petitioner Mr. Neeraj Gupta, Advocate
For the Respondent Mr. Kedar Nath Tripathy, Advocate
Pronounced on 19th March 2012
ORDER
ANUPAM DASGUPTA
This revision petition challenges the order dated 25.11.2010 of the Odisha State Consumer Disputes RedressalCommission, Cuttack (in short, ‘the State Commission’). By this order, the State Commission dismissed the appeal of the Life Insurance Corporation of India (LIC) against the order dated 24.04.2001 of the District Consumer DisputesRedressal Forum, Ganjam, Behrampur (in short, ‘the District Forum’) allowing the complaint of the respondent/complainant with the following directions:
“It is not disputed that the OP had not paid the policy amount to the complainant. She must have suffered mental agony as the claim amount has been repudiated for which she is entitled for compensation. Hence, we direct the OP to pay the claim amount of the policy no. 581060723 dated 28.02.1995 to the tune of Rs. 1,00,000/- with interest @ 12% per annum and compensation of Rs.1000/- to the complainant within one month from the date of receipt of this order failing which the OP is to pay interest @ 18% per annum on the said amounts till the date of realisation.”
While dismissing the appeal of the LIC, the State Commission, however, reduced the rate of interest to 10% per annum, leaving the other directions of the District Forum unchanged.
2. The relevant facts relating to the complaint filed by the respondent before the District Forum are that her husband (Late Narasingha Patro) had obtained three life insurance policies, viz., no. 58105583 dated 16.05.1991 for Rs.25,000/-, no. 581057826 dated 20.01.1993 for Rs.40,000/- and no. 581060723 dated 28.02.1995 for Rs.1,00,000/-. The premium for each of these three policies was being deducted from the salary of late Narasingha Patro who was an employee with the Telephone Department. The life assured died on 10.01.1997 due to myocardial infarction. On the claims being made by the respondent/complainant, LIC paid up the amounts of the first two policies. However, by its letter dated 09.12.1998, LIC repudiated the claim for the third policy on the ground of non-disclosure of certain material facts by the life assured while submitting the proposal for the said policy.
3. It was the specific contention of the LIC that in the proposal form signed by the life assured on 30.01.1995, he answered Question no. 11 of the prescribed Personal History Form in the ‘Negative’, as under:
PERSONAL HISTORY
|
Answer ‘Yes’ or ‘No’
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If ‘Yes’ give full details
| |
a.
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During the last five years did you consult a medical practitioner for any ailment requiring treatment for than a week?
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No
| |
b.
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Have you ever been admitted to any hospital or nursing home for general check-up, observation, treatment or operation?
|
No
| |
c.
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Have you remained absent from place of work on grounds of health during the last 5 years?
|
No
|
ALL NO
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d.
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Are you suffering from or have you ever suffered from ailments pertaining to Live, Stomach, Heart, Lungs, Kidney, Brain or Nervous system?
|
No
| |
e.
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Are you suffering from or have you every suffered from Diabetes, Tuberculosis, High Blood Pressure, Low Blood Pressure, Cancer, Epilepsy, Hernia, Hydrocele, Leprosy or any other disease?
|
No
| |
f.
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Do you have any body defect or deformity?
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No
| |
g.
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Did you ever have any accident or injury?
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No
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h.
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Do you or have you ever used alcoholic drinks, narcotics or any other drugs?
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No
| |
i.
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What has been your usual state of health?
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Good
|
4. However, according to the LIC, before he submitted the proposal for this insurance policy the life assured had suffered a serious accident in March 1994 leading to head injury and proptosis of left eye for which he was treated at the MKCG Medical College Hospital, Behrampur for a long period and his left eye ball had to be removed. Thus, the life assured had deliberately and fraudulently suppressed material information relating to the status of his health with particular reference to answer to Question no. 11 referred to above.
5. Aggrieved by this repudiation, the nominee/complainant/respondent filed a consumer complaint before the District Forum. On consideration of the pleadings, evidence and documents brought on record, the District Forum held that the Proposal Form had not been filled in by the life assured but by some employee of the LIC and there was nothing on record to show that the contents of the Proposal Form were read over and explained to the deceased. The District Forum further observed that there was no evidence to show that the deceased had signed the Proposal Form after understanding its full import and, therefore, the plea taken by the LIC that the deceased had suppressed material facts regarding his health could not be entertained. In addition, the District Forum held that the LIC had paid up the claim amounts of the two earlier policies without taking recourse to the aforesaid plea. In view of these reasons, the District Forum held the LIC guilty of deficiency in service in repudiating the claim of Rs. 1,00,000/- under the third policy and passed the order, as already noticed.
6. The State Commission also concurred with the findings of the District Forum and dismissed the appeal filed by the LIC against the said order, with the modification in the rate of interest noticed above.
7. We have heard Mr. Neeraj Gupta and Mr. K. M. Tripathy learned counsel for the petitioner (LIC) and respondent (nominee/complainant) respectively and considered the documents brought on record. The respondent has filed a counter affidavit in response to the revision petition, which too we have taken into account.
8. Learned counsel for the petitioner has argued that both the Fora below failed to appreciate that it was the life assured who was entirely responsible for furnishing his Personal History with accuracy and truthfully answering the specific questions relating to the status of his health, even if it were assumed, for the sake of argument, that the Form had been filled in by someone else. Moreover, the petitioner had settled the claim under the first and the second policies because it was only in March 1994 that the life assured suffered the accident and the first two policies were obtained in 1991 and 1993. Hence, admitting the claims under these two policies could not be held against the petitioner when it repudiated the claim under the third policy for which the proposal was submitted in January 1995 and the policy perhaps was issued in February 1995. It was, therefore, incumbent on the life assured to disclose the accident that he suffered and the treatment that he had undergone at MKCG Medical College Hospital in the proposal form, even if somebody else had recorded it.
9. On the other hand, on behalf of the respondent Mr. Tripathy has contended that on the basis of the record/documents produced before the District Forum both the Fora below have concluded that the Proposal Form (relating to Personal History – PH, in short) had not been filled in by the deceased life assured and he had merely put his signature. There was also no endorsement that the deceased had signed the PH Form after understanding its contents. Further, there was no nexus between the accident of March 1994 (causing head injury and proptosis of the left eye) and the cause of death of the deceased in January 1997 (myocardial infarction). Mr. Tripathy has also argued that the observations of the Apex Court in the case of P.C. Chacko v Chairman, LIC of India[(2008) 1 SCC 321] andSatwant Kaur Sandhu v New India Assurance Co. Ltd. [(2009) 8 SCC 316] on the “ambit” of section 45 of the Insurance Act, 1938, import of “misstatement” and meaning of “material facts” would show that the life assured could not be held guilty of non-disclosure of material facts. Hence, the LIC was not justified in repudiating the claim in respect of the third insurance policy. Learned counsel has also emphasised that the Medical Examiner of the petitioner did not find anything in his examination report dated 31.01.1995indicating that the deceased life assured had concealed any material facts relating to his health.
10. It is undisputed that the replies to Question no. 11 in the prescribed PH Form clearly failed to mention, even obliquely, the accident that the life assured had suffered only a few months ago and that he was hospitalised for weeks for treatment. It is also to be noted that the life assured was apparently an educated person, working as a Supervisor with the Telephone Department. We, therefore, find it difficult to accept the contention on behalf of the respondent that the life assured merely put his signature on the PH Form, which had been filled in by someone else without even attempting to understand the contents of the Form or/ and the replies that were recorded on his behalf. Moreover, reliance had been placed on behalf of the respondent on the report of the Medical Officer of the LIC who had examined the life assured in connection with the policy. This document dated 31.01.2005 had been signed by one Dr. B. K. Pandit, MBBS, as the Medical Officer, LIC, Behrampur. In this Form, Question no. 4 was answered as under:
4.
|
Ascertain from the life to be assured whether at any time in the past he/she-
(i) has been hospitalised?
(ii) was involved in an accident?
(iii) has undergone any Radiological,Cardiological, Pathological or any other tests?
(iv) is currently under any treatment?
|
NO
|
[Emphasis supplied]
At the end of this Form, the said Dr. Pandit made the following declarations:
“I hereby certify that I have, this day, examined the above, life to be assured personally, in private and recorded in my own hand (i) the true and correct findings (ii) the answers to Question no. 4, as ascertained from the person examined.
“I declare that the person examined signed (affixed his/her thumb impression) in the space earmarked below in my presence and that I am not related to him/her or the Agent of the Development Officer.”
[Emphasis supplied]
The single reply of ‘No’ to each part of Question no. 4 was effectively the same as that in reply to Question no. 11 in the PH Form. However, the material difference is that in the Medical Examiner’s report, the Medical Examiner has ascertained that reply (‘No’) from the life assured, as is seen from the endorsement at the bottom of the medical report. The Medical Officer has also certified that the answer to Question no. 4 had been recorded as ascertained from the person examined. In other words, before the Medical Officer also, the proposer/deceased life assured refrained from disclosing the correct facts in relation to his status of his health, including the accident and the hospital (in patient) treatment. Hence, we cannot agree with Mr. Tripathy that the replies to Question no. 11 of the PH Form had been recorded by someone else, keeping the life assured in the dark about the contents of the said Question and their meaning.
11 (i) There is no doubt that so soon after the accident that the deceased life assured suffered, the Medical Officer should have noticed and recorded something adverse in reply to Questions no. 7, 14, and 15 instead of recording as under:
7.
|
Is any abnormally found on examination of mouth, ear, nose throat or eyes?
|
No
|
14.
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Is there any evidence of operation? If so,
(a) the year of operation
(b) its nature and cause
(c) its location, size and condition of scar
(d) degree of impairment, if any
|
No
|
15.
|
If there any evidence of injury due to accident or otherwise? If so, state
(i) the year in which the injury occurred
(ii) notice of injury
(iii) degree of impairment, if any,
(iv) during of unconsciousness in the case of head injury
|
No
|
Failure of the Medical Officer to record nothing except ‘No’ in reply to any of these questions can only show his complete and gross incompetence (including perhaps collusion) in examining the life – to - be assured but that cannot absolve the latter of his responsibility to furnish correct information regarding the status of his health which he alone was aware of and should have disclosed in keeping with the principle of “utmost good faith” which forms the bedrock a contract of insurance.
(ii) Mr. Tripathy’s attempt to seek dismissal of this revision petition on the basis of certain selected observations in the decisions of the Apex Court in the cases of P.C. Chacko v Chairman, LIC of India and Satwant Kaur Sandhu v New India Assurance Co. Ltd. (supra) is also, in our view, misplaced. He has extracted the following observations of the Apex Court:
(a) From the P. C. Chacko case:
“… … Section 45 of the Insurance Act, 1938 (which prescribes that a life insurance policy cannot be called in question on ground of misstatement after two years) postulates repudiation of insurance policy within a period of two years.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
There are three conditions for application of the second part of section 45 of the insurance Act. Which are (a) the statement must be on a material matter or must suppress facts which it was material to disclose; (b) the suppression must be fraudulently made by the policy-holder; and (c) the policy-holder must have known at the time of making the statement that it was false or that it suppresses facts which it was material to disclose.”
With regard to “Misstatement”:
“… … … … Misstatement by itself was not material for repudiation of the policy unless the same is material in nature. But, a deliberate wrong answer which has a great bearing on the contract of insurance, if discovered may lead to the policy being vitiated in law…”
(b) From the Satwant Kaur Sandhu case:
“The term ‘material fact’ is not defined in the Insurance Act, 1938 and, therefore, it has been understood and explained by the courts in general terms to mean as any fact which would influence the judgment of a prudent insurer in fixing the premium or determining whether he would like to accept the risk. Any fact that goes to the roof of the contract of insurance and has a bearing on the risk involved would be “material”. The Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002 defines the word “material” to mean and include all “important”, “essential” and “relevant information in the context of guiding the insurer to decide whether to undertake the risk or not.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Thus, in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact, he is obliged to inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for the proposal form is material for the purpose of entering into a contract of insurance.”
[Emphasis supplied by Mr. Tripathy]
(iii) We may now notice what the observations of the Apex Court actually are in these two cases.
(a) In P. C. Chacko’s case, the Apex Court has observed, inter alia, as under:
“13. There are three conditions for application of second part of section 45 of the Insurance Act which are:
(a) the statement must be on a material matter or must suppress facts which it was material to disclose;
(b) the suppression must be fraudulently made by the policy-holder; and
(c) the policy-holder must have known at the time of making the statement that it was false or that it suppressed facts which it was material to disclose.
[See Mithoolal Nayak (supra)]
14. The insured’s brother was an agent of the Life Corporation of India. It was he, who had asked the insured to take the insurance policy. He, being an authorised agent of the Life Insurance Corporation, presumably knew the effect of misstatement of facts. Misstatement by itself, however, was not material for repudiation of the policy unless the same is material in nature.
17. It is no doubt true that there exists a distinction between a ’representation’ and ‘warranty’. A Division Bench of the Madras High Court in S. P. Maheshwari (supra) upon taking into consideration the history of insurance laws in United States of America, in England and in India stated:
(10) One great principle of insurance law is that a contract of insurance is based upon utmost good faith uberrimafides; in fact, it is the fundamental basis upon which all contracts of insurance are made. In this respect there is no difference between one contract of insurance and another. Whether it be life or fire or marine, the understanding is that the contract is uberrima fides and though there may be certain circumstances from the peculiar nature of marine insurance which require to be disclosed, and which do not apply to other contracts of insurance, that is rather an illustration of the application of the principle than a distinction in principle. From the very fact that the contract involves a risk and that it purports to shift the risk from one party to the other, each one is required to be absolutely innocent of every circumstance which goes to influence the judgment of the other while entering into the transaction.
18. While the parties entered into a contract of insurance the same shall, subject to statutory interdict, be governed by the ordinary law of contract. The insurer may not rely upon the disclosures made by the insured. It may gather information from other sources. The Madras High Court, although in our opinion, has rightly issued a note of caution to construe a ‘representation’ and ‘warranty’ as a general proposition which may operate harshly against the policy holders, itself noticed:
(12) The principles underlying the doctrine of disclosure and the rule of good faith oblige the proposer to answer every question put to him with complete honesty. Honesty implies truthfulness. But it happens that no man can do more than say what he believes to be the truth.
21. In Life Insurance Corporation of India and Ors. v Asha Goel (Smt.) & Anr. [I (200) SLT 89 = (2001) 2 SCC 160], whereupon reliance has been placed by Mr. Sathish, it was held:
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 to the character of the risk which may take place between the proposal and its acceptance. If there are any misstatements or suppression of material facts, the policy can be called into question. For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the policy and it could not be ascertained by reasonable enquiry by a prudent person.
It has not been shown in this case that repudiation of the contract of insurance was not done by the respondent with extreme care and caution or was otherwise invalid in law.
The Division Bench of the High Court has taken all the aspects of the matter in consideration and, in our opinion arrived at a just decision.
22. Strong reliance has been placed by the learned counsel for the appellants on Allianz Und Stuttgarter Life Insurance Bank Ltd. v Hemanta Kumar Das [AIR 1938 CAL 641], wherein in regard to some purported statements made by the proposer in regard to his age was not found to be material as would appear from the following:
It is to be borne in mind that this was an insurance by a man who admittedly was, at any rate, at the age of over forty-five years. He himself stated that he was fifty four. Therefore, the transaction came within the category of those proposals which require at the outset the furnishing by the proponents of proof of their age. Noot Behari Das was required to furnish proof of his age. He produced a horoscope. The horoscope was accepted by the company as being sufficient. Therefore, we may take that the company issued the policy upon the footing that they were insuring the life of a man whose age was fifty four. This is not a case where the proposer says that his age was fifty four and the Company merely accepted that statement at its face value and proceeded to issue a policy on that footing and subsequently, either shortly afterwards or a long time afterwards, admitted the age as stated in the policy in accordance with the provisions of Clause 9 (2) thereof. This was a case where the whole transaction from the very beginning proceeded upon the basis that the company had satisfied themselves that the proposer was of the age of fifty four and then issued the policy accordingly. In my view, therefore, the admission contained in the endorsement at page 3 of the policy is of such a character that the defendants when the policy matured could not be heard to say that the age of the insured was anything different from what he himself had stated it to be in February 1934. It is not necessary that one should apply in terms of the principle of estoppel, because that is merely a rule of evidence. In my view, this matter goes far deeper than that. The question of the age of the deceased was a definite and determining factor in the transaction from the very outset.
23. It is not a case where the company had further enquired into the matter in regard to the question as to whether the proposer was operated upon or not”.
(b) In Satwant Kaur Sandhu case, the Apex Court has observed, inter alia, as under:
“12. … … … … … …Thus, it needs little emphasis that when an information on a specific aspect is asked for in the proposal form, an assured is under a solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge. It is not for the proposer to determine whether the information sought for his material for the purpose of the policy or not. Of course, obligation to disclose extends only to facts which are known to the applicant and not to what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment. (See Joel v Law Union and Crown Ins. Co.)
13. In United India Insurance Co. Ltd. v M. K. J. Corporation, this Court has observed that it is a fundamental principle of insurance law that utmost faith must be observed by the contracting parties. Good faith forbids either party from non-disclosure of the facts which the party privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. (Also see: Modern Insulators Ltd. v Oriental Insurance Co. Ltd.)
14. MacGillivray on Insurance Law (Tenth Edition) has summarized the assured’s duty to disclose as under:
“… … the assured must disclose to the insurer all facts material to an insurer’s appraisal of the risk which are known or deemed to be known by the assured but neither known or deemed to be known by the insurer. Breach of this duty by the assured entitles the insurer to avoid the contract of insurance so long as he can show that the non-disclosure induced the making of the contract on the relevant terms.”
15. Over three centuries ago, in Carter v Boehm, Lord Mansfield had succinctly summarized the principles necessitating a duty of disclosure by the assured, in the following words:
“Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only; the underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstances in his knowledge to mislead the underwriter into a belief that the circumstances does not exist. The keeping back such circumstances is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void; because the risqué run is really different from the risqué understood and intended to be run at the time of the agreement… ... The policy would be equally void against the underwriter, if he concealed… ...Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.”
17. The term “material fact” is not defined in the Act and, therefore, it has been understood and explained by the Courts in general terms to mean as to any fact which 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”.
18. As stated in Pollock and Mulla’s Indian Contract and Specific Relief Acts ‘any fact the knowledge or ignorance of which would materially influence an insurer in making the contract or in estimating the degree and character of risks in fixing the rate of premium is a material fact.’
19. In this regard, it would be apposite to make a reference to Regulation 2 (1) (d) of the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002, which explains the meaning of term “material”. The Regulation reads thus:
“2. Definitions – In these regulations, unless the context otherwise requires –
(a) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(b) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(c) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(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, essential and relevant information in the context of underwriting the risk to be covered by the insurer.
Thus, the Regulation also defines the word “material” to mean and include all “important”, “essential” and “relevant” information in the context of guiding the insurer to decide whether to undertake the risk or not.
20. The upshot of the entire discussion is that in a Contract of Insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a Contract of Insurance.”
[Emphasis supplied]
12 (i) Fuller reading of the Apex Court’s observations, particularly those in para. 20 of the order in the Satwant KaurSandhu’s case would leave no doubt that in not disclosing the facts of his March 1994 accident and subsequent in-patient treatment to the Insurance Company at the time of furnishing the details of personal history and also to the Medical Examiner for the third insurance policy obtained in February 1995, the deceased Narasingha Patro was guilty of knowingly withholding correct information about the status of his health. Hence the Insurer was within its rights to repudiate the insurance claim of his nominee subsequent to his death, even though the cause of the death had no medical nexus with the accident that he suffered or the consequential disability. In fact, the latter (i.e., presence or absence of any nexus between pre-insurance status of health of the life-to-be-assured and the cause/s of his post-insurance death) is of no consequence insofar as the observance of the duty of disclosure of all material facts while/before seeking an insurance coverage is concerned.
12 (ii) As a result, the revision petition is allowed and the orders of the Fora below are set aside, leaving the parties to bear their own costs.
Sd/-
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[Anupam Dasgupta]
Sd/-
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[Suresh Chandra]
