1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 4261 of 2019
(Arising out of SLP (C) No 14312 of 2015)
Reliance Life Insurance Co Ltd & Anr .... Appellants
Versus
Rekhaben Nareshbhai Rathod ....Respondent
J U D G M E N T
Dr Dhananjaya Y Chandrachud, J
1 Leave granted.
2 This appeal is from a decision of the National Consumer Disputes Redressal
Commission1
dated 20 February 2015. The State Consumer Disputes Redressal
Commission2
at Ahmedabad allowed an appeal of the insured – respondent and
sustained a claim under a policy of life insurance. This decision has been upheld in
revision by the NCDRC. The insurer is hence in appeal.
3 On 10 July 2009, the spouse of the respondent took a policy of life insurance
from Max New York Life Insurance Co Ltd, for a sum of Rs 11 lakhs. Barely two
months thereafter, on 16 September 2009 he submitted a proposal for a life insurance
1
―NCDRC‖
2
―SCDRC‖
2
term plan policy of the appellant for an insurance cover of Rs 10 lakhs. Among the
questions that the proposer was required to answer in the proposal form was whether
he was currently insured or had previously applied for life insurance cover, critical
illness cover or accident benefit cover. This query was answered in the negative. Item
17 of the proposal form required a disclosure of:
―DETAILS OF LIFE INSURANCE POLICIES
HELD/PROPOSALS APPLIED WITH LIFE INSURANCE
COMPANIES (INCLUDING EXISTING POLICIES WITH
RELIANCE LIFE INSURANCE COMPANY LTD.)‖
The information which was required to be furnished under the above head included: (i)
name of the life to be assured/proposer; (ii) name of company; (iii) contract/proposal
number; (iv) basic sum assured; (v) sum assured under rider; and (vi) year of
commencement. The proposer was also required to furnish details in regard to the
present status and terms of acceptance and to fill up one of the accompanying boxes
namely: (i) declined; (ii) postponed; (iii) rated up; (iv) rejected; (v) in force; (vi) lapsed;
and (vii) applied.
4 The proposer answered the query as to whether he was currently insured for a
cover of life insurance, critical illness or accident benefit in the negative. On the details
of other insurance covers held by him, the proposer had indicated ―NA‖ or a ―not
applicable‖ response. The declaration which was required to be furnished by the
proposer with the proposal form was in the following terms:
―I understand and agree that the statements in this proposal
form shall be the basis of the contract between me and
Reliance Life Insurance Company Limited (―the Company‖)
and that if any statements made by me are untrue or
inaccurate or if any of the matter material to this proposal is
not disclosed by me then the Company may cancel the
contract and all the premiums paid, will be forfeited.‖
3
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 Rs 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 Rs 11 lakhs and that the claim had been settled. The
appellant repudiated the respondent’s claim on 30 August 2011 stating thus:
―In the light of suppression of material fact, where glaring
omission to answer especially the question no (17) relating to
details of the life insurance policies held by the life assured,
we are constrained to repudiate the claim under the policy in
terms of Section 45 of the Insurance Act 1938.‖
6 On 24 February 2012 the respondent addressed a legal notice alleging a
deficiency in service and then moved a consumer complaint before the District
Consumer Disputes Redressal Forum, Bhavnagar3
. The appellant contested the
claim.
7 On 31 August 2013, the District Forum dismissed the complaint inter alia, on
the ground that there was a non-disclosure of the fact that the insured had held a
previous policy in the proposal form filled up by the proposer. The appeal filed by the
respondents was, however, allowed by the SCDRC on 28 November 2014 relying on
3
―District Forum‖
4
a decision of the NCDRC in Sahara India Life Insurance Company Limited v
Rayani Ramanjaneyulu4
. This decision of the SCDRC was affirmed by the NCDRC
on 6 February 2015, for the reason that the omission of the insured to disclose a
previous policy of insurance would not influence the mind of a prudent insurer as held
in Sahara India (supra).
8 On 14 May 2015, this Court while issuing a notice, stayed the execution of the
decision of the NCDRC, subject to the appellant depositing 50 percent of the decretal
amount before the District Forum. The respondent was permitted to withdraw the
amount on deposit. Pursuant to the interim order of 1 June 2015, the appellant
handed over a demand draft in the amount of Rs 16,18,987 drawn on the State Bank
of India to the respondent, which has been encashed.
9 Learned counsel appearing on behalf of the appellant submits that:
(i) In spite of the specific disclosures required in item 17 of the proposal form, the
proposer suppressed the fact that he had an existing policy of insurance. In
answering the query in the negative the proposer submitted ex facie false information.
This was in breach of the bounden duty of the proposer to furnish full and complete
details in response to the queries contained in the proposal form;
(ii) The commencement date of the policy being 22 September 2009, the claim in
the present case was repudiated within two years, on 30 August 2011, due to the nondisclosure 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
4
III (2014) CPJ 582
5
policy or any claim arising from it under Sections 17 and 19 of the Contract Act 1872
(Mithoolal Nayak v LIC5
);
(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 Ltd6
);
(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 life insurance cover of the proposer is necessary to
enable the insurer to assess the human life value of the proposer before the issuance
of a policy. The consequence of non-disclosure of a pre-existing cover is that the
insurer is unable to assess the real risk. This is an important facet of financial underwriting;
(vi) Section 45 modifies the common law where a life insurance policy is repudiated
due to a misstatement or suppression of facts after two years have expired from the
date of commencement of the policy. A repudiation within two years is not governed
by Section 45 (Sheoshankar Ratanlalji Khamele v Life Insurance Corporation of
India7
);
5
1962 Suppl (2) SCR 531
6
(2009) 8 SCC 316
7
AIR 1971 Bom 304
6
(vii) The judgment of the NCDRC is contrary to the law laid down by this Court in
Satwant Kaur Sandhu (supra) and the earlier decisions of the NCDRC itself (LIC of
India v Vidya Devi8
and Dineshbhai Chandarana v LIC9
);
(viii) In Sahara India (supra) which was relied upon by the NCDRC, the earlier
decision in Vidya Devi (supra) which in turn had followed Chandarana (supra) was
noticed but erroneously not followed. Vidya Devi and Chandarana specifically, dealt
with non-disclosure of the previous policies by the insurer in the proposal form and
upheld the repudiation of the claim by the insurer;
(ix) In Vidya Devi, the NCDRC rejected the argument that the suppression of a
previous policy was not material since the insured was an illiterate person had affixed
a signature on blank papers; and
(x) In Condogianis v Guardian Assurance Company Ltd10, the Privy Council
has held that even a partial non-disclosure or ambiguous disclosure regarding the
previous policies in the proposal form vitiates the policy, which is thus liable to be
rescinded.
On the above grounds, a challenge has been addressed to the judgment of the
NCDRC.
10 On the other hand, learned counsel appearing on behalf of the respondent
supported the decision appealed against, urging that:
(i) The insurance agent induced the insured to take a policy of life insurance by
taking his signature on a blank proposal form together with the premium in cash. The
insured was not conversant with English and it was the duty of the insurer to translate
8
(2012) 3 CPJ 288 (NC)
9
(2010) 3 CPJ 358 (NC)
10 AIR 1921 PC 195
7
the proposal form into Gujarati. The proposal form was either filled in by the
appellants 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 premium;
and
(v) A Special Leave Petition [SLP (C) No 130740 of 2014] against the decision of
the NCDRC in Sahara India (supra) has been dismissed.
On the above grounds, learned counsel appearing on behalf of the respondent
supported the view of the NCDRC.
11 While considering the rival submissions, it is necessary to preface our analysis
with reference to two basic facts. The first pertains to the nature of the disclosure
made by the insured in the proposal form. The second relates to the ground for
repudiation of the claim. The proposal form required a specific disclosure of the life
8
insurance policies held by the proposer and all proposals submitted to life insurance
companies, including the appellant. The proposer was called upon to furnish a full
disclosure of covers for life insurance, critical illness or accident benefit under which
the proposer was currently insured or for which the proposer had applied. The
answer to this was given in the negative. Furthermore, item 17 of the proposal form
required a detailed disclosure of the other insurance policies held by the proposer
including the sum assured. A disclosure was also required of the status of pending
proposals. These were answered with a ―not applicable‖ response, following the
statement that the proposer did not hold any other insurance cover. The fact that two
months prior to the policy which was obtained from the appellant on 16 September
2009, the insured had obtained a policy from Max New York Life Insurance Co Ltd in
the amount of Rs 11 lakhs has now been admitted. There was evidently a nondisclosure of the earlier cover for life insurance held by the insured.
The second aspect of the case which merits to be noticed is that the repudiation of the
claim on 30 August 2011 was on the ground that there was a non-disclosure of a
material fact on the part of the insured in not disclosing that he held a prior insurance
cover. The insurer stated that if this was to be disclosed in the proposal form, it would
have called for and evaluated financial income documents together with the terms for
the acceptance of the cover. Though the insurer has subsequently, during the
pendency of the proceedings made an effort to sustain its repudiation on the ground
that the insured had a pre-existing illness which was not disclosed, it is necessary to
record that this was not pressed in aid during the hearing before this Court.
9
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 to disclose.
Provided that nothing in this section shall prevent the insurer
from calling for proof of age at any time if he is entitled to do
so, and no policy shall be deemed to be called in question
merely because the terms of the policy are adjusted on
subsequent proof that the age of the life insured was
incorrectly stated in the proposal‖.
13 Section 45 stipulates restrictions upon the insurer calling into question a policy
of life insurance after the expiry of two years from the date on which it was effected11
.
After two years have elapsed the insurer cannot call it into question on the ground
that: (i) a statement made in the proposal; or (ii) a statement made in any report of a
medical officer, referee or friend of the insured; or (iii) a statement made in any other
document leading to the issuance of the policy was inaccurate or false, unless certain
conditions are fulfilled. Those conditions are that : (a) such a statement was on a
material matter; or (b) the statement suppressed facts which were material to disclose
and that (i) they were fraudulently made by the policy holder; and (ii) the policy holder
knew at the time of making it that the statements were false or suppressed facts which
11 There is a similar restriction in the case of policies effected before the commencement of the Insurance Act 1932
after the expiry of two years from the date of the commencement of the Act, which is not material for the present case.
10
were material to disclose. The cumulative effect of Section 45 is to restrict the right of
the insurer to repudiate a policy of life insurance after a period of two years of the date
on which the policy was effected. Beyond two years, the burden lies on the insurer to
establish the inaccuracy or falsity of a statement on a material matter or the
suppression of material facts. Moreover, in addition to this requirement, the insurer
has to establish that this non-disclosure or, as the case may be, the submission of
inaccurate or false information was fraudulently made and that the policy holder while
making it knew of the falsity of the statement or of the suppression of facts which were
material to disclose.
14 Section 45 curtails the common law rights of the insurer after two years have
elapsed since the cover for life insurance was effected. In the present case, the Court
is called upon to determine 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 nondisclosure 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
11
the insured. This principle has been formulated in MacGillivray on Insurance Law12
succinctly, thus:
―[Subject to certain qualifications considered below], 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…‖
The relationship between an insurer and the insured is recognized as one where
mutual obligations of trust and good faith are paramount.
16 In Condogianis (supra), the Privy Council dealt with an appeal by Special
Leave from a judgment of the High Court of Australia. The appellant had claimed a
declaration under a policy of insurance that the insurer was liable to pay him for a loss
sustained as a consequence of a fire. In response to the requirement of disclosing
whether the proponent had ever been a claimant of a fire insurance company in
respect of the property proposed or any other property, the insurer had disclosed one
claim which had been made in the past but omitted to disclose another, in respect of
the burning of a motor car. The terms of the declaration were as follows:
―5. This proposal is the basis of the contract and is to be
taken as part of the policy and (if accepted) the particulars are
to be deemed express and continuing warranties furnished by
or on behalf of the proponent; and any questions remaining
unanswered will be deemed to be replied to in the negative.
The proposal is made subject to the Company's conditions as
printed any/or written in the policy to be issued hereon, and
which are hereby accepted by the proponent.‖
Lord Justice Shaw, speaking for the Privy Council held:
12 Twelfth Edition, Sweet and Maxwell (2012)
12
―6. The case accordingly is one of express warranty: If in
point of fact the answer is untrue, the warranty still holds,
notwithstanding that the untruth might have arisen
inadvertently and without any kind of fraud. Secondly, the
materiality of the untruth is not in issue; the parties having
settled for themselves—by making the fact the basis of the
contract, and giving a warranty—that as between them their
agreement on that subject precluded all inquiry into the issue
of materiality. In the language of Lord Eldon in Newcastle Fire
Insurance Co. v. Macmorran [(1815) 3 Dow. 255.] .
―It is a first principle in the law of insurance, on all occasions,
that 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 Society13 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 High Court noted:
―The law with respect to insurance previously was that any
mis-statement on the part of the assured while making the
proposal or at any stage thereafter avoided the contract of
policy and the insurer was not liable for the claim on such
policy. In Condogianis v. G. Assurance Co., Ltd. [[1921] A.I.R.
P.C. 195.], their Lordships pointed out that if in point of fact
the answer is untrue, the warranty still holds, notwithstanding
that the untruth might have arisen inadvertently and without
any kind of fraud. Secondly, the materiality of the untruth is
not in issue; the parties having settled for themselves—by
making the fact the basis of contract and giving warranty—
that as between them their agreement on that subject
precluded all inquiry into the issue of materiality…‖
13 AIR 1932 Bom 582. Also see Great Eastern Life Assurance Company Limited v Bai Hira - 1930 ILR Vol.LV
124
13
The High Court observed that the law of insurance had, however, undergone a
material change by the enactment of Section 45 of the Insurance Act 1938. Explaining
the provisions of Section 45 the High Court held:
―… The section is divided into two parts. Under the first part, if
the insurer calls in question the policy within a period of two
years from the date on which it was effected, then the insurer
company has only to show that a statement made in the
proposal for insurance, 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.
Even an incorrect statement which may not be on a material
fact and suppression of fact which may not be on a material
point, would be enough for the insurer company to avoid the
contract of policy under this part. Under the second part,
where a period of two years expired after the date of policy
was effected without any challenge to it by the insurer, the
insurer could call it in question only on showing that such
statement by the insured 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 to
disclose. The question as to the date on which the policy
could be said to be effected and the date on which the
proposal can be said to have been accepted assumes
importance in this case as on the determination 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
14
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 applied in
the present case, we are relieved of the task of examining the
legal position that would follow as a result of inaccurate
statements made by the insured in the proposal form or the
personal statement etc. in a case where Section 45 does not
apply and where the averments made in the proposal form
and in the proposal statement are made the basis of the
contract.‖
Mithoolal (supra) was a case involving a repudiation beyond two years, where
Section 45 was applicable. The present case involves a repudiation within two years.
The question which was left open in Mithoolal has squarely arisen.
20 In Life Insurance Corporation of India v Smt GM Channabasamma14, a two
Judge Bench of this Court held:
―7. … It is well settled that a contract of insurance is
contract uberrima fides and there must be complete good
faith on the part of the assured. The assured is thus under a
solemn obligation to make full disclosure of material facts
which may be relevant for the insurer to take into account
while deciding whether the proposal should be accepted or
not. While making a disclosure of the relevant facts, the duty
of the insured to state them correctly cannot be diluted.
Section 45 of the Act has made special provisions for a life
insurance policy if it is called in question by the insurer after
the expiry of two years from the date on which it was effected.
Having regard to the facts of the present case, learned
counsel for the parties have rightly stated that this distinction
is not material in the present appeal. If the allegations of fact
made on behalf of the appellant Company are found to be
correct, all the three conditions mentioned in the section and
discussed in Mithoolal Nayak v. Life Insurance Corporation of
India [1962 Supp 2 SCR 571 : AIR 1962 SC 814 : (1962) 32
Comp Cas 177] must be held to have been satisfied...‖
14 (1991) 1 SCC 357
15
21 The decision of this Court in Life Insurance Corpn of India v Asha Goel
(Smt)15 considered a situation in which a claim under a life insurance policy was
repudiated on the ground that the insured suppressed facts pertaining to the condition
of health. The Single Judge of the High Court held that a writ petition under Article 226
could be maintained against the Life Insurance Corporation and that the insurer had
failed to discharge its burden under Section 45 of the Insurance 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 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.‖
22 In Satwant Kaur (supra) this Court considered a case which arose from a
decision of the NCDRC. The insurer had repudiated a claim under a health insurance
15 (2001) 2 SCC 160
16
policy on the ground that the policy holder was suffering from chronic diabetes and
renal failure. This, according to the insurer, was a material fact a non-disclosure of
which in the proposal form justified repudiation of the claim. Section 45, which applies
to policies of life insurance, was not applicable since the case related to a mediclaim
policy. Justice DK Jain, speaking for the Bench of two learned Judges, held:
―18. A mediclaim policy is a non-life insurance policy meant to
assure the policy-holder in respect of certain expenses
pertaining to injury, accidents or hospitalisations.
Nonetheless, it is a contract of insurance falling in the
category of contract uberrima fidei, meaning a contract of
utmost good faith on the part of the assured. 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 is material for the purpose of the
policy or not. Of course, the 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 &
Crown Insurance Co. [(1908) 2 KB 863 (CA)] )‖
(Emphasis supplied)
In taking this view, the Court relied upon the earlier decisions in United India
Insurance Co Ltd v MKJ Corporation16 and Modern Insulators Ltd v Oriental
Insurance Co Ltd17. Adverting to the expression ―material fact‖ this Court explained it
as:
―22. … 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‖.
In a situation which was not governed by Section 45, this Court applied the
fundamental tenet of insurance law namely, utmost good faith.
16 (1996) 6 SCC 428
17 (2000) 2 SCC 734
17
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, essential and relevant
information in the context of underwriting the risk to be
covered by the insurer.‖
Regulation 4, deals with proposals for insurance and is in the following terms:
―4. Proposal for insurance
(1) Except in cases of a marine insurance cover, where
current market practices do not insist on a written proposal
form, in all cases, a proposal for grant of a cover, either for
life business or for general business, must be evidenced by a
written document. It is the duty of an insurer to furnish to the
insured free of charge, within 30 days of the acceptance of a
proposal, a copy of the proposal form.
(2) Forms and documents used in the grant of cover may,
depending upon the circumstances of each case, be made
available in languages recognised under the Constitution of
India.
(3) In filling the form of proposal, the prospect is to be guided
by the provisions of Section 45 of the Act. Any proposal form
seeking information for grant of life cover may prominently
state therein the requirements of Section 45 of the Act.
(4) Where a proposal form is not used, the insurer shall
record the information obtained orally or in writing, and
confirm it within a period of 15 days thereof with the proposer
and incorporate the information in its cover note or policy. The
onus of proof shall rest with the insurer in respect of any
information not so recorded, where the insurer claims that the
proposer suppressed any material information or provided
misleading or false information on any matter material to the
grant of a cover.‖
18
24 Regulation 2(d) specifically defines the expression ―proposal form‖ as a form
which is filled by a proposer for insurance to furnish all material information required
by the insurer in respect of a risk. The purpose of the disclosure is to enable the
insurer to decide whether to accept or decline to undertake a risk. The disclosures are
also intended to enable the insurer, in the event that the risk is accepted, to determine
the rates, terms and conditions on which a cover is to be granted. The explanation
defines the expression ―material‖ to mean and include ―all important essential and
relevant information‖ for underwriting the risk to be covered by the insurer. Regulation
4(3) stipulates that while filling up the proposal, the proposer is to be guided by the
provisions 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
Law18 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
assured believed it so ...‖
18 Twelfth Edition, Sweet and Maxwell (2012). See Pg. 493 for cases relied upon.
19
Materiality from the insured’s perspective is a relevant factor in determining whether
the insurance company should be able to cancel the policy arising out of the fault of
the insured. Whether a question concealed is or is it not material is a question of fact.
As this Court held in Satwant Kaur (supra):
―Any fact which goes to the root of the contract of insurance
and has a bearing on the risk involved would be ―material‖.‖
Materiality of a fact also depends on the surrounding circumstances and the nature of
information sought by the insurer. It covers a failure to disclose vital information which
the insurer requires in order to determine firstly, whether or not to assume the risk of
insurance, and secondly, if it does accept the risk, upon what terms it should do so.
The insurer is better equipped to determine the limits of risk-taking as it deals with the
exercise of assessments on a day-to-day basis. In a contract of insurance, any fact
which would influence the mind of a prudent insurer in deciding whether to accept or
not accept the risk is a material fact. If the proposer has knowledge of such fact, she
or he is obliged to disclose it particularly while answering questions in the proposal
form. An inaccurate answer will entitle the insurer to repudiate because there is a
presumption that information sought in the proposal form is material for the purpose
of entering into a contract of insurance.
26 Contracts of insurance are governed by the principle of utmost good faith. The
duty of mutual fair dealing requires all parties to a contract to be fair and open with
each other to create and maintain trust between them. In a contract of insurance, the
insured can be expected to have information of which she/he has knowledge. This
justifies a duty of good faith, leading to a positive duty of disclosure. The duty of
20
disclosure in insurance contracts was established in a King’s Bench decision in Carter
v Boehm19, where Lord Mansfield held thus:
―Insurance is a contract upon speculation. The special facts,
upon which the contingent chance is to be computed, lie most
commonly in the knowledge of the insured only; the underwriter trusts to his representation, and proceeds upon
confidence that he does not keep back any circumstance in
his knowledge, to mislead the under-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 allows the parties to serve their interests better and
understand the true extent of the contractual agreement.
The finding of a material misrepresentation or concealment in insurance has a
significant effect upon both the insured and the insurer in the event of a dispute. The
fact it would influence the decision of a prudent insurer in deciding as to whether or
not to accept a risk is a material fact. As this Court held in Satwant Kaur (supra)
19 (1766) 3 Burr 1905
21
―there is a clear presumption that any information sought for in the proposal form is
material for the purpose of entering into a contract of insurance‖. Each representation
or statement may be material to the risk. The insurance company may still offer
insurance protection on altered terms.
27 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.
28 Learned counsel appearing on behalf of the insurer submitted that where a
warranty has been furnished by the proposer in terms of a declaration in the proposal
form, the requirement of the information being material should not be insisted upon
and the insurer would be at liberty to avoid its liability irrespective of whether the
information which is sought is material or otherwise. For the purposes of the present
case, it is sufficient for this Court to hold in the present facts that the information which
was sought by the insurer was indeed material to its decision as to whether or not to
undertake a risk. The proposer was aware of the fact, while making a declaration, that
if any statements were untrue or inaccurate or if any matter material to the proposal
22
was not disclosed, the insurer may cancel the contract and forfeit the premium.
MacGillivray on Insurance Law20 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
for his life in the sum of Rs 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.
30 We may note at this stage, that the view which was taken by the NCDRC in the
present case was contrary to its earlier decision in Vidya Devi (supra). In that case,
the NCDRC upheld the repudiation of an insurance claim under a life insurance cover
by the LIC on the ground of a non-disclosure of previous insurance policies. In taking
this view, the NCDRC relied on its earlier decision in Chandarana (supra).
Subsequently in Sahara India (supra), the NCDRC took a contrary view. Having
noticed its earlier decisions, the NCDRC did not even attempt to distinguish them.
20 Twelfth Edition, Sweet and Maxwell (2012). See Pg. 257 for cases relied upon.
23
Indeed, the earlier decisions were binding on the NCDRC. This line of approach on
the part of the NCDRC must be disapproved.
31 Finally, the argument of the respondent that the signatures of the assured on the
form were taken without explaining the details cannot be accepted. A similar argument
was correctly rejected in a decision of a Division Bench of the Mysore High Court in VK
Srinivasa Setty v Messers Premier Life and General Insurance Co Ltd21 where it
was held:
― Now it is clear that a person who affixes his signature to a
proposal which contains a statement which is not true, cannot
ordinarily escape from the consequence arising therefrom by
pleading that he chose to sign the proposal containing such
statement without either reading or understanding it. That is
because, in filling up the proposal form, the agent normally,
ceases to act as agent of the insurer but becomes the agent
of the insured and no agent can be assumed to have
authority from the insurer to write the answers in the proposal
form.
If an agent nevertheless does that, he becomes merely the
amanuensis of the insured, and his knowledge of the untruth
or inaccuracy of any statement contained in the form of
proposal does not become the knowledge of the insurer.
Further, apart from any question of imputed knowledge, the
insured by signing that proposal adopts those answers and
makes them his own and that would clearly be so, whether
the insured signed the proposal without reading or
understanding it, it being irrelevant to consider how the
inaccuracy arose if he has contracted, as the plaintiff has
done in this case that his written answers shall be accurate.‖
32 For the reasons which we have adduced, we are of the view that 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. We, accordingly, allow the appeal
and set aside the impugned judgment and order of the NCDRC dated 20 February
2015. The consumer complaint filed by the respondent shall stand dismissed.
21 AIR 1958 Mys 53
24
33 By the interim order of this Court dated 14 May 2015, the respondent was
permitted to withdraw 50 per cent of the decretal amount, unconditionally. Since the
respondent has done so, we are of the view that the ends of justice would require a
direction by this Court under Article 142 of the Constitution that the amount which has
been withdrawn by the respondent shall not be recovered. We order accordingly.
Subject to the aforesaid direction, the appeal shall stand allowed. There will be no
order as to costs.
…………...…...….......………………........J.
[Dr Dhananjaya Y Chandrachud]
…..…..…....…........……………….…........J.
[Hemant Gupta]
New Delhi;
April 24, 2019
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 4261 of 2019
(Arising out of SLP (C) No 14312 of 2015)
Reliance Life Insurance Co Ltd & Anr .... Appellants
Versus
Rekhaben Nareshbhai Rathod ....Respondent
J U D G M E N T
Dr Dhananjaya Y Chandrachud, J
1 Leave granted.
2 This appeal is from a decision of the National Consumer Disputes Redressal
Commission1
dated 20 February 2015. The State Consumer Disputes Redressal
Commission2
at Ahmedabad allowed an appeal of the insured – respondent and
sustained a claim under a policy of life insurance. This decision has been upheld in
revision by the NCDRC. The insurer is hence in appeal.
3 On 10 July 2009, the spouse of the respondent took a policy of life insurance
from Max New York Life Insurance Co Ltd, for a sum of Rs 11 lakhs. Barely two
months thereafter, on 16 September 2009 he submitted a proposal for a life insurance
1
―NCDRC‖
2
―SCDRC‖
2
term plan policy of the appellant for an insurance cover of Rs 10 lakhs. Among the
questions that the proposer was required to answer in the proposal form was whether
he was currently insured or had previously applied for life insurance cover, critical
illness cover or accident benefit cover. This query was answered in the negative. Item
17 of the proposal form required a disclosure of:
―DETAILS OF LIFE INSURANCE POLICIES
HELD/PROPOSALS APPLIED WITH LIFE INSURANCE
COMPANIES (INCLUDING EXISTING POLICIES WITH
RELIANCE LIFE INSURANCE COMPANY LTD.)‖
The information which was required to be furnished under the above head included: (i)
name of the life to be assured/proposer; (ii) name of company; (iii) contract/proposal
number; (iv) basic sum assured; (v) sum assured under rider; and (vi) year of
commencement. The proposer was also required to furnish details in regard to the
present status and terms of acceptance and to fill up one of the accompanying boxes
namely: (i) declined; (ii) postponed; (iii) rated up; (iv) rejected; (v) in force; (vi) lapsed;
and (vii) applied.
4 The proposer answered the query as to whether he was currently insured for a
cover of life insurance, critical illness or accident benefit in the negative. On the details
of other insurance covers held by him, the proposer had indicated ―NA‖ or a ―not
applicable‖ response. The declaration which was required to be furnished by the
proposer with the proposal form was in the following terms:
―I understand and agree that the statements in this proposal
form shall be the basis of the contract between me and
Reliance Life Insurance Company Limited (―the Company‖)
and that if any statements made by me are untrue or
inaccurate or if any of the matter material to this proposal is
not disclosed by me then the Company may cancel the
contract and all the premiums paid, will be forfeited.‖
3
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 Rs 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 Rs 11 lakhs and that the claim had been settled. The
appellant repudiated the respondent’s claim on 30 August 2011 stating thus:
―In the light of suppression of material fact, where glaring
omission to answer especially the question no (17) relating to
details of the life insurance policies held by the life assured,
we are constrained to repudiate the claim under the policy in
terms of Section 45 of the Insurance Act 1938.‖
6 On 24 February 2012 the respondent addressed a legal notice alleging a
deficiency in service and then moved a consumer complaint before the District
Consumer Disputes Redressal Forum, Bhavnagar3
. The appellant contested the
claim.
7 On 31 August 2013, the District Forum dismissed the complaint inter alia, on
the ground that there was a non-disclosure of the fact that the insured had held a
previous policy in the proposal form filled up by the proposer. The appeal filed by the
respondents was, however, allowed by the SCDRC on 28 November 2014 relying on
3
―District Forum‖
4
a decision of the NCDRC in Sahara India Life Insurance Company Limited v
Rayani Ramanjaneyulu4
. This decision of the SCDRC was affirmed by the NCDRC
on 6 February 2015, for the reason that the omission of the insured to disclose a
previous policy of insurance would not influence the mind of a prudent insurer as held
in Sahara India (supra).
8 On 14 May 2015, this Court while issuing a notice, stayed the execution of the
decision of the NCDRC, subject to the appellant depositing 50 percent of the decretal
amount before the District Forum. The respondent was permitted to withdraw the
amount on deposit. Pursuant to the interim order of 1 June 2015, the appellant
handed over a demand draft in the amount of Rs 16,18,987 drawn on the State Bank
of India to the respondent, which has been encashed.
9 Learned counsel appearing on behalf of the appellant submits that:
(i) In spite of the specific disclosures required in item 17 of the proposal form, the
proposer suppressed the fact that he had an existing policy of insurance. In
answering the query in the negative the proposer submitted ex facie false information.
This was in breach of the bounden duty of the proposer to furnish full and complete
details in response to the queries contained in the proposal form;
(ii) The commencement date of the policy being 22 September 2009, the claim in
the present case was repudiated within two years, on 30 August 2011, due to the nondisclosure 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
4
III (2014) CPJ 582
5
policy or any claim arising from it under Sections 17 and 19 of the Contract Act 1872
(Mithoolal Nayak v LIC5
);
(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 Ltd6
);
(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 life insurance cover of the proposer is necessary to
enable the insurer to assess the human life value of the proposer before the issuance
of a policy. The consequence of non-disclosure of a pre-existing cover is that the
insurer is unable to assess the real risk. This is an important facet of financial underwriting;
(vi) Section 45 modifies the common law where a life insurance policy is repudiated
due to a misstatement or suppression of facts after two years have expired from the
date of commencement of the policy. A repudiation within two years is not governed
by Section 45 (Sheoshankar Ratanlalji Khamele v Life Insurance Corporation of
India7
);
5
1962 Suppl (2) SCR 531
6
(2009) 8 SCC 316
7
AIR 1971 Bom 304
6
(vii) The judgment of the NCDRC is contrary to the law laid down by this Court in
Satwant Kaur Sandhu (supra) and the earlier decisions of the NCDRC itself (LIC of
India v Vidya Devi8
and Dineshbhai Chandarana v LIC9
);
(viii) In Sahara India (supra) which was relied upon by the NCDRC, the earlier
decision in Vidya Devi (supra) which in turn had followed Chandarana (supra) was
noticed but erroneously not followed. Vidya Devi and Chandarana specifically, dealt
with non-disclosure of the previous policies by the insurer in the proposal form and
upheld the repudiation of the claim by the insurer;
(ix) In Vidya Devi, the NCDRC rejected the argument that the suppression of a
previous policy was not material since the insured was an illiterate person had affixed
a signature on blank papers; and
(x) In Condogianis v Guardian Assurance Company Ltd10, the Privy Council
has held that even a partial non-disclosure or ambiguous disclosure regarding the
previous policies in the proposal form vitiates the policy, which is thus liable to be
rescinded.
On the above grounds, a challenge has been addressed to the judgment of the
NCDRC.
10 On the other hand, learned counsel appearing on behalf of the respondent
supported the decision appealed against, urging that:
(i) The insurance agent induced the insured to take a policy of life insurance by
taking his signature on a blank proposal form together with the premium in cash. The
insured was not conversant with English and it was the duty of the insurer to translate
8
(2012) 3 CPJ 288 (NC)
9
(2010) 3 CPJ 358 (NC)
10 AIR 1921 PC 195
7
the proposal form into Gujarati. The proposal form was either filled in by the
appellants 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 premium;
and
(v) A Special Leave Petition [SLP (C) No 130740 of 2014] against the decision of
the NCDRC in Sahara India (supra) has been dismissed.
On the above grounds, learned counsel appearing on behalf of the respondent
supported the view of the NCDRC.
11 While considering the rival submissions, it is necessary to preface our analysis
with reference to two basic facts. The first pertains to the nature of the disclosure
made by the insured in the proposal form. The second relates to the ground for
repudiation of the claim. The proposal form required a specific disclosure of the life
8
insurance policies held by the proposer and all proposals submitted to life insurance
companies, including the appellant. The proposer was called upon to furnish a full
disclosure of covers for life insurance, critical illness or accident benefit under which
the proposer was currently insured or for which the proposer had applied. The
answer to this was given in the negative. Furthermore, item 17 of the proposal form
required a detailed disclosure of the other insurance policies held by the proposer
including the sum assured. A disclosure was also required of the status of pending
proposals. These were answered with a ―not applicable‖ response, following the
statement that the proposer did not hold any other insurance cover. The fact that two
months prior to the policy which was obtained from the appellant on 16 September
2009, the insured had obtained a policy from Max New York Life Insurance Co Ltd in
the amount of Rs 11 lakhs has now been admitted. There was evidently a nondisclosure of the earlier cover for life insurance held by the insured.
The second aspect of the case which merits to be noticed is that the repudiation of the
claim on 30 August 2011 was on the ground that there was a non-disclosure of a
material fact on the part of the insured in not disclosing that he held a prior insurance
cover. The insurer stated that if this was to be disclosed in the proposal form, it would
have called for and evaluated financial income documents together with the terms for
the acceptance of the cover. Though the insurer has subsequently, during the
pendency of the proceedings made an effort to sustain its repudiation on the ground
that the insured had a pre-existing illness which was not disclosed, it is necessary to
record that this was not pressed in aid during the hearing before this Court.
9
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 to disclose.
Provided that nothing in this section shall prevent the insurer
from calling for proof of age at any time if he is entitled to do
so, and no policy shall be deemed to be called in question
merely because the terms of the policy are adjusted on
subsequent proof that the age of the life insured was
incorrectly stated in the proposal‖.
13 Section 45 stipulates restrictions upon the insurer calling into question a policy
of life insurance after the expiry of two years from the date on which it was effected11
.
After two years have elapsed the insurer cannot call it into question on the ground
that: (i) a statement made in the proposal; or (ii) a statement made in any report of a
medical officer, referee or friend of the insured; or (iii) a statement made in any other
document leading to the issuance of the policy was inaccurate or false, unless certain
conditions are fulfilled. Those conditions are that : (a) such a statement was on a
material matter; or (b) the statement suppressed facts which were material to disclose
and that (i) they were fraudulently made by the policy holder; and (ii) the policy holder
knew at the time of making it that the statements were false or suppressed facts which
11 There is a similar restriction in the case of policies effected before the commencement of the Insurance Act 1932
after the expiry of two years from the date of the commencement of the Act, which is not material for the present case.
10
were material to disclose. The cumulative effect of Section 45 is to restrict the right of
the insurer to repudiate a policy of life insurance after a period of two years of the date
on which the policy was effected. Beyond two years, the burden lies on the insurer to
establish the inaccuracy or falsity of a statement on a material matter or the
suppression of material facts. Moreover, in addition to this requirement, the insurer
has to establish that this non-disclosure or, as the case may be, the submission of
inaccurate or false information was fraudulently made and that the policy holder while
making it knew of the falsity of the statement or of the suppression of facts which were
material to disclose.
14 Section 45 curtails the common law rights of the insurer after two years have
elapsed since the cover for life insurance was effected. In the present case, the Court
is called upon to determine 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 nondisclosure 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
11
the insured. This principle has been formulated in MacGillivray on Insurance Law12
succinctly, thus:
―[Subject to certain qualifications considered below], 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…‖
The relationship between an insurer and the insured is recognized as one where
mutual obligations of trust and good faith are paramount.
16 In Condogianis (supra), the Privy Council dealt with an appeal by Special
Leave from a judgment of the High Court of Australia. The appellant had claimed a
declaration under a policy of insurance that the insurer was liable to pay him for a loss
sustained as a consequence of a fire. In response to the requirement of disclosing
whether the proponent had ever been a claimant of a fire insurance company in
respect of the property proposed or any other property, the insurer had disclosed one
claim which had been made in the past but omitted to disclose another, in respect of
the burning of a motor car. The terms of the declaration were as follows:
―5. This proposal is the basis of the contract and is to be
taken as part of the policy and (if accepted) the particulars are
to be deemed express and continuing warranties furnished by
or on behalf of the proponent; and any questions remaining
unanswered will be deemed to be replied to in the negative.
The proposal is made subject to the Company's conditions as
printed any/or written in the policy to be issued hereon, and
which are hereby accepted by the proponent.‖
Lord Justice Shaw, speaking for the Privy Council held:
12 Twelfth Edition, Sweet and Maxwell (2012)
12
―6. The case accordingly is one of express warranty: If in
point of fact the answer is untrue, the warranty still holds,
notwithstanding that the untruth might have arisen
inadvertently and without any kind of fraud. Secondly, the
materiality of the untruth is not in issue; the parties having
settled for themselves—by making the fact the basis of the
contract, and giving a warranty—that as between them their
agreement on that subject precluded all inquiry into the issue
of materiality. In the language of Lord Eldon in Newcastle Fire
Insurance Co. v. Macmorran [(1815) 3 Dow. 255.] .
―It is a first principle in the law of insurance, on all occasions,
that 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 Society13 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 High Court noted:
―The law with respect to insurance previously was that any
mis-statement on the part of the assured while making the
proposal or at any stage thereafter avoided the contract of
policy and the insurer was not liable for the claim on such
policy. In Condogianis v. G. Assurance Co., Ltd. [[1921] A.I.R.
P.C. 195.], their Lordships pointed out that if in point of fact
the answer is untrue, the warranty still holds, notwithstanding
that the untruth might have arisen inadvertently and without
any kind of fraud. Secondly, the materiality of the untruth is
not in issue; the parties having settled for themselves—by
making the fact the basis of contract and giving warranty—
that as between them their agreement on that subject
precluded all inquiry into the issue of materiality…‖
13 AIR 1932 Bom 582. Also see Great Eastern Life Assurance Company Limited v Bai Hira - 1930 ILR Vol.LV
124
13
The High Court observed that the law of insurance had, however, undergone a
material change by the enactment of Section 45 of the Insurance Act 1938. Explaining
the provisions of Section 45 the High Court held:
―… The section is divided into two parts. Under the first part, if
the insurer calls in question the policy within a period of two
years from the date on which it was effected, then the insurer
company has only to show that a statement made in the
proposal for insurance, 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.
Even an incorrect statement which may not be on a material
fact and suppression of fact which may not be on a material
point, would be enough for the insurer company to avoid the
contract of policy under this part. Under the second part,
where a period of two years expired after the date of policy
was effected without any challenge to it by the insurer, the
insurer could call it in question only on showing that such
statement by the insured 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 to
disclose. The question as to the date on which the policy
could be said to be effected and the date on which the
proposal can be said to have been accepted assumes
importance in this case as on the determination 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
14
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 applied in
the present case, we are relieved of the task of examining the
legal position that would follow as a result of inaccurate
statements made by the insured in the proposal form or the
personal statement etc. in a case where Section 45 does not
apply and where the averments made in the proposal form
and in the proposal statement are made the basis of the
contract.‖
Mithoolal (supra) was a case involving a repudiation beyond two years, where
Section 45 was applicable. The present case involves a repudiation within two years.
The question which was left open in Mithoolal has squarely arisen.
20 In Life Insurance Corporation of India v Smt GM Channabasamma14, a two
Judge Bench of this Court held:
―7. … It is well settled that a contract of insurance is
contract uberrima fides and there must be complete good
faith on the part of the assured. The assured is thus under a
solemn obligation to make full disclosure of material facts
which may be relevant for the insurer to take into account
while deciding whether the proposal should be accepted or
not. While making a disclosure of the relevant facts, the duty
of the insured to state them correctly cannot be diluted.
Section 45 of the Act has made special provisions for a life
insurance policy if it is called in question by the insurer after
the expiry of two years from the date on which it was effected.
Having regard to the facts of the present case, learned
counsel for the parties have rightly stated that this distinction
is not material in the present appeal. If the allegations of fact
made on behalf of the appellant Company are found to be
correct, all the three conditions mentioned in the section and
discussed in Mithoolal Nayak v. Life Insurance Corporation of
India [1962 Supp 2 SCR 571 : AIR 1962 SC 814 : (1962) 32
Comp Cas 177] must be held to have been satisfied...‖
14 (1991) 1 SCC 357
15
21 The decision of this Court in Life Insurance Corpn of India v Asha Goel
(Smt)15 considered a situation in which a claim under a life insurance policy was
repudiated on the ground that the insured suppressed facts pertaining to the condition
of health. The Single Judge of the High Court held that a writ petition under Article 226
could be maintained against the Life Insurance Corporation and that the insurer had
failed to discharge its burden under Section 45 of the Insurance 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 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.‖
22 In Satwant Kaur (supra) this Court considered a case which arose from a
decision of the NCDRC. The insurer had repudiated a claim under a health insurance
15 (2001) 2 SCC 160
16
policy on the ground that the policy holder was suffering from chronic diabetes and
renal failure. This, according to the insurer, was a material fact a non-disclosure of
which in the proposal form justified repudiation of the claim. Section 45, which applies
to policies of life insurance, was not applicable since the case related to a mediclaim
policy. Justice DK Jain, speaking for the Bench of two learned Judges, held:
―18. A mediclaim policy is a non-life insurance policy meant to
assure the policy-holder in respect of certain expenses
pertaining to injury, accidents or hospitalisations.
Nonetheless, it is a contract of insurance falling in the
category of contract uberrima fidei, meaning a contract of
utmost good faith on the part of the assured. 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 is material for the purpose of the
policy or not. Of course, the 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 &
Crown Insurance Co. [(1908) 2 KB 863 (CA)] )‖
(Emphasis supplied)
In taking this view, the Court relied upon the earlier decisions in United India
Insurance Co Ltd v MKJ Corporation16 and Modern Insulators Ltd v Oriental
Insurance Co Ltd17. Adverting to the expression ―material fact‖ this Court explained it
as:
―22. … 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‖.
In a situation which was not governed by Section 45, this Court applied the
fundamental tenet of insurance law namely, utmost good faith.
16 (1996) 6 SCC 428
17 (2000) 2 SCC 734
17
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, essential and relevant
information in the context of underwriting the risk to be
covered by the insurer.‖
Regulation 4, deals with proposals for insurance and is in the following terms:
―4. Proposal for insurance
(1) Except in cases of a marine insurance cover, where
current market practices do not insist on a written proposal
form, in all cases, a proposal for grant of a cover, either for
life business or for general business, must be evidenced by a
written document. It is the duty of an insurer to furnish to the
insured free of charge, within 30 days of the acceptance of a
proposal, a copy of the proposal form.
(2) Forms and documents used in the grant of cover may,
depending upon the circumstances of each case, be made
available in languages recognised under the Constitution of
India.
(3) In filling the form of proposal, the prospect is to be guided
by the provisions of Section 45 of the Act. Any proposal form
seeking information for grant of life cover may prominently
state therein the requirements of Section 45 of the Act.
(4) Where a proposal form is not used, the insurer shall
record the information obtained orally or in writing, and
confirm it within a period of 15 days thereof with the proposer
and incorporate the information in its cover note or policy. The
onus of proof shall rest with the insurer in respect of any
information not so recorded, where the insurer claims that the
proposer suppressed any material information or provided
misleading or false information on any matter material to the
grant of a cover.‖
18
24 Regulation 2(d) specifically defines the expression ―proposal form‖ as a form
which is filled by a proposer for insurance to furnish all material information required
by the insurer in respect of a risk. The purpose of the disclosure is to enable the
insurer to decide whether to accept or decline to undertake a risk. The disclosures are
also intended to enable the insurer, in the event that the risk is accepted, to determine
the rates, terms and conditions on which a cover is to be granted. The explanation
defines the expression ―material‖ to mean and include ―all important essential and
relevant information‖ for underwriting the risk to be covered by the insurer. Regulation
4(3) stipulates that while filling up the proposal, the proposer is to be guided by the
provisions 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
Law18 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
assured believed it so ...‖
18 Twelfth Edition, Sweet and Maxwell (2012). See Pg. 493 for cases relied upon.
19
Materiality from the insured’s perspective is a relevant factor in determining whether
the insurance company should be able to cancel the policy arising out of the fault of
the insured. Whether a question concealed is or is it not material is a question of fact.
As this Court held in Satwant Kaur (supra):
―Any fact which goes to the root of the contract of insurance
and has a bearing on the risk involved would be ―material‖.‖
Materiality of a fact also depends on the surrounding circumstances and the nature of
information sought by the insurer. It covers a failure to disclose vital information which
the insurer requires in order to determine firstly, whether or not to assume the risk of
insurance, and secondly, if it does accept the risk, upon what terms it should do so.
The insurer is better equipped to determine the limits of risk-taking as it deals with the
exercise of assessments on a day-to-day basis. In a contract of insurance, any fact
which would influence the mind of a prudent insurer in deciding whether to accept or
not accept the risk is a material fact. If the proposer has knowledge of such fact, she
or he is obliged to disclose it particularly while answering questions in the proposal
form. An inaccurate answer will entitle the insurer to repudiate because there is a
presumption that information sought in the proposal form is material for the purpose
of entering into a contract of insurance.
26 Contracts of insurance are governed by the principle of utmost good faith. The
duty of mutual fair dealing requires all parties to a contract to be fair and open with
each other to create and maintain trust between them. In a contract of insurance, the
insured can be expected to have information of which she/he has knowledge. This
justifies a duty of good faith, leading to a positive duty of disclosure. The duty of
20
disclosure in insurance contracts was established in a King’s Bench decision in Carter
v Boehm19, where Lord Mansfield held thus:
―Insurance is a contract upon speculation. The special facts,
upon which the contingent chance is to be computed, lie most
commonly in the knowledge of the insured only; the underwriter trusts to his representation, and proceeds upon
confidence that he does not keep back any circumstance in
his knowledge, to mislead the under-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 allows the parties to serve their interests better and
understand the true extent of the contractual agreement.
The finding of a material misrepresentation or concealment in insurance has a
significant effect upon both the insured and the insurer in the event of a dispute. The
fact it would influence the decision of a prudent insurer in deciding as to whether or
not to accept a risk is a material fact. As this Court held in Satwant Kaur (supra)
19 (1766) 3 Burr 1905
21
―there is a clear presumption that any information sought for in the proposal form is
material for the purpose of entering into a contract of insurance‖. Each representation
or statement may be material to the risk. The insurance company may still offer
insurance protection on altered terms.
27 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.
28 Learned counsel appearing on behalf of the insurer submitted that where a
warranty has been furnished by the proposer in terms of a declaration in the proposal
form, the requirement of the information being material should not be insisted upon
and the insurer would be at liberty to avoid its liability irrespective of whether the
information which is sought is material or otherwise. For the purposes of the present
case, it is sufficient for this Court to hold in the present facts that the information which
was sought by the insurer was indeed material to its decision as to whether or not to
undertake a risk. The proposer was aware of the fact, while making a declaration, that
if any statements were untrue or inaccurate or if any matter material to the proposal
22
was not disclosed, the insurer may cancel the contract and forfeit the premium.
MacGillivray on Insurance Law20 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
for his life in the sum of Rs 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.
30 We may note at this stage, that the view which was taken by the NCDRC in the
present case was contrary to its earlier decision in Vidya Devi (supra). In that case,
the NCDRC upheld the repudiation of an insurance claim under a life insurance cover
by the LIC on the ground of a non-disclosure of previous insurance policies. In taking
this view, the NCDRC relied on its earlier decision in Chandarana (supra).
Subsequently in Sahara India (supra), the NCDRC took a contrary view. Having
noticed its earlier decisions, the NCDRC did not even attempt to distinguish them.
20 Twelfth Edition, Sweet and Maxwell (2012). See Pg. 257 for cases relied upon.
23
Indeed, the earlier decisions were binding on the NCDRC. This line of approach on
the part of the NCDRC must be disapproved.
31 Finally, the argument of the respondent that the signatures of the assured on the
form were taken without explaining the details cannot be accepted. A similar argument
was correctly rejected in a decision of a Division Bench of the Mysore High Court in VK
Srinivasa Setty v Messers Premier Life and General Insurance Co Ltd21 where it
was held:
― Now it is clear that a person who affixes his signature to a
proposal which contains a statement which is not true, cannot
ordinarily escape from the consequence arising therefrom by
pleading that he chose to sign the proposal containing such
statement without either reading or understanding it. That is
because, in filling up the proposal form, the agent normally,
ceases to act as agent of the insurer but becomes the agent
of the insured and no agent can be assumed to have
authority from the insurer to write the answers in the proposal
form.
If an agent nevertheless does that, he becomes merely the
amanuensis of the insured, and his knowledge of the untruth
or inaccuracy of any statement contained in the form of
proposal does not become the knowledge of the insurer.
Further, apart from any question of imputed knowledge, the
insured by signing that proposal adopts those answers and
makes them his own and that would clearly be so, whether
the insured signed the proposal without reading or
understanding it, it being irrelevant to consider how the
inaccuracy arose if he has contracted, as the plaintiff has
done in this case that his written answers shall be accurate.‖
32 For the reasons which we have adduced, we are of the view that 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. We, accordingly, allow the appeal
and set aside the impugned judgment and order of the NCDRC dated 20 February
2015. The consumer complaint filed by the respondent shall stand dismissed.
21 AIR 1958 Mys 53
24
33 By the interim order of this Court dated 14 May 2015, the respondent was
permitted to withdraw 50 per cent of the decretal amount, unconditionally. Since the
respondent has done so, we are of the view that the ends of justice would require a
direction by this Court under Article 142 of the Constitution that the amount which has
been withdrawn by the respondent shall not be recovered. We order accordingly.
Subject to the aforesaid direction, the appeal shall stand allowed. There will be no
order as to costs.
…………...…...….......………………........J.
[Dr Dhananjaya Y Chandrachud]
…..…..…....…........……………….…........J.
[Hemant Gupta]
New Delhi;
April 24, 2019
