We have heard the learned
counsel for the appellant and the learned counsel for the respondent
for the insurer. The controversy in the present case pertains to the
factum of repudiation of the insurance claim of the complainant on the
ground of the material suppression of information regarding the previous
policies allegedly held by the insured-deceased, while taking the life
insurance policy from the opposite party.
The learned counsel for the appellant submitted that the insurance
company has not proved that appellant's father had any other insurance
policy while taking the insurance policy from the opposite party. Thus, there100 has been no material suppression of fact in the application form with
respect to holding any previous policy by the120 insured-deceased or his family
members. It was further submitted by the appellant that the NCDRC was incorrect
in upholding the repudiation of claim in the absence of an iota of documentary
evidence on record to support the contention that the
insured-deceased had suppressed any fact under Clause 6 of the proposal form
about the previous policies issued by other insurers. The respondent has merely
alleged the fact of multiple insurance policies of the insured-deceased through
their affidavit of evidence200 but had not discharged their burden of proof by leading any documentary
evidence to support their allegation.
The learned counsel for the respondent has supported the
judgment of the NCDRC and has further contended that the
insured-deceased had taken240 fifteen other insurance policies worth Rs.71,000/- prior to the
issuance of the subject policies by them. These policies were not
disclosed in the proposal forms and had the respondent been aware about these
other insurance policies with other insurance companies and the existing risk
cover at the time of assessment of risk under the subject policies, they
would have certainly300 not issued the subject policies to the insured-deceased. Thus,
the insured-deceased has suppressed the material fact and the claim has been
rightly repudiated on this ground alone.
The learned counsel for the respondent further submitted that the
policy of life insurance is based upon the principle of utmost good faith. When
a specific fact is asked for in the360 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 the best of his knowledge. In the present case
as well, the insured-deceased was under400 the obligation to make complete and honest disclosure of all the
facts and materials at the time of filling of the proposal form. The failure to
do so shows the mala fide intention on the part of the insured-deceased and
renders the policy invalid and inoperative.
Having heard the learned counsel for the respective
parties, the point that arises for consideration before this Court in the
present Civil Appeal, is, whether the respondent herein was correct in
repudiating the480 claim of the appellant on the ground of suppression of material
information pertaining to the existing policies with other insurers.500 In order to answer the aforesaid
question, it would be useful to recapitulate the relevant
provisions of the law of insurance and evidence, vis-à-vis burden of proof and
the method of discharging that burden of proof to prove an alleged fact, which
is suppression of a material fact while seeking an insurance policy from an
insurer.
The repudiation of an insurance claim is largely governed
by Section 45 of the Insurance Act, 1938. Section 45 is a special
provision of law, which bars the calling in question of an insurance policy
beyond expiry of the stipulated600 period, except in a few circumstances that have to be
proved by the insurer.
Since the present case deals with a policy and its repudiation
before the 2014 amendment to Section 45 of the Insurance Act, the pre-amendment
time period of two years would be applicable to the case. As per the aforesaid language
and interpretation of Section 45, the insurer cannot question the policy after
the expiry of the time period and if it does, then the burden rests on the
insurer to establish materiality of the fact suppressed and the knowledge of
the insured700 about such suppression, so that the repudiation of the
claim could be justified by the insurer. In the present case,720 the onus was on the insurer to
show that the insured had fraudulently given false information and the
said information was related to a material fact. The second aspect of
the controversy would be dealt with first.
For a better appreciation of the controversy, it would
be important to analyse the principle of utmost good faith that governs the
insurance contracts. It may also be observed that insurance contracts
are special contracts based on the general principles of full disclosure800 inasmuch as a person seeking
insurance is bound to disclose all material facts relating to the risk
involved. Law demands a higher standard of good faith in matters of insurance
contracts. The plea of utmost good faith has also been840 taken by the respondent,
for contending that the insured-deceased had a duty to disclose the details of
the previous policies, as the same was sought in the application form.
However, the insured failed in his duty to correctly answer the question about
his previous policies.
Just as the insured has a duty to disclose all material facts, the
insurer900 must also inform the insured about the terms and conditions
of the policy that is going to be issued to him and must strictly conform to
the statements in the proposal form or prospectus, or those made through
his agents. Thus, the principle of utmost good faith imposes meaningful
reciprocal duties owed by the insured to the insurer and vice versa. This inherent
duty of disclosure was a common law duty of good faith originally founded in
equity but has later been statutorily recognised as noted above. It is also
open to the parties entering into a contract to extend1000 the duty or restrict it by the terms of the contract.
The duty of the insured to observe utmost good faith is enforced
by requiring him to respond to a proposal form which is so framed to seek all
relevant information to be incorporated in the policy and
to make it the basis of a contract. The contractual duty so imposed is that any
suppression or falsity in the statements in the proposal form
would result in a breach of1080 duty of good faith and would render the policy invalid and consequently
repudiate it at the instance of the insurer.1100 The basic test hinges on whether
the mind of a prudent insurer would be affected, either in deciding whether to
take the risk at all or in fixing the premium, by knowledge of a
particular fact if it had been disclosed. Therefore, the fact must be
one affecting the risk. If it has no bearing on the risk, it need not be
disclosed and if it would do no more than causing insurers to make
inquiries and delaying issue of the insurance, it is not material if the
result of the inquiries would have no effect on a prudent insurer. 1200
