2025 (3) TMI 3 - SC - Indian Laws

Insurance claim repudiation overturned as non-disclosure of other policies doesn't constitute material fact suppression

MAHAVEER SHARMA Versus EXIDE LIFE INSURANCE COMPANY LIMITED & ANR.

The SC allowed the appeal in an insurance claim repudiation case. The insurer rejected a claim alleging suppression of material facts regarding the ... Rejection of appeal on account of suppression of material facts - whether there was any material suppression of fact on the part of the appellant’s father while obtaining an insurance policy or not? - HELD THAT:- In the case of Satwant Kaur Sandhu [2009 (7) TMI 1375 - SUPREME COURT], there was suppression of material fact relating to health of the insured and in those circumstances, the respondent insurance company was held to be justified in repudiating the insurance contract. An insurance is a contract uberrima fides. It is the duty of the applicant to disclose all facts which may weigh with a prudent insurer in assuming the risk proposed. These facts are considered material to the contract of insurance, and its non-disclosure may result in the repudiation of the claim. The materiality of a certain fact is to be determined on a case-to-case basis. The aforementioned judgements illustrate instances of material facts, wherein the non-disclosure of certain medical conditions was held to be material in the context of a Mediclaim policy. In Rekhaben Nareshbhai Rathod [2019 (4) TMI 1454 - SUPREME COURT], the repudiation of the policy by the insurer was within a period of two years from the commencement of the insurance cover on the ground of nondisclosure of a material fact and suppressing/non-disclosing a pre-existing life insurance. In the said case, the expression “material”, in the context of insurance policy, was 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 the facts of this case the respondent-insurer decided to issue a policy to the father of the appellant herein even though it was aware that there was another policy for a higher sum assured which was taken by the insured from Aviva. Thus, the insurer was also aware of the fact that the insured had capability and capacity to pay the premium for the policy obtained from Aviva and was confident that the insured had the capacity to pay the premium in respect of the policy which was issued to the insured by the respondent-insurer for a sum lesser assured being Rs.25 lakh only. Consequently, the repudiation of the policy, in the facts and circumstances of the present case, was improper. Therefore, the appellant herein is entitled to the benefit of the policy which was issued by the respondent herein. Conclusion - The concept of 'material facts' in insurance contracts requires disclosure of information that would influence a prudent insurer's decision to accept the risk. Failure to mention about other policies does not amount to a material fact in relation to the policy availed and consequently, the claim could not have been repudiated by the respondent company. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered by the Court was whether there was material suppression of facts by the appellant's father while obtaining a life insurance policy from the respondent insurance company, which justified the repudiation of the insurance claim. Specifically, the Court examined whether the non-disclosure of certain existing insurance policies constituted a material suppression under the terms of the insurance contract.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe Court referred to several precedents to determine the meaning of 'material facts' in the context of insurance contracts. These included the judgments in Manmohan Nanda v. United India Assurance Company Limited, Rekhaben Nareshbhai Rathod, and Satwant Kaur Sandhu v. New India Assurance Co. Ltd., which established principles regarding the duty of disclosure by the insured and the insurer's right to repudiate a claim based on non-disclosure of material facts.Court's Interpretation and ReasoningThe Court analyzed the duty of utmost good faith in insurance contracts, which requires the insured to disclose all material facts that could influence the insurer's decision to accept the risk. The Court emphasized that the materiality of a fact is determined by whether it would affect the judgment of a prudent insurer. The Court noted that the insured had disclosed a policy from Aviva with a significantly higher sum assured than the undisclosed policies, suggesting a substantial disclosure rather than complete non-disclosure.Key Evidence and FindingsThe Court found that the appellant's father had disclosed an existing policy from Aviva with a sum assured of Rs. 40 lakhs, although it was erroneously mentioned as Rs. 4 lakhs in the proposal form. The undisclosed policies from the Life Insurance Corporation of India had a total sum assured of Rs. 2,30,000, which was deemed inconsequential compared to the disclosed Aviva policy.Application of Law to FactsApplying the principles from the precedents, the Court concluded that the failure to disclose the additional policies did not constitute material suppression. The disclosed Aviva policy provided sufficient information for a prudent insurer to assess the risk, and the non-disclosure of smaller policies was not deemed material to the decision to issue the policy.Treatment of Competing ArgumentsThe appellant argued that the omission was inadvertent and not material, as the disclosed policy was substantial and the death occurred due to an accident, not illness. The respondent contended that the non-disclosure justified repudiation. The Court sided with the appellant, finding the disclosure adequate for assessing risk.ConclusionsThe Court concluded that the non-disclosure of the additional policies did not amount to material suppression, and the appellant was entitled to the benefits of the policy.SIGNIFICANT HOLDINGSThe Court held that the concept of 'material facts' in insurance contracts requires disclosure of information that would influence a prudent insurer's decision to accept the risk. The Court stated, 'failure to mention about other policies does not amount to a material fact in relation to the policy availed and consequently, the claim could not have been repudiated by the respondent company.'The Court's final determination was to set aside the orders of the State and National Commissions and direct the respondent insurance company to release the benefits under the policy to the appellant, along with interest.