TaxTMI 
TaxTMI 
2019 (4) TMI 1454
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.... 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 "n....
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....oser. The appeal filed by the respondents was, however, allowed by the SCDRC on 28 November 2014 relying on a decision of the NCDRC in Sahara India Life Insurance Company Limited v Rayani Ramanjaneyulu III (2014) CPJ 582. 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 ne....
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....C of India v Vidya Devi (2012) 3 CPJ 288 (NC) and Dineshbhai Chandarana v LIC (2010) 3 CPJ 358 (NC)); (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 Ltd AIR 1921 PC 195, 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 ag....
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....r 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 non-disclosure 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....
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....f 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 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 suppressi....
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.... 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: "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 preclude....
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.... 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 ques....
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....e 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..." 21 The decision of this Court in Life Insurance Corpn of India v Asha Goel (Smt) (2001) 2 SCC 160 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 u....
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....olicy 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 Corporation (1996) 6 SCC 428 and Modern Insulators Ltd v O....
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....e 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." 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. ....
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....s 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 disclosure in insurance contracts was established in a King's Bench decision in Carter v Boehm (1766) 3 Burr 1905, 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 under-writer trusts to his representation, and proceeds upon confidence that he ....
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....ired 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 inaccur....