Dr Dhananjaya Y Chandrachud, J
1 Leave granted.
2 This appeal arises from the judgment and order dated 20 March 2020 of the
National Consumer Disputes Redressal Commission.
to the appellants by Kulwant Singh. The proposal form indicated the name of
the mother of the proposer, who is the respondent to these proceedings as the CA 3397/2020
nominee. The proposal form contained questions pertaining to the health and
medical history of the proposer and required a specific disclosure on whether
any ailment, hospitalization or treatment had been undergone by the proposer.
Column 22 required a declaration of good health. The proposer answered the
queries in the negative, indicating thereby that he had not undergone any
medical treatment or hospitalization and was not suffering from any ailment or
disease. The declaration under Item 22(c) of the proposal form was in regard to
whether any diseases or disorders of the respiratory system such as but not
limited to blood in sputum, tuberculosis, asthma, infected respiratory disease or
any respiratory system disease including frequent nose bleeding, fever and
dyspnoea were involved. This query was also responded to in the negative.
Acting on the basis of the proposal submitted by the proposer, a policy of
insurance was issued by the appellants on 12 August 2014. Under the policy, the
life of the proposer was insured for a sum of Rs. 8.50 lakhs payable on maturity
with the death benefit of Rs. 17 lakhs.
4 On 12 September 2014, Kulwant Singh died, following which a claim was lodged
on the insurer. The death occurred within a period of one month and seven days
from the issuance of the policy. The claim was the subject matter of an
independent investigation, during the course of which, the hospital treatment
records and medical certificate issued by Baba Budha Ji Charitable Hospital, Bir
Sahib, Village Thatha (Tarntaran) were obtained. The records revealed,
according to the insurer, that the deceased has been suffering from Hepatitis C.
Copies of the investigation report dated 20 December 2014 and 9 January 2015
have been placed on the record. The investigation reports indicate that
proximate to the death, the deceased had been suffering from a stomach
ailment and from vomiting of blood, as a result of which he had been availing of CA 3397/2020
the treatment at the above hospital. The claim was repudiated on 12 May 2015
on account of the non-disclosure of material facts.
5 The respondent instituted a consumer complaint before the District Consumer
Disputes Redressal Forum. The District Forum allowed the complaint and directed
the appellants to pay the full death claim together with interest. The first appeal
was rejected by the State Consumer Disputes Redressal Commission (hereinafter
referred to as “SCDRC”) and the revision before the National Consumer Disputes
Redressal Commission (hereinafter referred to as “NCDRC”) has also been
dismissed. The NCDRC has relied on the decision of this Court in Sulbha Prakash
Motegaonkar & Ors vs Life Insurance Corporation of lndia1. According to the
NCDRC, a disease has to be distinguished from a mere illness. It held that the
death had occurred due to natural causes and there was no reasonable nexus
between the cause of death and non-disclosure of disease. Consequently, while
affirming the judgment of the SCDRC, the NCDRC imposed costs of Rs. 2 lakhs
on the appellants, of which, an amount of Rs. 1 lakh was to be paid to the
complainant and Rs. 1 lakh was to be deposited with the Consumer Legal Aid
Account of the District Forum.
6 Mr Amol Chitale, learned counsel appearing on behalf of the appellants states
that the judgment of the consumer fora in the present case are contrary to the
law which has been laid down by this Court in Life Insurance Corporation of
India vs Asha Goel2, P.C. Chacko vs Chairman, Life Insurance Corporation of
India3 and Satwant Kaur Sandhu vs New India Assurance Company Limited4.
Learned counsel submitted that a policy of insurance is governed by the
1 Civil Appeal No 8245/2015 decided on 5.10.2015 CA 3397/2020
principles of utmost good faith. In the present case, the investigation reports
revealed that proximate to the date of death, the deceased had been
hospitalized in July 2014 with a complaint of having vomited blood and a non-
disclosure of the material facts would justify the repudiation of the claim by the
insurer. It was urged that the proposer was duty bound to make a full disclosure
in response to the queries in the proposal forum, which he failed to do. The
suppression of material facts by the insured entitles the appellants to repudiate
the policy under Section 45 of the Insurance Act 1938. Section 45 stipulates that
an insurer is restricted from calling into question a life insurance policy after an
expiry of two years from the date on which it was effected on the ground that a
false or inaccurate statement has been made in the (i) proposal; (ii) report of a
medical officer, referee or a friend of the insured; or (iii) in any other document
leading to the issue of policy. On the expiry of two years, the burden of proof
shifts to the insurer who has to establish that the false or inaccurate statement
was a material matter or related to material facts. In the present case, the
claim in question was repudiated within two years from the commencement of
the policy.
7 Notice was issued by this Court on 21 September 2020, in pursuance of which
the respondent has entered appearance through Mr. Aniket Jain, learned
counsel.
8 Mr Jain has supported the reasoning of the NCDRC, urging that the death in the
present case occurred due to natural cause and there was no nexus between
the cause of death and the alleged non-disclosure. CA 3397/2020
9 A contract of insurance is one of utmost good faith. A proposer who seeks to
obtain a policy of life insurance is duty bound to disclose all material facts
bearing upon the issue as to whether the insurer would consider it appropriate to
assume the risk which is proposed. It is with this principle in view that the proposal
form requires a specific disclosure of pre-existing ailments, so as to enable the
insurer to arrive at a considered decision based on the actuarial risk. In the
present case, as we have indicated, the proposer failed to disclose the vomiting
of blood which had taken place barely a month prior to the issuance of the
policy of insurance and of the hospitalization which had been occasioned as a
consequence. The investigation by the insurer indicated that the assured was
suffering from a pre-existing ailment, consequent upon alcohol abuse and that
the facts which were in the knowledge of the proposer had not been disclosed.
This brings the ground for repudiation squarely within the principles which have
been formulated by this Court in the decisions to which a reference has been
made earlier. In Life Insurance Corporation of India vs Asha Goel, 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 risk which may take
place between the proposal and its acceptance. If
there is 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.” CA 3397/2020
10 This has been reiterated in the judgments in P C Chacko vs Chairman, Life
Insurance Corporation of India and Satwant Kaur Sandhu vs New India
Assurance Company Limited. In Satwant Kaur Sandhu vs New India Assurance
Company Ltd., at the time of obtaining the Mediclaim policy, the insured
suffered from chronic diabetes and renal failure, but failed to disclose the details
of these illnesses in the policy proposal form. Upholding the repudiation of
liability by the insurance company, this Court held:
“25. The upshot of the entire discussion is that in a
contract of insurance, any fact which would
influence the mind of a prudent insurer in deciding
whether to accept or not to accept the risk is a
“material fact”. If the proposer has knowledge of
such fact, he is obliged to disclose it particularly
while answering questions in the proposal form.
Needless to emphasise that any inaccurate answer
will entitle the insurer to repudiate his liability
because there is clear presumption that any
information sought for in the proposal form is
material for the purpose of entering into a contract
of insurance.”
11 Recently, this Court in Reliance Life Insurance Co. Ltd. vs Rekhaben Nareshbhai
Rathod5, has set aside the judgement of the NCDRC, whereby the NCDRC had
held that the failure of the insured to disclose a previous insurance policy as
required under the policy proposal form would not influence the decision of a
prudent insurer to issue the policy in question and therefore the insurer was
disentitled from repudiating its liability. This Court, while allowing the repudiation
of the insurance claim, held:
“30. 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
CA 3397/2020
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.
31. 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) "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.”
12 The decision of this Court in Sulbha Prakash Motegaonkar vs Life Insurance
Corporation of lndia, which has been relied upon by the NCDRC, is clearly
distinguishable. In that case, the assured suffered a myocardial infarction and
succumbed to it. The claim was repudiated by the insurance company on the
ground that there was a suppression of a pre-existing lumbar spondilitis. It was in
this background that this Court held that the alleged concealment was of such
a nature that would not dis-entitle the deceased from getting his life insured. In
other words, the pre-existing ailment was clearly unrelated to the cause of
death. This Court had also observed in its decision that the ailment concealed CA 3397/2020
by the deceased was not a life-threatening disease. This decision must,
therefore, be distinguished from the factual position as it has emerged before
this Court.
13 The medical records which have been obtained during the course of the
investigation clearly indicate that the deceased was suffering from a serious pre-
existing medical condition which was not disclosed to the insurer. In fact, the
deceased was hospitalized to undergo treatment for such condition in proximity
to the date of his death, which was also not disclosed in spite of the specific
queries relating to any ailment, hospitalization or treatment undergone by the
proposer in Column 22 of the policy proposal form. We are, therefore, of the
view that the judgment of the NCDRC in the present case does not lay down
the correct principle of law and would have to be set aside. We order
accordingly.
14 However, Mr. Amol Chitale, learned counsel appearing on behalf of the
appellants has informed the Court that during the pendency of the
proceedings, the entire claim was paid over to the respondent, save and
except for the amount of costs. Having regard to the age of the respondent,
who is seventy years old and the death of the assured on whom she was likely to
be dependent, we are of the view that it would be appropriate for this Court to
utilize its jurisdiction under Article 142 of the Constitution, by directing that no
recoveries of the amount which has been paid shall be made from the
respondent. However, while doing so, we expressly hold that the impugned
judgment of the NCDRC does not lay down the correct position in law and shall
accordingly stand set aside. CA 3397/2020
15 The appeal is accordingly disposed of. In the circumstances of the case, there
shall be no order as to costs.
16 Pending applications, if any, stand disposed of.
[Dr Dhananjaya Y Chandrachud]
[Indu Malhotra]
[Indira Banerjee]
New Delhi; October 9, 2020 CKB