IMPORTANT POINTS
Insurance is governed by the principle of utmost good faith which imposes a duty of disclosure on the insured with regard to material facts.
It is not for insurer to follow up on an inadequate disclosure by conducting a line of enquiry with the previous insurer in regard to the nature of the claims that were made under the earlier insurance policy.

JUDGMENT :

DHANANJAYA Y. CHANDRACHUD, J.

1. Leave granted.

2. This appeal arises from a decision rendered by the National Consumer Disputes Redressal Commission “NCDRC” on 19 September 2018. The NCDRC partly allowed the appeal filed by the insurer against a decision of the State Consumer Disputes Redressal Commission “SCDRC” dated 3 April 2017, directing the insurer to pay seventy-five percent of the amount awarded by the SCDRC. The SCDRC had allowed an insurance claim in the amount of Rs. 23.84 lakhs, together with interest at the rate of 7% per annum from the date of the institution of the complaint.

3. The respondent, Mahendra Construction, was the original complainant before the SCDRC. The respondent purchased a hydraulic excavator machine in 2004-05. The excavator was insured with New India Assurance Company Limited from 15 November 2004 to 14 November 2005. A claim was lodged under the insurance policy on 12 April 2005 on the ground that the excavator had been set on fire by Naxalites. The claim was settled by the earlier insurer. According to the respondent, the machine was under repair until 10 October 2006.

4. On 10 October 2006, the excavator was insured with the appellant from 11 October 2006 to 10 October 2007. A premium of Rs. 43,847 was paid to the appellant for an insurance cover of Rs. 32 lakhs. Five days after the issuance of the insurance cover, the excavator is alleged to have caught fire at a work site on 15 October 2006. The insurer deputed a surveyor for a spot survey on 17 October 2006 and a report was submitted on 26 October 2006. It appears that other surveyors were also appointed.

5. On 25 November 2008, the insurance claim was repudiated on the ground that all material facts which were required to be disclosed through the proposal form to enable the insurer to assess the risk profile had not been disclosed. More specifically, it was stated that under paragraph 25(g) of the printed proposal form, the details of claims lodged during the preceding three years were required to be disclosed but were not furnished and, in consequence, the insurer was deprived of the opportunity to assess the risk profile of the vehicle at the time of accepting the proposal for insurance. This led to the institution of a complaint before the SCDRC.

6. The claim was allowed by the SCDRC in the amount of Rs. 23.84 lakhs, together with interest. The SCDRC accepted the contention of the insured that the Administrative Officer who had prepared the pre-insurance report had been “fully satisfied” about the previous insurance cover and claim and with reference to paragraph 25(g) of the proposal form, the insurance policy with New India Assurance Company Limited had been “enclosed.”

7. In appeal, the NCDRC held that since the previous insurance policy was annexed to the proposal, the appellant could have known of the claims lodged with the previous insurer on making an enquiry. Alternatively, it was held that if there was a nondisclosure of information under paragraph 25(g), the appellant could have returned the proposal. The NCDRC held that the insurer could have discovered the true state of facts with the exercise of ordinary diligence and was, hence, not justified in repudiating the claim.

8. Learned counsel appearing on behalf of the appellant has drawn the attention of the Court to the disclosure which was required to be made in paragraph 25(g) of the proposal for insurance. Paragraph 25 requires a disclosure of:

(i) The date of purchase of the vehicle by the proposer.

(ii) Whether the vehicle was new or second-hand at the time of purchase.

(iii) Whether the vehicle was in a good condition and, if not, full details.

(iv) The name and address of the previous insurer.

(v) The previous policy number, together with the period of insurance.

(vi) The type of cover.

(vii) Claims lodged during the preceding three years.

9. The proposal form which was filled up in order to obtain the policy of insurance merely records the date of purchase of the vehicle