2019 Supreme(SC) 487

SUPREME COURT OF INDIA
Dr. Dhananjaya Y. Chandrachud, Hemant Gupta, JJ.
Reliance Life Insurance Co Ltd And Anr. – Appellant
Versus
Rekhaben Nareshbhai Rathod — Respondent
Civil Appeal No. 4261 of 2019 (Arising out of SLP (C) No 14312 of 2015)
Decided on : 24-04-2019

IMPORTANT POINTS
(1) Contracts of insurance are governed by principle of utmost good faith.
(2) In a contract of insurance, any fact which would influence mind of a prudent insurer in deciding whether to accept or not accept risk is a material fact.
(3) Failure of insured to disclose policy of insurance obtained earlier in proposal form entitled insurer to repudiate claim under policy.

Headnote:(A) Insurance Act, 1938 – Section 45 – Insurance – Life Policy – Repudiation of death claim for alleged concealment of pre-existing ailment by deceased – Fundamental principle is that insurance is governed by doctrine of uberrima fides – Contracts of insurance are governed by principle of utmost good faith – 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, insured can be expected to have information of which she/he has knowledge – This justifies duty of good faith, leading to a positive duty of disclosure – Before a non-disclosure can be utilized as a ground to repudiate, it must pertain to a realm where it can be found that non-disclosure was of a circumstance or fact which would have affected decision of the insurer regarding whether or not to grant a cover – Cumulative effect of Section 45 is to restrict right of insurer to repudiate a policy of life insurance after a period of two years of the date on which policy was effected – Beyond two years, burden lies on insurer to establish inaccuracy or falsity of a statement on a material matter or suppression of material facts – In addition to this requirement, insurer has to establish that this non-disclosure or submission of inaccurate or false information was fraudulently made and that policy holder while making it knew of falsity of statement or of suppression of facts which were material to disclose – Section 45 curtails common law rights of Insurer after two years have elapsed since cover for life insurance was effected. (Paras 12, 13, 14, 15 and 26)

       (B) Torts – Insurance Policy – Expression ‘material’ in context of an insurance policy can be defined as any contingency or event that may have an impact upon risk appetite or willingness of insurer to provide insurance cover – Materiality from insured’s perspective is a relevant factor in determining whether insurance company should be able to cancel policy arising out of fault of insured – Whether a question concealed is or is it not material is a question of fact – Materiality of a fact also depends on surrounding circumstances and nature of information sought by insurer – It covers failure to disclose vital information which insurer requires in order to determine firstly, whether or not to assume risk of insurance, and secondly, if it does accept risk, upon what terms it should do so – Insurer is better equipped to determine limits of risk-taking as it deals with exercise of assessments on a day-to-day basis – In a contract of insurance, any fact which would influence mind of a prudent insurer in deciding whether to accept or not accept risk is a material fact – If proposer has knowledge of such fact, she or he is obliged to disclose it particularly while answering questions in proposal form – An inaccurate answer will entitle insurer to repudiate because there is a presumption that information sought in proposal form is material for the purpose of entering into contract of insurance. (Para 25)

       (C) Consumer Protection Act, 1986 – Section 23 – Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002 – Regulation 4 – Insurance – Life Policy – Repudiation of death claim for alleged concealment of pre-existing ailment by deceased – Claim allowed on the ground that omission of insured to disclose a previous policy of insurance would not influence mind of a prudent insurer – 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 – Each representation or statement may be material to risk – Insurance company may still offer insurance protection on altered terms – In present case, insurer had sought information with respect to previous insurance policies obtained by assured – Duty of full disclosure required that no information of substance or of interest to insurer be omitted or concealed – Whether or not insurer would have issued a life insurance cover despite earlier cover of insurance is a decision which was required to be taken by insurer after duly considering all relevant facts and circumstances – Disclosure of earlier cover was material to an assessment of risk which was being undertaken by Insurer – Failure of insured to disclose policy of insurance obtained earlier in proposal form entitled insurer to repudiate claim under policy – SCDRC was in error in reversing judgment of District Forum – NCDRC has similarly erred in affirming view of SCDRC – Impugned judgment and order of NCDRC set aside and consumer complaint filed by respondent dismissed – Ends of justice would require direction by this Court under Article 142 of Constitution that amount which has been withdrawn by respondent shall not be recovered. (Paras 27, 29, 32 and 33)

       Facts of Case:

       Insurance matter. Non-settlement of death claim for alleged concealment of pre-existing ailment by deceased. Present appeal is from a decision of National Consumer Disputes Redressal Commission1 dated 20 February 2015. State Consumer Disputes Redressal Commission2 at Ahmedabad allowed an appeal of the insured – respondent and sustained a claim under a policy of life insurance. This decision has been upheld in revision by NCDRC. Insurer is in appeal.

       Findings of Court:

       Proposer duly appended his signature to proposal form and grant of insurance cover was on the basis of statements contained in proposal form. Barely two months before contract of insurance was entered into with appellant, insured had obtained another insurance cover for his life in sum of Rs 11 lakhs. Failure of insured to disclose policy of insurance obtained earlier in proposal form entitled insurer to repudiate claim under the policy.

       Result : Appeal allowed.