Through its judgment of the case – Branch Manager, Bajaj Allianz Life Insurance Company Ltd and Others v. Dalbir Kaur, delivered on October 9, 2020, a 3-judge bench of the Supreme Court, consisting of Justice Dr Dhananjaya Y. Chandrachud, Justice Indu Malhotra and Justice Indira Banerjee, has made it clear that in proposal for life insurance, it is binding on the person getting insured to make full disclosure of the ailments he is having or suffered from earlier, to the insurer.
According to the SC, 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 having bearing on 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, 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 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 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 the SC in its decision of the case – Life Insurance Corporation of India v. Asha Goel- (2001) 2 SCC 160.
In Asha Goel’s case, the SC has held: “12.... The contracts of insurance including the contracts of life assurance are contracts uberimma fides and every 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 between the proposal and its acceptance. If there is any misstatement or suppression of material facts, the policy can be called into question. For determination of the question, whether there has been suppression of material facts, it may be necessary also to 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 inquiry by a prudent person.”
The SC has pointed out that it has reiterated this view in the decisions of the cases – P.C. Chacko v. Chairman, L.I.C.-(2008) 1 SCC 321 and Satwant Kaur Sandhu v. New India Assurance Co. Ltd.-(2009) 8 SCC 316 , 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. The SC has upheld in these cases the repudiation of liability by the insurance company holding that:
“25.The upshot of the entire discussion is 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 entering into a contract of insurance.”
Recently, the SC has in the case – Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod –(2019) 6 SCC 175, Has set aside the judgment of the National Consumer Disputes Redressal Commission (NCDRC), whereby the National Commission 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. The Court, while allowing the repudiation of the insurance claim held:
“30. It is a 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 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 filing 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.”
The SC distinguished its decision in the case – Sulbha Prakash Motegaonkar v. L.I.C.- Civil Appeal No. 8245 of 2015 decided on October 5, 2015; relied upon by the National Commission in its judgment, as the disease concealed by the deceased in that case was not a life-threatening disease.
In this case, proposal for policy was submitted by Kulwant Singh and had nominated his mother respondent-Dalbir Kaur as nominee in the policy. Kulwant Singh died on September 12, 2014 within one month and 7 days of taking the policy and that led to lodging of claim against the insurer. The District Forum allowed the death claim in full with interest. The State Commission in appeal and the National Commission in revision dismissed the LIC’s grievance and maintained District Forum‘s decision.
The SC has expressly held that the National Commission’s decision does not lay down the correct position in law and set aside the impugned judgment of the NCDRC and disposed of the appeal by the insurance company.
