Court : Allahabad High Court
Brief : Instead of the Corporation sending any notice to the proposer that the acceptance by them of the premium and the risk would be subject to the condition that the health of the life proposed should remain meanwhile unaffected, the proposer himself had given a declaration to the Corporation that if after the date of submission of the proposal but before the issue of the First Premium Receipt there was any change in his general health, he shall forthwith intimate the same to the Corporation to reconsider the terms of acceptance of the insurance.
The inevitable conclusion that follows is that the contract stood vitiated as information about the accident was not given to the Corporation before the issuance of the First Premium Receipt. The petitioner, therefore, is not entitled to claim the entire amount under the policy.
Citation : Civil Misc. Writ Petition No.60218 of 2005
Abhimanyu Chaubey
Vs.
Insurance Ombudsman Uttar Pradesh Chintles House & Ors.
HIGH COURT OF JUDICATURE AT ALLAHABAD
AFR
Reserved
Court No.6
Civil Misc. Writ Petition No.60218 of 2005
Abhimanyu Chaubey
Vs.
Insurance Ombudsman Uttar Pradesh Chintles House & Ors.
~~~~~~~
Hon'ble Dilip Gupta, J.
Hon'ble S.K. Gupta, J.
(Delivered by Hon'ble Dilip Gupta, J.)
The grant of partial relief by the Insurance Ombudsman under the award dated 13th April, 2005 has led to the filing of this petition by the nominee under the life insurance policy of the deceased Rajesh Kumar Chaubey for a direction upon the Life Insurance Corporation of India (hereinafter referred to as the ''Corporation') to pay the entire amount due under the policy as against the award of ex-gratia amount of the basic sum assured.
The deceased Rajesh Kumar Chaubey had submitted a proposal dated 14th May, 1999 to the Corporation for the assured sum of Rs.1 lac along with a cheque of Rs.10,507/- towards the first premium. In the said proposal form, apart from furnishing the required information, he also gave a declaration that if after the date of submission of the proposal but before the issuance of the First Premium Receipt, there is any change in his general health, he shall forthwith intimate the Corporation about it in writing to enable it to reconsider the terms of the insurance and any omission on his part to do so shall render the insurance invalid and all the monies paid in respect thereof shall stand forfeited to the Corporation.
It so happened that soon after the submission of the proposal form on 14th May, 1999, the proposer met with an accident on 23rd May, 1999 and ultimately succumbed to his injuries on 2nd June, 1999. In between, the Corporation had issued the First Premium Receipt on 31st May, 1999. The petitioner, who is the nominee under the said Policy, preferred a claim before the Corporation which was repudiated by the Corporation by the communication dated 2nd March, 2000 on three grounds namely, that the policy holder had not disclosed his earlier policy with the Corporation; that the policy holder had not been medically examined by the Medical Officer and that the proposer did not inform the Corporation about his accident that had taken place on 23rd May, 1999.
Feeling aggrieved, the petitioner approached the Ombudsman under Rule 18 of the Redressal of Public Grievances Rule, 1998 (hereinafter referred to as the ''Rules') but his claim was rejected by the award dated 16th November, 2000. The petitioner then filed Writ Petition No.6411 of 2001 which was disposed of by this Court by judgment and order dated 1st March, 2005. The first ground taken by the Corporation for repudiating the claim of the petitioner was set aside by the Court but in respect of the second and third grounds, the Court sent the matter back to the Ombudsman to pass a fresh award ignoring the hyper-technicalities, if possible, by applying Rule 18 of the Rules.
The Ombudsman, after hearing the parties, then made the award on 13th April, 2005. The second ground taken by the Corporation for repudiating the claim of the petitioner did not find favour of the Ombudsman. In respect of the third ground, the Ombudsman observed that technically speaking, the contract stood vitiated as there was a lapse on the part of the proposer in not intimating the insurer about the accident which he was obliged to do on the basis of the declaration made by him in the proposal form, but since life insurance is for the benefit of the family members, non-compliance of this onerous condition cannot come in the way of the Ombudsman in moulding the relief under Rule 18 of the Rules by awarding ex-gratia payment of the basic sum assured.
Thus, though partial relief was granted to the petitioner, the present petition has been filed for claiming the entire amount due under the policy and not just the ex-gratia payment of the basic sum assured.
We have heard Sri V.K. Singh, learned Senior Counsel for the petitioner assisted by Sri S. Shekhar and Dr. R.G. Padia, learned Senior Counsel for the respondents assisted by Sri Prakash Padia.
Sri V.K. Singh, learned Senior Counsel for the petitioner submitted that payment of the first premium was made by cheque at the time of submission of the proposal form on 14th May, 1999 and as the said amount stood credited in the account of the Corporation on 18th May, 1999, the contract stood concluded on the said date much prior to the occurrence of the accident on 23rd May, 1999. He, therefore, submitted that the proposer was not obliged to give information to the Corporation about the said accident. In the alternative, he submitted that though the proposer had given a declaration in the proposal form that he will intimate the Corporation about any change in his health that may take place between the submission of the proposal form and the issuance of the First Premium Receipt, but in the facts and circumstances of the case when the proposer was hospitalised after the accident on 23rd May, 1999 and was not in a position to intimate the Corporation about the accident, it cannot be urged by the Corporation that the breach of the declaration will vitiate the contract as such a condition is onerous. In support of his submission learned Senior Counsel for the petitioner has placed reliance on the decision of the Supreme Court in Life Insurance Corporation of India & Ors. Vs. Smt. Asha Goel & Anr., AIR 2001 SC 549 and of this Court in Smt. Shree Devi Vs. Life Insurance Corporation of India & Ors., 1979 ALJ 602.
Dr. R.G. Padia, learned Senior Counsel for the Corporation, however, submitted that for the contract to come into existence, the proposal was required to be accepted and communicated to the proposer which in the present case was done on 31st May, 1999 when the First Premium Receipt was issued by the Corporation but as the proposer or his nominee did not intimate the Corporation about the accident before the issuance of the said receipt, the contract stood vitiated. He further submitted that the contract stood vitiated in terms of the declaration made by the proposer that failure to give information about any change in the health before the issuance of the First Premium Receipt to the Corporation will render the insurance invalid and such a condition cannot be said to be onerous. In support of his contention he has placed reliance upon the decision of the Supreme Court in Life Insurance Corporation of India Vs. Raja Vasireddy Komalavalli Kamba & Ors., AIR 1984 SC 1014.
We have carefully considered the submissions advanced by the learned counsel for the parties.
It is not in dispute that the deceased Rajesh Kumar Chaubey had submitted the proposal along with the cheque of the first premium amount on 14th May, 1999. While submitting the proposal form, the proposer had made a categorical declaration that the statements and the declaration shall form the basis of the contract of assurance between him and the Corporation and that if after the date of submission of the proposal but before the issuance of the First Premium Receipt, there was any change in his general health, he shall forthwith intimate the Corporation in writing to reconsider the terms of acceptance of assurance and any omission on his part to do so shall render the assurance invalid and all monies paid shall stand forfeited to the Corporation. The relevant portion of the declaration made by the proposer, as translated in English will read as follows:-
"Declaration by the Proposer
"I Rajesh Kumar Chaubey the person whose life is herein being proposed to be assured, do hereby declare that the foregoing statements and answers have been given by me after fully understanding the questions and the same are true and complete in every particular and that I have not withheld any information and I do hereby agree and declare that these statements and this declaration shall be the basis of the contract of assurance between me and the Life Insurance Corporation of India and that if any untrue averment be contained therein the said contract shall be absolutely null and void and all moneys which shall have been paid in respect thereof shall stand fortified to the Corporation.
.....................
And I further agree that if after the date of submission of the proposal but before the issue of the first Premium Receipt (i) any change in my occupation or any adverse circumstances connected with my financial position or the general health of myself or that of any members of my family occurs or (ii) if a proposal for assurance or an application for revival of a policy on my life made to any office of the Corporation has been withdrawn or dropped, deferred or accepted at an increased premium or subject to a lien or on terms other than as proposed I shall forthwith intimate the same to the Corporation in writing to reconsider the terms of acceptance of assurance. Any omission on my part to do so shall render this assurance invalid and all moneys which shall have been paid in respect thereof shall stand forfeited to the corporation." (emphasis supplied)
The facts are not in dispute. The proposal form was submitted on 14th May, 1999. The First Premium Receipt was issued by the Corporation on 31st May, 1999 and though the proposer had met with an accident on 23rd May, 1999, he or his nominee or any other person did not intimate the Corporation about the said accident before the issuance of the First Premium Receipt. The proposer died on 2nd June, 1999.
The claim submitted by the petitioner was repudiated by the Corporation on three grounds but in the present case we are concerned only with the third ground, namely that information about the accident of the proposer on 23rd May, 1999 had not been given by the proposer to the Corporation before the issuance of the First Premium Receipt by the Corporation on 31st May, 1999.
It is the contention of the learned Senior Counsel for the petitioner that the contract stood concluded when the First Premium amount stood credited in the account of the Corporation on 18th May, 1999 and, therefore, the proposer was not under any obligation to inform the Corporation about the accident that had taken place subsequently on 23rd May, 1999. This proposition is disputed by the learned Senior Counsel for the Corporation and it is contended that the proposal has not only to be formally accepted by the Corporation but has also to be communicated to the proposer and so the earliest date when the contract can be said to have been made is when the First Premium Receipt was issued by the Corporation on 31st May, 1999. It is, therefore, his submission that the proposer or his nominee was under an obligation to inform the Corporation about the accident of the proposer that had taken place on 23rd May, 1999, more particularly, in view of the express declaration made by the proposer in the proposal form that non-furnishing of such information will vitiate the contract.
We find it extremely difficult to accept the contention of the learned Senior Counsel for the petitioner that the mere deposit of the first premium amount with the Corporation results in the acceptance of the proposal.
E.R. Hardy Ivamy in his book "General Principles of Insurance Law" (4th Edition) at page 107 while dealing with ''The effect of the proposal form' writes:-
"The Proposal form, when duly filled in and signed by the proposed assured and forwarded to the insurers, operates as a formal offer by the proposed assured to the insurers to enter into a contract of insurance. The proposal form shows the terms upon which he is willing to contract, and if the offer is accepted, he cannot insist upon having an insurance differing in its terms from those specified in the proposal."
Sri V.K. Singh, learned Senior Counsel for the petitioner has placed before the Court the book "Practice of Life Assurance" issued by the Insurance Institute of India and in particular has referred to Chapter VI which deals with "Application and Acceptance". In the said Chapter VI of this Book, it is mentioned that a Life Insurance Policy is a contract between the insurer and the insured creating obligations as well as rights on the parties to the contract and the said contract is of utmost good faith. Paragraph 9 contained in the said Chapter provides that the duty of disclosure in life insurance operates till the risk commences. Paragraph 44 describes as to when the risk commences and it reads as follows:-
"The terms under which the proposal is accepted by the underwriter, will be conveyed to the proposer. If the acceptance is as proposed and at Ordinary Rates, the deposit paid along with the proposal, if adequate will be adjusted as First Premium and the risk will commence from that time. If the acceptance is on modified terms, the proposer has to agree to those modified terms. The balance of premium if any, will have to be paid. If all the requirements are fulfilled by the proposer, the First Premium is adjusted and the risk commences. The First Premium Receipt is the evidence of commencement of risk, till the policy document is issued." (emphasis supplied)
It is, therefore, clear from paragraph 9 contained in the Chapter VI of the aforesaid Book that the duty of disclosure in life insurance operates till the risk commences and from paragraph 44 it is clear that it is upon issuance of the First Premium Receipt that the risk commences.
Sri V.K. Singh, learned Senior Counsel for the petitioner, however, made an attempt to convince us on the basis of the aforesaid paragraph 44 that the risk will commence when the deposit of first premium is made. This submission of the learned Senior Counsel cannot be accepted. The proposal has not only to be accepted but such acceptance has also to be communicated and so it is only when the First Premium Receipt is issued that the risk commences as is also clear from the last sentence of the said paragraph.
The Supreme Court in Raja Vasireddy Kamba (supra) while dealing with the issue as to when the insurance policy becomes effective held that mere receipt and retention of the premium amount until after the death of the proposer or mere preparation of the policy document is not acceptance and the contract is concluded only when the Corporation accepts it and communicates the decision to the proposer. In this case one late Raja Basireddi Chandra Dhara Prasad died intestate on 12th January, 1961. He had filled a proposal for insurance for Rs. 50,000/- on 27th December, 1960. There was medical examination by the doctor of the life of the deceased on 27th December, 1960. The deceased had issued two cheques for Rs. 300/- and Rs. 220/- and both the cheques were encashed before the death as first premium. On 16th January, 1961, the widow of the deceased wrote to the Corporation intimating the death of the deceased and demanded payment of Rs. 50,000/-. The Divisional Manager denied liability of the Corporation on 28th January, 1961. Upholding this order, the Supreme Court observed :-
".............. The mere receipt and retention of premium until after the death of the applicant or the mere preparation of the policy document is not acceptance. Acceptance must be signified by some act or acts agreed on by the parties or from which the law raises a presumption of acceptance. See in this connection the statement of law in Corpus Juris Secundum, Vol. XLIV page 986 wherein it has been stated as :-
The mere receipt and retention of premiums until after the death of applicant does not give rise to a contract, although the circumstances may be such that approval could be inferred from retention of the premium. The mere execution of the policy is not an acceptance; an acceptance, to be complete, must be communicated to the offerer, either directly, or by some definite act, such as placing the contract in the mail. The test is not intention alone. When the application so requires, the acceptance must be evidenced by the signature of one of the company's executive officers.
Though in certain human relationships silence to a proposal might convey acceptance but in the case of insurance proposal, silence does not denote consent and no binding contract arises until the person to whom an offer is made says or does something to signify his acceptance. Mere delay in giving an answer cannot be construed as an acceptance, as, prima facie, acceptance must be communicated to the offeror. The general rule is that the contract of insurance will be concluded only when the party to whom an offer has been made accepts it unconditionally and communicates his acceptance to the person making the offer. ......" (emphasis supplied)
Learned Senior Counsel for the petitioner, however, placed reliance upon a judgment of this Court in Smt. Shree Devi (supra) in support of his contention that the contract was completed as soon as the money was deposited in the account of the Corporation and that the technical rules of law of contract relating to offer and acceptance and the formation of contracts will not be applicable. In view of the proposition of law laid down by the Supreme Court in Raja Vasireddy Kamba (supra) this decision is of no help to the petitioner.
What, therefore, follows is that mere receipt and retention of the first premium amount by the Corporation does not give rise to a contract and the contract of insurance will be concluded only when the Corporation accepts the proposal unconditionally and communicates its acceptance to the person making the offer.
We, therefore, have no difficulty in accepting the submission of Dr. R.G. Padia, learned Senior Counsel for the Corporation that the contract came into existence only on 31st May, 1999 when the First Premium Receipt was issued by the Corporation. The proposer was, therefore, under an obligation to inform the Corporation about the change in his general health.
This brings us to the alternative submission advanced by learned Senior Counsel for the petitioner that the condition contained in the declaration was onerous and could not be complied with since the proposer was hospitalised after the accident and was in no position to intimate the Corporation about the accident.
This contention cannot be accepted. As noticed hereinabove, the statements and the declaration made in the proposal form constitute the basis of the contract. The proposer had given a categorical declaration that if after the date of submission of the proposal but before the issue of the First Premium Receipt, there was any change connected with his health, he shall forthwith intimate the same to the Corporation in writing to enable it to reconsider the terms of the insurance and any omission on his part to do so will render the insurance invalid and the money paid by him shall stand forfeited to the Corporation.
The reason for providing such information to the Corporation about change of health of the proposer is not far to seek. In case there is any change in health of the proposer after the submission of the proposal form, the Corporation may or may not accept the proposal and even if it accepts it, it may do so on different terms and conditions. It is for this reason that it is absolutely necessary for the proposer to intimate the Corporation about any change in his health and any failure on his part to do so will vitiate the Contract. Indeed, the proposer had also given a declaration to this effect in the proposal form. This declaration constituted the basis of the contract. If that be so, the condition mentioned in the declaration has to be strictly adhered to and a proposer cannot shirk from his responsibility of informing the Corporation. Therefore, any failure on his part to intimate the Corporation will vitiate the contract irrespective of the fact whether he was or was not in a condition to inform the Corporation about the change in health. The nominee, therefore, cannot insist for payment of the entire amount under the policy by contending that it was an onerous task to be performed by the proposer. It also needs to be noticed that it is not the case of the Corporation that information about the accident from the nominee or any other person would not be acceptable to them.
What must also be remembered is that contract of insurance is of utmost good faith and can be avoided if there is any failure on the part of a party to disclose a material fact.
Paragraph 349 in Halsbury's Laws of England (Fourth Edition) at page 207 mentions about requirement of utmost good faith:-
"349. Requirement of the utmost good faith.
................... The utmost good faith requires not so much a strict interpretation of the obligations undertaken and strict preservation of the circumstances in which they are undertaken, as the performance of positive duties. In its practical application the principle permits either party to avoid the contract altogether if it is established against the other party either that : (1) there has been a failure by the other party to disclose a material fact; or (2) the other party has made an innocent misrepresentation of a material fact, since statements made in a contract must be true in fact."
What will constitute ''material fact' has also been made clear in paragraph 351 of this Book at Page 209 in the following words:-
" Apart from any special stipulation in the contract limiting the field of disclosure, the rules of determining what facts are material to be disclosed have been codified in relation to marine insurance. After elimination of the factors peculiarly referable to marine insurance, these rules are generally applicable to all contracts of insurance. The basic test hinges on whether the mind of a prudent insurer would be affected, either in deciding whether to take the risk at all or in fixing the premium, by knowledge of a particular fact if it had been disclosed. Therefore, the fact must be one affecting the risk. ........."
Paragraph 355 at page 212 of the aforesaid Book deals with ''time for determining materiality' and is as follows:-
"355. Time for determining materiality. Full disclosure must be made of all relevant facts and matters which have occurred up to the time at which there is a concluded contract. The non-disclosure of a material fact existing prior to the conclusion of the contract will become a ground for avoiding the concluded contract. ..........."
Thus, the principle of ''utmost good faith' permits either party to avoid the contract if there has been a failure by the other party to disclose a material fact and a ''material fact' is a fact which can affect the mind of a prudent insurer in deciding whether to take the risk or in fixing the premium. This is why the requirement of disclosing the material fact continues right upto the time the proposal is accepted.
In Smt. Asha Goel (supra), the Supreme Court also observed that the duty to disclose material facts continues right upto the conclusion of the contract and this implies duty to disclose any material alteration in the character of the risk which may take place between the proposal and its acceptance and the observations of the Supreme Court are:-
"................The contracts of insurance including the contract of life assurance are contracts uberrima fides and every fact of material 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 the risk which may take place between the proposal and is acceptance. If there are any misstatements or suppression of material facts, the policy can be called in 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." (emphasis supplied)
It is also necessary to refer to the King's Bench Division in Looker And Another v. Law Union and Rock Insurance Company, Limited, (1928) 1 KB 554 wherein a similar issue was decided in favour of the Insurance Company. It was held that no amount could be recovered from the Insurance Company as no contract had been concluded between the proposer and the Insurance Company, first, because, between the proposal and the alleged acceptance there had been by reason of the illness of the proposer a material alteration in the risk, and, secondly, because no notice of the proposer's illness which caused a material change in the risk had been given to the Insurance Company. The relevant observations of the Court are:-
"............ This is accordingly upon those facts one of those cases in which between the time at which the proposal is made and the time at which it is accepted by the insurance company a material change has taken place in the nature of the risk. The change in the nature of the risk in this case was that on July 10, 1926, when the proposal was made, Dr. Looker was, as he truly represented himself to be, free from disease or ailment, whereas at the time of the acceptance by the insurance company of the cheque drawn by Dr. Looker for the amount of the first premium and the resultant sending out of the certificate of acceptance of his proposal to effect an insurance, Dr. Looker was in a critical condition, from an attack of pneumonia from which he died in less than twenty four hours after the receipt by the insurance company of his cheque.
It is said, in the first instance, for the insurance company that the rule applicable in circumstances such as these is that the acceptance is made in reliance upon the continued truth of the representation made in the proposal which it was agreed should form the basis of the contract of insurance, in the belief that there has been no material change in the risk offered, and therefore, that if anything has happened materially to increase the risk between the proposal and the acceptance the insurance company are not bound, because that which they have made a condition of the contract going to the root of it has not been fulfilled. The authority for this statement is to be found in Canning v. Farquhar (16 Q.B.D. 727) and Harrington v. Pearl Life Assurance Co. (30 Times L.R. 613). It is also said materially to strengthen the position of the insurance company that in this case their notice of July 15, 1926, in terms intimated to the proposer that any subsequent acceptance by them of premium and risk would be subject to the condition that the health of the life proposed should remain meanwhile unaffected. That it had not remained unaffected cannot be disputed. It is not indeed putting it too high to say that when the insurance company accepted the premium and the risk on July 26, the deceased was dying, and if the insurance company had known the facts they would never have entertained the notion of accepting the risk for a moment. I think there is no answer in this case to these contentions.
The second point taken on behalf of the insurance company was that there was here a failure to discharge a duty incumbent upon all proposers of contracts of insurance such as these, which are contracts uberrimae fidei - namely, a duty to inform the insurers of any material change in the nature of the risk to be undertaken by them, which means in the present case in the health of the proposed assured, William Looker. Reference was not made, but may I think usefully be made, to the judgment of Channell J. in the arbitration between the parties in In re Yager and the Guardian Assurance Co. (108 L.T. 38, 44.). He says there, "I think it is clearly settled that the law as to fire insurance and life insurance, is the same as it is in reference to marine insurance and that is that a policy is not binding of any material fact is not disclosed, and that that is so whether or not the person who does not disclose it knows that it is material, which is sometimes rather hard upon the assured, and may be so in this case. The question depends upon whether the fact is material or not, and not upon whether the person supposed it to be material. Then the time up to which it must be disclosed is the time when the contract is concluded. Any material fact that comes to his knowledge before the contract he must disclose." In my opinion the contention for the insurance company on this point also is a sound one. This, however, is a case in which the insurance company have been at pains to protect themselves by the introduction into their documents of express terms, the very object and nature of which is to render it unnecessary to consider whether, if they had been absent, the principle enunciated by Channell J. would have had application." (emphasis supplied)
In the present case, instead of the Corporation sending any notice to the proposer that the acceptance by them of the premium and the risk would be subject to the condition that the health of the life proposed should remain meanwhile unaffected, the proposer himself had given a declaration to the Corporation that if after the date of submission of the proposal but before the issue of the First Premium Receipt there was any change in his general health, he shall forthwith intimate the same to the Corporation to reconsider the terms of acceptance of the insurance.
The inevitable conclusion that follows is that the contract stood vitiated as information about the accident was not given to the Corporation before the issuance of the First Premium Receipt. The petitioner, therefore, is not entitled to claim the entire amount under the policy.
Thus, for all the reasons stated above, there is no good reason to interfere with the award given by the Ombudsman. The writ petition is, accordingly, dismissed.
Date: 10.7.2009
