The Hon'ble Supreme Court, in Civil Appeal No. 3397 of 2020 titled titled Branch Manager, Bajaj Allianz Insurance Company Ltd. & Ors. Vs Dalbir Kour, decided on October 09, 2020 observed that a Proposer who seeks to obtain a Policy of Life Insurance is duty bound to disclose all material facts having bearing upon the issue as to:

• Whether the Insurer would consider it appropriate to assume the risk which is proposed?

Facts leading to filing of Consumer Claim
On 05 August, 2014 a proposal for obtaining a Policy of Insurance was submitted 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 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 August 12, 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.

On September 12, 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.
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 the treatment at the above hospital. The Claim was repudiated on May 12, 2015 on account of the non- disclosure of material facts.

The Respondent instituted a Consumer Complaint before the District Consumer Disputes Redressal Forum, which 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 and the revision before the National Consumer Disputes Redressal Commission has also been dismissed. The NCDRC relied on the decision of Supreme Court in Sulbha Prakash Motegaonkar & Ors Vs Life Insurance Corporation of lndia (Civil Appeal No 8245/2015 decided on 5.10.2015).

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.

Learned Counsel appearing on behalf of the Appellants stated that the Judgment of the Consumer Forum in the present case are contrary to the law which has been laid down by Supreme Court in [Life Insurance Corporation of India Vs Asha Goel, (2001) 2 SCC 160]; [P. C. Chacko Vs Chairman, Life Insurance Corporation of India, (2008) 1 SCC 321] and [Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316].

Learned Counsel submitted that a Policy of Insurance is governed by the 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.

Contracts of insurance are governed by the principle of utmost good faith. The 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, the insured can be expected to have information of which she/he has knowledge. This justifies a duty of good faith, leading to a positive duty of disclosure. The fundamental principle is that insurance is governed by the doctrine of uberrima fidei. This postulates that there must be complete good faith on the part of the Insured.

This principle has been formulated in MacGillivray on Insurance Law succinctly, thus:
[Subject to certain qualifications considered below], the assured must disclose to the insurer all facts material to an insurers appraisal of the risk which are known or deemed to be known by the assured but neither known or deemed to be known by the insurer. Breach of this duty by the assured entitles the insurer to avoid the contract of insurance so long as he can show that the non-disclosure induced the making of the contract on the relevant terms The relationship between an insurer and the insured is recognized as one where mutual obligations of trust and good faith are paramount.]

In [Carter Vs. Boehm, (1766) 3 Burr. 1905], Lord Mansfield had succinctly summarised the principles necessitating a duty of disclosure by the assured, in the following words:
Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only; the underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge to mislead the underwriter into a belief that the circumstance does not exist. The keeping back such circumstance is a fraud, and therefore the policy is void.

Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void; because the risqui run is really different from the risqui understood and intended to be run at the time of the agreement..

The policy would be equally void against the underwriter if he concealed.....Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.

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 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. 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.

Learned Counsel for Respondent 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.

The Insurance Regulatory & Development Authority of India, by a Notification dated  October 16, 2002 issued the Insurance Regulatory & Development Authority (Protection of Policyholders Interests) Regulations 2002.

The expression Proposal Form is defined in Regulation 2(d) thus:
2 (d) Proposal Form means a Form to be filled in by the Proposer for Insurance, for furnishing all material information required by the Insurer in respect of a risk, in order to enable the Insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted.

Explanation:
Material for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer. Regulation 4, deals with Proposals for Insurance and is in the following terms:
4. Proposal for Insurance:

1. Except in cases of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
    
2. Forms and documents used in the grant of cover may, depending upon the circumstances of each case, be made available in languages recognised under the Constitution of India.
    
3. In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the Act. Any proposal form seeking information for grant of life cover may prominently state therein the requirements of Section 45 of the Act.
    
4. Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information on any matter material to the grant of a cover.

Regulation 2 (d) specifically defines the expression Proposal Form as a Form which is filled by a Proposer for Insurance to furnish all material information required by the Insurer in respect of a risk. The purpose of the disclosure is to enable the Insurer to decide whether to accept or decline to undertake a risk. The disclosures are also intended to enable the Insurer, in the event that the risk is accepted, to determine the rates, terms and conditions on which a cover is to be granted.

The explanation defines the expression material to mean and include all important essential and relevant information for underwriting the risk to be covered by the Insurer. Regulation 4 (3) stipulates that while filling up the proposal, the Proposer is to be guided by the provisions of Section 45.

Where a Proposal Form is not used, the Insurer under Regulation 4 (4) is to record the information, confirming it within a stipulated period with the Proposer and ought to incorporate the information in the Cover Note or Policy. In respect of information which is not so recorded, the onus of proof lies on the Insurer who claims that there was a suppression of material information or that the Insured provided misleading or false information on any matter that was material to the grant of the cover.
A contract of insurance is one of utmost good faith.

A Proposer who seeks to obtain a Policy of 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, 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.

In [United India Insurance Co. Ltd. Vs. M. K. J. Corporation, (1996) 6 SCC 428], Supreme Court of India held as under;
It is a fundamental principle of Insurance Law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary.

Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their Knowledge, since obligation of good faith applies to them equally with the assured.

The principles for repudiation of insurance claim were formulated by Supreme Court in [Life Insurance Corporation of India & Ors. Vs Asha Goel & Anr., (2001) 2 SCC 160]; it held as under;
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.

The principal laid down in Asha Goel has been reiterated in the Judgments in [P. C. Chacko Vs Chairman, Life Insurance Corporation of India, (2008) 1 SCC 321] and [Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316]. In [Satwant Kour Sandhu Vs New India Assurance Company Limited, (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.

Upholding the repudiation of liability by the Insurance Company, Supreme 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.

Recently Supreme Court in Reliance Life Insurance Company Limited Vs Rekhaben Nareshbai Rathod, (2019) 6 SCC 175] set aside the Judgement of the NCDRC, whereby the NCDRC had held that:
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 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 Supreme Court held in Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316 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.

Supreme Court in the ultimate analysis held as under:
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.

Written By: Dinesh Singh Chauhan, Advocate - J&K High Court of Judicature, Jammu.
Email: [email protected], [email protected]