Case: ORIENTAL INSURANCE COMPANY LIMITED Vs. MAHENDRA CONSTRUCTION

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) In Satwant Kaur Sandhu v New India Assurance Co. Ltd (2009) 8 SCC 316 , a two-judge Bench of this Court held that under a contract of insurance, the insured is under a solemn obligation to make a true and full disclosure of information asked for in the proposal form: 18…Nonetheless, it is a contract of insurance falling in the category of contract uberrimae fidei, meaning a contract of utmost good faith on the part of the assured. Thus, it needs little emphasis that when an information on a specific aspect is asked for in the proposal form, an assured is under a solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge. It is not for the proposer to determine whether the information sought for is material for the purpose of the policy or not. Of course, the obligation to disclose extends only to facts which are known to the applicant and not to what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment… (Emphasis supplied) It was further held there is a clear presumption that any information sought in the proposal form is a material fact: 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. Information regarding insurance claims lodged by the respondent for his excavator in the preceding three years was a material fact. The burden of establishing that the insured made a false representation and suppressed material facts lies on the insurer. The insurer has placed on the record the best possible evidence in support of the plea that there was a misrepresentation and a suppression of material facts. The mere disclosure of a previous insurance policy did not discharge the obligation which was cast on the respondent, as the proposer, to make a full, true and complete disclosure of the claims which were lodged under the previous policy in the preceding three years. The proposal form contained a specific question regarding claims lodged in the preceding three years. The respondent was under a bounden duty to disclose that the excavator was previously insured with another insurer and that a claim for damage to the excavator on 12 April 2005 had been settled. It was only in the affidavit of evidence dated 6 January 2017, that the respondent disclosed that New India Assurance Company Limited had paid an amount of Rs 36.66 lakhs by cheque on 23 September 2005. This material fact was suppressed from the proposal form. 12. The burden cannot be cast upon the 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, if any, that were made under the earlier insurance policy. On the contrary, it was the plain duty of the respondent while making the proposal to make a clear and specific disclosure. The insurance policy with New India Assurance Company Limited was for the period from 15 November 2004 to 14 November 2005. The excavator remained uninsured from 15 November 2005 until 10 October 2006. The case of the respondent was that during that period, it was under repair. This fact, together with the receipt of the earlier insurance claim, was material to the decision of the insurer on whether to accept the proposal for insurance. The disclosures which were required in paragraph 25(g) of the proposal form were material to assess the risk profile of the vehicle at the time of accepting the proposal for insurance. 13. The SCDRC proceeded on the hypothesis that the insurer had not denied the averment of the respondent in the complaint that the Administrative Officer was fully satisfied of the previous insurance cover and claim, as is evident from the use of the expression enclosed in paragraph 25(g). The averment in paragraph 8 of the complaint was specifically denied by the insurer. But, that apart, it is evident on a bare reading of the proposal form that material information which was required to be disclosed was suppressed by the insured. The proposal form contains a declaration of the insured that the statements which are made are true to the knowledge of the proposer and the declaration forms the basis of the contract with the insurer. 14. In the circumstances, the decision of the SCDRC to allow the claim was erroneous and the NCDRC equally erred in affirming the decision. 15. Learned counsel appearing on behalf of the insured urged that the respondent relied on the Administrative Officer who filled in the requisite details in the proposal form. The fact of the matter is that the respondent was under an obligation to make a full disclosure of the status of the previous insurance policy, together with the material facts relevant to the claim which had been lodged with New India Assurance Company Limited. The fact that such a claim was lodged and had been settled at Rs 36.66 lakhs was suppressed. This suppression goes to the very root of the contract of insurance which would validate the grounds on which the claim was repudiated by the insurer.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]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 as 2004. As against the other queries, there is a handwritten endorsement, namely, enclosed10. The NCDRC entered a finding that since the previous insurance policy had been enclosed with the proposal form, the insurer could, upon further enquiry, have learnt of the status of the claims under the earlier policy. The NCDRC considered the exception to Section 19 of the Indian Contract Act, 1872 and held that the insurer could have easily verified the claims submitted by the insured under the previous policy. It was thus held that the insurer cannot deny the benefit of insurance on account of the information not having been disclosed in the proposal form. However, the NCDRC noted that the insured had not expressly disclosed the previous claim and in consequence, deducted twenty-five of the amount payable under the contract of insurance11. In our view, this line of reasoning of the NCDRC is flawed. Insurance is governed by the principle of utmost good faith, which imposes a duty of disclosure on the insured with regard to material facts.Information regarding insurance claims lodged by the respondent for his excavator in the preceding three years was a material fact. The burden of establishing that the insured made a false representation and suppressed material facts lies on the insurer. The insurer has placed on the record the best possible evidence in support of the plea that there was a misrepresentation and a suppression of material facts. The mere disclosure of a previous insurance policy did not discharge the obligation which was cast on the respondent, as the proposer, to make a full, true and complete disclosure of the claims which were lodged under the previous policy in the preceding three years. The proposal form contained a specific question regarding claims lodged in the preceding three years. The respondent was under a bounden duty to disclose that the excavator was previously insured with another insurer and that a claim for damage to the excavator on 12 April 2005 had been settled. It was only in the affidavit of evidence dated 6 January 2017, that the respondent disclosed that New India Assurance Company Limited had paid an amount of Rs 36.66 lakhs by cheque on 23 September 2005. This material fact was suppressed from the proposal form12. The burden cannot be cast upon the 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, if any, that were made under the earlier insurance policy. On the contrary, it was the plain duty of the respondent while making the proposal to make a clear and specific disclosure. The insurance policy with New India Assurance Company Limited was for the period from 15 November 2004 to 14 November 2005. The excavator remained uninsured from 15 November 2005 until 10 October 2006. The case of the respondent was that during that period, it was under repair. This fact, together with the receipt of the earlier insurance claim, was material to the decision of the insurer on whether to accept the proposal for insurance. The disclosures which were required in paragraph 25(g) of the proposal form were material to assess the risk profile of the vehicle at the time of accepting the proposal for insurance13. The SCDRC proceeded on the hypothesis that the insurer had not denied the averment of the respondent in the complaint that the Administrative Officer was fully satisfied of the previous insurance cover and claim, as is evident from the use of the expression enclosed in paragraph 25(g). The averment in paragraph 8 of the complaint was specifically denied by the insurer. But, that apart, it is evident on a bare reading of the proposal form that material information which was required to be disclosed was suppressed by the insured. The proposal form contains a declaration of the insured that the statements which are made are true to the knowledge of the proposer and the declaration forms the basis of the contract with the insurer14. In the circumstances, the decision of the SCDRC to allow the claim was erroneous and the NCDRC equally erred in affirming the decisionThe fact of the matter is that the respondent was under an obligation to make a full disclosure of the status of the previous insurance policy, together with the material facts relevant to the claim which had been lodged with New India Assurance Company Limited. The fact that such a claim was lodged and had been settled at Rs 36.66 lakhs was suppressed. This suppression goes to the very root of the contract of insurance which would validate the grounds on which the claim was repudiated by the insurer.