Case: RELIANCE LIFE INSURANCE CO. LTD.  Vs. REKHABEN NARESHBHAI RATHOD

3. On 10 July 2009, the spouse of the respondent took a policy of life insurance from Max New York Life Insurance Co Ltd, for a sum of Rs 11 lakhs. Barely two months thereafter, on 16 September 2009 he submitted a proposal for a life insuranceterm plan policy of the appellant for an insurance cover of Rs 10 lakhs. Among the questions that the proposer was required to answer in the proposal form was whether he was currently insured or had previously applied for life insurance cover, critical illness cover or accident benefit cover. This query was answered in the negative. Item 17 of the proposal form required a disclosureOF LIFE INSURANCE POLICIES HELD/PROPOSALS APPLIED WITH LIFE INSURANCE COMPANIES (INCLUDING EXISTING POLICIES WITH RELIANCE LIFE INSURANCE COMPANYinformation which was required to be furnished under the above head included: (i) name of the life to be assured/proposer; (ii) name of company; (iii) contract/proposal number; (iv) basic sum assured; (v) sum assured under rider; and (vi) year of commencement. The proposer was also required to furnish details in regard to the present status and terms of acceptance and to fill up one of the accompanying boxes namely: (i) declined; (ii) postponed; (iii) rated up; (iv) rejected; (v) in force; (vi) lapsed; and (vii) applied.4. The proposer answered the query as to whether he was currently insured for a cover of life insurance, critical illness or accident benefit in the negative. On the details of other insurance covers held by him, the proposer had indicated "NA" or a "not applicable" response. The declaration which was required to be furnished by the proposer with the proposal form was in the followingunderstand and agree that the statements in this proposal form shall be the basis of the contract between me and Reliance Life Insurance Company Limited ("the Company") and that if any statements made by me are untrue or inaccurate or if any of the matter material to this proposal is not disclosed by me then the Company may cancel the contract and all the premiums paid, will be forfeited.On 22 September 2009, the appellant issued a policy of life insurance to the spouse of the respondent based on the disclosures contained in the proposal form. Thespouse died on 8 February 2010. On 24 May 2011, nearly fifteen months after the date of death, the respondent, who was a nominee under the policy issued by the appellant, submitted a claim of Rs 10 lakhs under the terms of the policy. The claim was supported by a medical certificate stating that the policy holder had suffered from sudden chest pain prior to his death. On 7 June 2011, the appellant sought copies of medical reports including, as the case may be, death or discharge summaries together with previous medical records of the deceased. On 14 July 2011, in response to thee-mail dated 29 June 2011, Max New York Life Insurance Co Ltd informed the appellant that the spouse of the respondent had been insured with them for a sum of Rs 11 lakhs and that the claim had been settled. The appellant repudiated theclaim on 30 August 2011 statingthe light of suppression of material fact, where glaring omission to answer especially the question no (17) relating to details of the life insurance policies held by the life assured, we are constrained to repudiate the claim under the policy in terms of Section 45 of the Insurance Act 1938.On 24 February 2012 the respondent addressed a legal notice alleging a deficiency in service and then moved a consumer complaint before the District Consumer Disputes Redressal Forum, Bhavnagar . The appellant contested the claim7. On 31 August 2013, the District Forum dismissed the complaint inter alia, on the ground that there was a non-disclosure of the fact that the insured had held a previous policy in the proposal form filled up by the proposer. The appeal filed by the respondents was, however, allowed by the SCDRC on 28 November 2014 relying on a decision of the NCDRC in Sahara India Life Insurance Company Limited v Rayani Ramanjaneyulu III (2014) CPJ 582 . This decision of the SCDRC was affirmed by the NCDRC on 6 February 2015, for the reason that the omission of the insured to disclose a previous policy of insurance would not influence the mind of a prudent insurer as held in Sahara India (supra).8. On 14 May 2015, this Court while issuing a notice, stayed the execution of the decision of the NCDRC, subject to the appellant depositing 50 percent of the decretal amount before the District Forum. The respondent was permitted to withdraw the amount on deposit. Pursuant to the interim order of 1 June 2015, the appellant handed over a demand draft in the amount of Rs 16,18,987 drawn on the State Bank of India to the respondent, which has been encashed.

Reasoning: 11. While considering the rival submissions, it is necessary to preface our analysis with reference to two basic facts. The first pertains to the nature of the disclosure made by the insured in the proposal form. The second relates to the ground for repudiation of the claim. The proposal form required a specific disclosure of the lifeinsurance policies held by the proposer and all proposals submitted to life insurance companies, including the appellant. The proposer was called upon to furnish a full disclosure of covers for life insurance, critical illness or accident benefit under which the proposer was currently insured or for which the proposer had applied. The answer to this was given in the negative. Furthermore, item 17 of the proposal form required a detailed disclosure of the other insurance policies held by the proposer including the sum assured. A disclosure was also required of the status of pending proposals. These were answered with ae, following the statement that the proposer did not hold any other insurance cover. The fact that two months prior to the policy which was obtained from the appellant on 16 September 2009, the insured had obtained a policy from Max New York Life Insurance Co Ltd in the amount of Rs 11 lakhs has now been admitted. There was evidently a nondisclosure of the earlier cover for life insurance held by the insured. The second aspect of the case which merits to be noticed is that the repudiation of the claim on 30 August 2011 was on the ground that there was a non-disclosure of a material fact on the part of the insured in not disclosing that he held a prior insurance cover. The insurer stated that if this was to be disclosed in the proposal form, it would have called for and evaluated financial income documents together with the terms for the acceptance of the cover. Though the insurer has subsequently, during the pendency of the proceedings made an effort to sustain its repudiation on the ground that the insured had a pre-existing illness which was not disclosed, it is necessary to record that this was not pressed in aid during the hearing before this Court.12. The repudiation in the present case was within a period of two years from the commencement of the insurance cover. This assumes significance because of the provisions of Section 45 of the Insurance Act 1932, as they stood at the materialNo policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this Act shall, after the expiry of two years from the date on which it was effected be called in question by an insurer on the ground that statement made in the proposal or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy-holder and that the policy-holder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose.Provided that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal.Section 45 stipulates restrictions upon the insurer calling into question a policy of life insurance after the expiry of two years from the date on which it was effected . After two years have elapsed the insurer cannot call it into question on the ground that: (i) a statement made in the proposal; or (ii) a statement made in any report of a medical officer, referee or friend of the insured; or (iii) a statement made in any other document leading to the issuance of the policy was inaccurate or false, unless certain conditions are fulfilled. Those conditions are that : (a) such a statement was on a material matter; or (b) the statement suppressed facts which were material to disclose and that (i) they were fraudulently made by the policy holder; and (ii) the policy holder knew at the time of making it that the statements were false or suppressed facts whichwere material to disclose. The cumulative effect of Section 45 is to restrict the right of the insurer to repudiate a policy of life insurance after a period of two years of the date on which the policy was effected. Beyond two years, the burden lies on the insurer to establish the inaccuracy or falsity of a statement on a material matter or the suppression of material facts. Moreover, in addition to this requirement, the insurer has to establish that this non-disclosure or, as the case may be, the submission of inaccurate or false information was fraudulently made and that the policy holder while making it knew of the falsity of the statement or of the suppression of facts which were material to disclose. 14. Section 45 curtails the common law rights of the insurer after two years have elapsed since the cover for life insurance was effected. In the present case, the Court is called upon to determine the nature of the authority of the insurer where a policy of life insurance or a claim under it is sought to be repudiated within two years. The insurer submits that within a period of two years, its right to repudiate theclaim is untrammelled and is not subject to the conditions which apply beyond two years. On the other hand, the submission of the respondent is that even within a period of two years, a non-disclosure or suppression must be of a material fact to justify a repudiation. In other words, before a non-disclosure can be utilized as a ground to repudiate, it must pertain to a realm where it can be found that the nondisclosure was of a circumstance or fact which would have affected the decision of the insurer regarding whether or not to grant a cover.Regulation 2(d) specifically defines the expressionas 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 expressionto mean and includeimportant essential and relevantfor 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.of a fact also depends on the surrounding circumstances and the nature of information sought by the insurer. It covers a failure to disclose vital information which the insurer requires in order to determine firstly, whether or not to assume the risk of insurance, and secondly, if it does accept the risk, upon what terms it should do so. The insurer is better equipped to determine the limits of risk-taking as it deals with the exercise of assessments on a day-to-day basis. In a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not accept the risk is a material fact. If the proposer has knowledge of such fact, she or he is obliged to disclose it particularly while answering questions in the proposal form. An inaccurate answer will entitle the insurer to repudiate because there is a presumption that information sought in the proposal form is material for the purpose of entering into a contract of insurance.26. 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.is standard practice for the insurer to set out in the application a series of specific questions regarding the applicants 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. As this Court held in Satwant Kaur (supra)is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract ofEach representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms.27. In the present case, the insurer had sought information with respect to previous insurance policies obtained by the assured. The duty of full disclosure required that no information of substance or of interest to the insurer be omitted or concealed. Whether or not the insurer would have issued a life insurance cover despite the earlier cover of insurance is a decision which was required to be taken by the insurer after duly considering all relevant facts and circumstances. The disclosure of the earlier cover was material to an assessment of the risk which was being undertaken by the insurer. Prior to undertaking the risk, this information could potentially allow the insurer to question as to why the insured had in such a short span of time obtained two different life insurance policies. Such a fact is sufficient to put the insurer to enquiry. 28. Learned counsel appearing on behalf of the insurer submitted that where a warranty has been furnished by the proposer in terms of a declaration in the proposal form, the requirement of the information being material should not be insisted upon and the insurer would be at liberty to avoid its liability irrespective of whether the information which is sought is material or otherwise. For the purposes of the present case, it is sufficient for this Court to hold in the present facts that the information which was sought by the insurer was indeed material to its decision as to whether or not to undertake a risk. The proposer was aware of the fact, while making a declaration, that if any statements were untrue or inaccurate or if any matter material to the proposalwas not disclosed, the insurer may cancel the contract and forfeit the premium.We are not impressed with the submission that the proposer was unaware of the contents of the form that he was required to fill up or that in assigning such a response to a third party, he was absolved of the consequence of appending his signatures to the proposal. The proposer duly appended his signature to the proposal form and the grant of the insurance cover was on the basis of the statements contained in the proposal form. Barely two months before the contract of insurance was entered into with the appellant, the insured had obtained another insurance cover for his life in the sum of Rs 11 lakhs. We are of the view that the failure of the insured to disclose the policy of insurance obtained earlier in the proposal form entitled the insurer to repudiate the claim under the policy. 30. We may note at this stage, that the view which was taken by the NCDRC in the present case was contrary to its earlier decision in Vidya Devi (supra). In that case, the NCDRC upheld the repudiation of an insurance claim under a life insurance cover by the LIC on the ground of a non-disclosure of previous insurance policies. In taking this view, the NCDRC relied on its earlier decision in Chandarana (supra). Subsequently in Sahara India (supra), the NCDRC took a contrary view. Having noticed its earlier decisions, the NCDRC did not even attempt to distinguish them. Indeed, the earlier decisions were binding on the NCDRC. This line of approach on the part of the NCDRC must be disapproved. 31. Finally, the argument of the respondent that the signatures of the assured on the form were taken without explaining the details cannot be accepted.