Reliance Life Insurance Co. Ltd. vs Rekhaben Nareshbhai Rathod

―DETAILS OF LIFE INSURANCE POLICIES HELD/PROPOSALS APPLIED WITH LIFE INSURANCE COMPANIES (INCLUDING EXISTING POLICIES WITH RELIANCE LIFE INSURANCE COMPANY LTD.)‖ The information 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.

5 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. The respondent’s spouse 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 the appellant’s e-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 the respondent’s claim on 30 August 2011 stating thus:

6 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, Bhavnagar3. The appellant contested the claim.

7 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 3 ―District Forum‖ 3 a decision of the NCDRC in Sahara India Life Insurance Company Limited v Rayani Ramanjaneyulu4. 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.

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 life 7 insurance 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 a ―not applicable‖ response, 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 non- disclosure 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. 8 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 material time:

13 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 11. 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 which 11 There is a similar restriction in the case of policies effected before the commencement of the Insurance Act 1932 after the expiry of two years from the date of the commencement of the Act, which is not material for the present case. 9 were 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.

32 For the reasons which we have adduced, we are of the view that the SCDRC was in error in reversing the judgment of the District Forum. The NCDRC has similarly erred in affirming the view of the SCDRC. We, accordingly, allow the appeal and set aside the impugned judgment and order of the NCDRC dated 20 February 2015. The consumer complaint filed by the respondent shall stand dismissed. 21

AIR 1958 Mys 53 23 33 By the interim order of this Court dated 14 May 2015, the respondent was permitted to withdraw 50 per cent of the decretal amount, unconditionally. Since the respondent has done so, we are of the view that the ends of justice would require a direction by this Court under Article 142 of the Constitution that the amount which has been withdrawn by the respondent shall not be recovered. We order accordingly. Subject to the aforesaid direction, the appeal shall stand allowed. There will be no order as to costs.

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