Insurance Company Must Insist On Disclosure Of Specific Details, Can't Repudiate Policy Later On Grounds Of Suppression: Allahabad HC
The Allahabad High Court has held that if the insurance company wants specific details to be filed in the form for issuing insurance policy, it must insist upon the person seeking the policy to disclose the same. Once the policy has been issued to the person without disclosing such facts and premium has been recovered by the insurance company, it cannot repudiate the contract on grounds...
The Allahabad High Court has held that if the insurance company wants specific details to be filed in the form for issuing insurance policy, it must insist upon the person seeking the policy to disclose the same. Once the policy has been issued to the person without disclosing such facts and premium has been recovered by the insurance company, it cannot repudiate the contract on grounds of suppression/ non-disclosure of material facts.
The bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit held,
“If specific queries are made in the proposal form then it is the duty of the insured to answer that specific queries, but if any query or column in a proposal form is left blank then the insurance company must ask the insured to fill it up. If in spite of any column being left the insurance company accepts the premium, and thereafter, issued policy bond, it cannot at a subsequent stage repudiate the claim of the insured. It is the duty of the insurer to verify the details of previous policy which is already on record with them.”
Holding that “material fact” depends on the nature of policy, risk covered, queries raised in the proposal and the health of the insured at the time of issuance of policy, the Court held, “The test is whether the facts in question would influence the prudent insurer or not. If 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 then the fact will be a material fact.”
Factual Background
Petitioner's wife obtained a life insurance policy from Life Insurance Corporation of India (LIC) wherein petitioner was a nominee. After her death, the husband-petitioner applied to LIC for disbursement of insurance money due upon her death. However, the claim was rejected on grounds that the insured had withheld certain information regarding her previous policy while applying for the one in dispute. Since it was concealment, the claim was declared not payable.
Petitioner filed an application before the Regional Manager, LIC Kanpur who also rejected his claim on the same grounds. Thereafter, petitioner approached Assistant Secretary/Deputy Secretary/Secretary, Insurance Ombudsman, Lucknow who also rejected his claim on grounds that complaint was not in accordance with Rule 13(1), 14(1), 14(3), 14(5), 17(3)(ii) of Insurance Ombudsman Rule, 2017, was barred by limitation and was beyond the pecuniary jurisdiction.
Accordingly, the petitioner approached the High Court on grounds that according to their agent, previous policies was known to LIC and that the same need not be disclosed.
Counsel for respondents argued that there were columns in the form which were required to be filled with the details of the previous policy and the same were left blank by the deceased. Since there was breach of condition of the policy, it was argued that the policy was liable to repudiation.
High Court Verdict
The Court held that the order passed by the Insurance Ombudsman was completely vague and arbitrary. It held that all conditions for filing the complaint were satisfied by the petitioner.
The Court noted that Section 45 of the Insurance Act, 1938 provides that an insurance policy cannot be questioned on any grounds whatsoever after expiration of 3 year period from the date of policy. Section 45(2) provides that an insurance policy can be questioned within three years from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy on grounds of fraud.
Explanation-II of Section 45(2) reads as
“Mere silence as to facts likely to affect the assessment of the risk by the insurer is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the insured or his agent keeping silence, to speak, or unless his silence is, in itself, equivalent to speak.”
Section 45(3) provides that if the insured can establish that there was no intention to commit fraud, the insurer cannot repudiate the insurance policy on grounds of fraud.
The Court noted that Section 45(4) of the Insurance Act provides that no insurance policy can be cancelled within 3 years of date of issuance on the ground that any statement of or suppression of a fact material to the expectancy of the life of the insured was incorrectly made in the proposal or other document on the basis of which the policy was issued or revived or rider issued provided that if the policy is repudiated on grounds of suppression and not fraud, the premium deposited by the insured must be returned.
The Court observed that in Mahakali Sujatha v. Future Generali India Life Insurance Co. Ltd. and Mahaveer Sharma v. Exide Life Insurance Co. Ltd. the Apex Court held that for repudiation on grounds of suppression, the burden to prove the allegation of non-disclosure of the material fact and that the non-disclosure was fraudulent is on the insurer.
In Manmohan Nanda v. United India Assurance Co. Ltd, the Apex Court held that “If the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguity then the insurance company after accepting premium cannot urge that there was a wrong declaration made by the insured. Leaving out a column blank does not mean that there was a misdescription of facts. To make a contract void, the non-disclosure should be of some very material fact.”
The bench headed by Justice Saraf held that it is the duty of the insured to disclose all material facts at the time of obtaining insurance policy and the what constitutes material fact will depend on the policy and the health and condition of the person who is obtaining the policy at the time of obtaining it.
“The contra proferentem rule has an ancient genesis. When words are to be construed, resulting in two alternative interpretations then, the interpretation which is against the person using or drafting the words or expressions which have given rise to the difficulty in construction, applies. When such standard form contracts ordinarily contain exception clauses, they are invariably construed contra proferentem rule against the person who has drafted the same.”
The Court held that there was no deliberate suppression of fact of previous policies by the insured as one of them had been obtained from LIC less than 3 months prior to obtaining the policy in dispute and all previous policies were disclosed to the LIC agent who said that disclosing the previous policies was not necessary. It held that minimum due diligence is expected from LIC as insurance policies are linked to Aadhar and PAN card which should have been verified by LIC while issuing new policy.
The Court held that once LIC has accepted the form despite certain parts being blank, issued policy and recovered premium, it cannot repudiate the policy on grounds of suppression of material fact at a later stage. It held that the burden of proof was on LIC to verify all details of the insured before issuing the policy and the same cannot be shifted on the petitioner to deny him his rightful claim.
Reliance was again placed on Manmohan Nanda v. United India Assurance Co. Ltd, where the Apex Court held that if the insurance company wants certain specific columns of the form filed, it must insist upon filing of that. If the columns are left blank and the policy is issued, the insurance company cannot repudiate the contract at a later stage due to suppression or non-disclosure of facts in those columns.
Accordingly, the Court held that LIC accepted premiums without seeking any clarification regarding the blank columns where previous policies were to be disclosed. Noting that the petitioner's wife died due to sudden heart attack and not due to previous ailments, the Court held that the actions of LIC were arbitrary.
Setting aside the impugned orders, the Court directed payment of the insured amount by LIC.
Case Title: Santosh Kumar v. Assistant Secretary/Deputy Secretary/Secretary, Insurance Ombudsman, Lucknow and Others [WRIT-C NO. 21818 OF 2023]