Summary
The Supreme Court held that a life insurer could not repudiate a claim for non-disclosure of other policies where the insured had disclosed, and supplied a copy of, a larger existing life policy and omitted only policies of inconsequential sum assured. The disclosure was substantial, the omission would not have influenced a prudent insurer, and death was accidental under a life (not Mediclaim) cover; the claim was ordered to be paid with 9% interest.
Issues
- Whether the insured's failure to disclose three existing LIC policies, while disclosing an existing Aviva life policy, amounted to suppression of a material fact entitling the insurer to repudiate the life insurance claim.
- What constitutes a 'material fact' in a proposal for insurance, and how the decision in Rekhaben Nareshbhai Rathod applies to a case of partial disclosure.
Provisions considered
- Regulation 2(d) and Explanation (definition of 'proposal form' and 'material'), Insurance Regulatory and Development Authority (Protection of Policyholders' Interests) Regulations, 2002Quoted through Manmohan Nanda: 'material' means all important, essential and relevant information in the context of underwriting the risk. The Court used this, with the prudent-insurer test, to hold that the omitted policies were not material on the facts. (¶¶ 10, 18)
Held
- Insurance is a contract of utmost good faith; the proposer must disclose all facts that may weigh with a prudent insurer in assuming the risk, and non-disclosure of such facts may justify repudiation. Materiality is judged by whether the fact would influence a prudent insurer in deciding to accept the risk or fix the premium, and is decided case by case. (¶¶ 10, 12, 15)
- Rekhaben Nareshbhai Rathod, where repudiation was upheld, concerned a complete failure to disclose a life policy taken barely two months earlier; a case of substantial but partial disclosure stands on a different footing. (¶¶ 13, 14, 18)
- The insured had disclosed an existing Aviva life policy (mentioned in the form as Rs. 4 lakh but in fact Rs. 40 lakh, a copy of which was supplied with the proposal), and omitted only LIC policies totalling Rs. 2,30,000. This was a substantial disclosure sufficient for a prudent insurer to assess the risk, and the omission would not have influenced the decision to issue the policy. (¶¶ 9, 17, 18)
- Since the policy was a life cover rather than a Mediclaim policy, and death was due to an accident, the failure to mention the other policies was not a material fact; the insurer, aware of a larger existing policy and of the insured's capacity to pay premium, could not repudiate the claim. (¶¶ 18, 19)
Result
Appeal allowed; repudiation letter dated 03.03.2016 and the orders of the State and National Commissions set aside; insurer directed to release all policy benefits with interest at 9% per annum from the date due until realisation; no order as to costs.