Supreme Court Upholds Insurance Claim: Failure to Prove Material Suppression Leads to Victory for Complainant (10 April 2024)

Date of the Judgment: 10 April 2024

Citation: 2024 INSC 296

Judges: B.V. Nagarathna, J. and Augustine George Masih, J.

Can an insurance company reject a claim by alleging that the insured person hid details about other insurance policies they had? The Supreme Court of India recently addressed this important question in a case where an insurance company denied a claim, stating that the insured had not disclosed all their existing policies. The court examined whether the insurance company had sufficiently proved that the insured had indeed hidden material facts. This judgment clarifies the responsibilities of insurance companies and policyholders regarding disclosure of information.

Case Background

The case involves Mahakali Sujatha, the daughter and nominee of the deceased, Sri Siriveri Venkateswarlu, who had two life insurance policies with Future General I India Life Insurance Company Limited. The first policy was taken on 05 May 2009 for Rs. 4,50,000, and the second on 22 March 2010 for Rs. 4,80,000. Both policies had a clause for double the sum assured in case of accidental death. In the application forms, the insured had stated that he did not have any other existing life insurance policies. Unfortunately, Sri Siriveri Venkateswarlu died in a train accident on 28 February 2011. His daughter, Mahakali Sujatha, filed a claim for the insurance amount. However, the insurance company rejected her claim on 31 December 2011, alleging that her father had not disclosed his existing life insurance policies with other companies.

Timeline:

Course of Proceedings

The District Consumer Forum at Vijaywada ruled in favor of the complainant, stating that the insurance company had not provided any documentary evidence to prove that the deceased had policies with other companies. The Forum ordered the insurance company to pay the insurance amount with interest. However, the State Consumer Forum dismissed the insurance company’s appeal, noting that the documents presented by the company were neither original nor authenticated, and that even if other policies existed, non-disclosure did not amount to suppression of material facts. Subsequently, the National Consumer Disputes Redressal Commission (NCDRC) overturned the State Forum’s decision, agreeing with the insurance company that the insured had withheld information about other policies. The NCDRC relied on a Supreme Court judgment in Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175, which upheld the repudiation of a claim due to suppression of information about existing insurance policies. This led to the complainant appealing to the Supreme Court.

Legal Framework

The case is primarily governed by Section 45 of the Insurance Act, 1938. This section states that an insurance policy cannot be challenged after two years from the date it was issued, except under specific conditions. According to the section, an insurer can challenge a policy if:

• A statement made in the proposal was inaccurate or false.
• The statement was on a material matter or suppressed facts that were material to disclose.
• The statement was fraudulently made by the policyholder.
• The policyholder knew the statement was false or suppressed facts that were material to disclose.

The relevant part of Section 45 of the Insurance Act, 1938, as it stood at the material time, is reproduced as under:

“45. Policy not be called in question on ground of mis -statement after two years. – No 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 a statement made in the proposal for insurance 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.”

The principle of “uberrimae fidei” (utmost good faith) also applies to insurance contracts, requiring both parties to disclose all material facts. This principle was discussed in the case of Manmohan Nanda vs. United India Insurance Co. Ltd., (2022) 4 SCC 582.

The Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002, also defines “material” in the context of a proposal form, stating that it includes all “important, essential, and relevant information” for underwriting the risk.

Arguments

Appellant’s Arguments:

• The insurance company failed to prove that the insured had any other insurance policy at the time of taking the policy with them.
• There was no documentary evidence to support the claim of material suppression of facts regarding previous policies.
• The NCDRC was wrong in upholding the repudiation of the claim without any supporting evidence.
• The insurance company merely alleged the existence of multiple policies through an affidavit, without providing any proof.

Respondent’s Arguments:

• The insured had taken fifteen other insurance policies worth Rs. 71,27,702 before taking the subject policies.
• These policies were not disclosed in the proposal forms.
• Had the respondent known about these other insurance policies, they would not have issued the subject policies.
• The principle of “uberrimae fidei” requires the insured to make a full and honest disclosure of all relevant facts.
• The failure to disclose previous policies renders the policy invalid.
• The judgment in Rekhaben supports the repudiation of the claim due to material suppression of information.

[TABLE] of Submissions:

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

1. Whether the respondent was correct in repudiating the claim of the appellant on the ground of suppression of material information pertaining to the existing policies with other insurers.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

Cases Relied Upon by the Court:

• Mithoolal Nayak vs. Life Insurance Corporation of India, AIR 1962 SC 814 – The Supreme Court of India explained the scope of Section 45 of the Insurance Act, 1938, stating that the insurer must prove that a statement was made on a material matter, suppressed facts which it was material to disclose, and that it was fraudulently made by the policyholder.
• Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175 – The Supreme Court of India upheld the repudiation of an insurance claim due to the suppression of information about existing insurance policies. However, this case was distinguished from the present case because in Rekhaben, the insured admitted to not disclosing the previous policy.
• Manmohan Nanda vs. United India Insurance Co. Ltd., (2022) 4 SCC 582 – The Supreme Court of India discussed the principle of “uberrimae fidei” and the rule of “contra proferentem,” emphasizing the reciprocal duties of disclosure between the insured and the insurer.
• Carter vs. Boehm, (1766) 3 Burr 1905 – This English case was cited to explain the principles necessitating disclosure by the assured, emphasizing that insurance is a contract of speculation where the insurer trusts the assured’s representation.
• Reynolds vs. Phoenix Assurance Co. Ltd., (1978) 2 Lloyd’s Rep. 440 – This case was cited to explain that a material fact is one that would influence the judgment of a prudent insurer, not a particular insurer.
• RVE Venkatachala Gounder vs. Arulmigu Viswesaraswami and VP Temple, (2003) 8 SCC 752 – This case was cited to explain the shifting of the onus of proof in a suit for possession based on title.
• Shobika Attire vs. New India Assurance Co. Ltd., (2006) 8 SCC 35 – This case was cited to explain that in a claim against an insurance company for compensation, once the initial burden is discharged by the insured, it is for the insurance company to disprove such claim with evidence.
• General Assurance Society Ltd. vs. Chandumull Jain, AIR 1966 SC 1644 – This case was cited to emphasize that where there is an ambiguity in the contract of insurance, it has to be construed contra proferentem against the insurance company.
• DDA vs. Durga Chand Kaushish, AIR 1973 SC 2609 – This case was cited to explain that when construing a document, the meaning of the words used should be considered, and if two interpretations are possible, the one that gives effect to all parts should be adopted.
• Central Bank of India Ltd. vs. Hartford Fire Insurance Co. Ltd., AIR 1965 SC 1288 – This case was cited to emphasize that a policy in a standard form contract prepared by the insurer should be interpreted in a way that would be favorable to the assured.
• Sahebzada Mohammad Kamgarh Shah vs. Jagdish Chandra Deo Dhabal Deb, AIR 1960 SC 953 – This case was cited to explain that where there is an ambiguity, the document has to be interpreted strictly against the grantor and in favor of the grantee.
• United India Insurance Co. Ltd. vs. Orient Treasures (P) Ltd., (2016) 3 SCC 49 – This case was cited to explain the “contra proferentem” rule, stating that if a policy is produced by insurers, they must ensure precision, and ambiguity will be resolved in favor of the insured.
• Sushilaben Indravadan Gandhi vs. New India Assurance Co. Ltd., (2021) 7 SCC 151 – This case was cited to emphasize that any exemption of liability clause in an insurance contract must be construed, in case of ambiguity, contra proferentem against the insurer.
• Export Credit Guarantee Corpn. (India) Ltd. vs. Garg Sons International, (2014) 1 SCC 686 – This case was cited to explain that the terms of an insurance policy have to be construed strictly, and the contract must be read as a whole.

Legal Provisions Considered by the Court:

• Section 45 of the Insurance Act, 1938 – This section governs the repudiation of an insurance claim based on misstatements or suppression of facts.
• Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002 – This regulation defines “material” information in the context of insurance proposal forms.
• Section 101 of the Evidence Act, 1872 – This section states that the burden of proof lies on the person who asserts a fact.
• Section 102 of the Evidence Act, 1872 – This section provides a test regarding on whom the burden of proof would lie.
• Section 103 of the Evidence Act, 1872 – This section states that the burden of proof as to any particular fact lies on the person who wishes the Court to believe in its existence.
• Section 104 of the Evidence Act, 1872 – This section states that the burden of proving any fact necessary to be proved in order to enable any person to give evidence of any other fact is on the person who wishes to give such evidence.
• Section 106 of the Evidence Act, 1872 – This section states that when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.

[TABLE] of Authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Court used Mithoolal Nayak vs. Life Insurance Corporation of India, AIR 1962 SC 814 to emphasize that the insurer has to prove the suppression of a material fact and that it was fraudulently made.
• The Court distinguished the facts of the present case from Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175, stating that in Rekhaben, the insured had admitted to the non-disclosure.
• The Court used Manmohan Nanda vs. United India Insurance Co. Ltd., (2022) 4 SCC 582 to discuss the principle of “uberrimae fidei” and the rule of “contra proferentem” and emphasized the need for reciprocal duties of disclosure between the insured and the insurer.
• The Court cited Carter vs. Boehm, (1766) 3 Burr 1905 to illustrate the importance of full disclosure in insurance contracts.
• The Court cited Reynolds vs. Phoenix Assurance Co. Ltd., (1978) 2 Lloyd’s Rep. 440 to explain that a material fact is one that would influence the judgment of a prudent insurer.
• The Court cited RVE Venkatachala Gounder vs. Arulmigu Viswesaraswami and VP Temple, (2003) 8 SCC 752 to explain the shifting of the onus of proof.
• The Court cited Shobika Attire vs. New India Assurance Co. Ltd., (2006) 8 SCC 35 to emphasize that the burden to disprove a claim rests on the insurer.
• The Court cited General Assurance Society Ltd. vs. Chandumull Jain, AIR 1966 SC 1644 to emphasize that ambiguity in an insurance contract should be construed against the insurance company.
• The Court cited DDA vs. Durga Chand Kaushish, AIR 1973 SC 2609 to explain the interpretation of documents.
• The Court cited Central Bank of India Ltd. vs. Hartford Fire Insurance Co. Ltd., AIR 1965 SC 1288 to emphasize that a standard form contract should be interpreted in a way favorable to the assured.
• The Court cited Sahebzada Mohammad Kamgarh Shah vs. Jagdish Chandra Deo Dhabal Deb, AIR 1960 SC 953 to explain that an ambiguous document should be interpreted against the grantor and in favor of the grantee.
• The Court cited United India Insurance Co. Ltd. vs. Orient Treasures (P) Ltd., (2016) 3 SCC 49 to explain the “contra proferentem” rule.
• The Court cited Sushilaben Indravadan Gandhi vs. New India Assurance Co. Ltd., (2021) 7 SCC 151 to emphasize that exemption clauses should be interpreted against the insurer.
• The Court cited Export Credit Guarantee Corpn. (India) Ltd. vs. Garg Sons International, (2014) 1 SCC 686 to explain that the terms of an insurance policy should be construed strictly.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following points:

• Lack of Evidence: The insurance company failed to provide sufficient documentary evidence to prove that the insured had other insurance policies. The court noted that mere allegations in an affidavit were not sufficient proof.
• Ambiguity in Proposal Form: The court found the questions in the proposal form regarding existing policies to be ambiguous and unclear, making it difficult to ascertain the exact information sought.
• Burden of Proof: The court reiterated that the burden of proof lies on the insurer to prove the suppression of material facts, which the insurance company failed to do.
• Application of Contra Proferentem Rule: The court applied the “contra proferentem” rule, which states that if there is any ambiguity in the contract, it should be interpreted against the party who drafted it (in this case, the insurance company).
• Principle of Uberrimae Fidei: While acknowledging the principle of utmost good faith, the court emphasized that it applies to both parties, and the insurer also has a duty to ensure clarity in their proposal forms.

[TABLE] of Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The court rejected the insurance company’s argument that the insured had suppressed material facts, emphasizing that the company had not provided enough evidence to support its claim. The court also highlighted that the proposal form was ambiguous and did not clearly specify the required disclosures. The court relied on the rule of “contra proferentem,” which states that any ambiguity in a contract should be interpreted against the party who drafted it. The court also noted that the principle of “uberrimae fidei” applies to both parties, and the insurer also has a duty to ensure clarity in their proposal forms.

The Supreme Court observed that the NCDRC erred by relying on thejudgment in Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175, because in that case, the insured had admitted to not disclosing the previous policy. In the present case, there was no such admission, and the insurance company failed to prove the existence of other policies. The Supreme Court thus set aside the order of the NCDRC and allowed the appeal filed by Mahakali Sujatha, thereby upholding the decision of the District Consumer Forum.

Ratio Decidendi

The ratio decidendi of this case is that an insurance company cannot repudiate a claim based on the alleged suppression of material facts by the insured unless it provides sufficient documentary evidence to prove the suppression. The burden of proof lies on the insurer to demonstrate that the insured made a false statement or suppressed facts that were material to disclose. Additionally, if the proposal form is ambiguous or unclear, it will be interpreted against the insurer, in line with the principle of “contra proferentem.” The principle of “uberrimae fidei” applies to both parties, and the insurer also has a duty to ensure clarity in their proposal forms.

Conclusion

The Supreme Court’s judgment in this case reinforces the importance of clear and unambiguous language in insurance proposal forms. It also emphasizes that insurance companies cannot arbitrarily repudiate claims without providing sufficient evidence to support their allegations. The judgment underscores the principle that the burden of proof lies on the insurer to prove any material suppression or misrepresentation by the insured. This case serves as a significant precedent for future insurance disputes, highlighting the need for transparency and fairness in insurance contracts.

Summary of Key Takeaways:

• Insurance companies must provide concrete evidence to prove material suppression by the insured. Mere allegations are not sufficient.
• Proposal forms should be clear and unambiguous. Any ambiguity will be interpreted against the insurer.
• The burden of proof lies on the insurer to prove any misrepresentation or suppression of facts.
• The principle of “uberrimae fidei” applies to both the insurer and the insured.
• The rule of “contra proferentem” will be applied in case of ambiguity in the insurance contract.