LEGAL ISSUE: Whether an insurer can repudiate a life insurance claim within two years of the policy’s commencement due to the insured’s failure to disclose a previous insurance policy.
CASE TYPE: Consumer Law
Case Name: Reliance Life Insurance Co Ltd & Anr vs. Rekhaben Nareshbhai Rathod
[Judgment Date]: 24 April 2019
Introduction
Date of the Judgment: 24 April 2019
Citation: (2019) INSC 412
Judges: Dr Dhananjaya Y Chandrachud, J and Hemant Gupta, J
Can an insurance company reject a claim if the policyholder didn’t mention they had another insurance policy? The Supreme Court of India recently tackled this question, focusing on whether the insurance company can reject the claim even if it is within two years of the policy being issued. This case revolves around a life insurance claim that was denied because the insured failed to disclose an existing policy. The Supreme Court of India, in this judgment, addressed the extent of the duty of disclosure in insurance contracts, particularly when a claim is made within two years of the policy’s commencement. The judgment was delivered by a two-judge bench comprising Dr. Dhananjaya Y Chandrachud, J and Hemant Gupta, J.
Case Background
On July 10, 2009, the respondent’s spouse obtained a life insurance policy from Max New York Life Insurance Co Ltd for ₹11 lakhs. Shortly after, on September 16, 2009, he applied for a term life insurance policy with the appellant, Reliance Life Insurance Co Ltd, for ₹10 lakhs. In the proposal form, he was asked if he had any existing life insurance, critical illness, or accident benefit cover, to which he responded negatively. He also marked “NA” or “not applicable” when asked for details of other insurance policies. The proposal form included a declaration stating that any untrue or inaccurate statements, or non-disclosure of material information, could lead to the cancellation of the contract and forfeiture of premiums.
Based on the proposal, Reliance Life Insurance issued a policy on September 22, 2009. The respondent’s spouse passed away on February 8, 2010. On May 24, 2011, the respondent, as the nominee, filed a claim for ₹10 lakhs. The claim was supported by a medical certificate stating sudden chest pain as the cause of death. On July 14, 2011, Max New York Life Insurance Co Ltd informed Reliance that the deceased had a policy with them for ₹11 lakhs, which had been settled. Consequently, on August 30, 2011, Reliance repudiated the claim, citing the suppression of material facts, specifically the non-disclosure of the existing life insurance policy, invoking Section 45 of the Insurance Act, 1938.
Timeline:
| Date | Event |
|---|---|
| July 10, 2009 | Respondent’s spouse takes a life insurance policy from Max New York Life Insurance Co Ltd for ₹11 lakhs. |
| September 16, 2009 | Respondent’s spouse submits a proposal for a life insurance policy with Reliance Life Insurance Co Ltd for ₹10 lakhs. |
| September 22, 2009 | Reliance Life Insurance Co Ltd issues a policy to the respondent’s spouse. |
| February 8, 2010 | Respondent’s spouse dies. |
| May 24, 2011 | Respondent submits a claim of ₹10 lakhs under the policy. |
| July 14, 2011 | Max New York Life Insurance Co Ltd informs Reliance about the existing policy of the deceased. |
| August 30, 2011 | Reliance Life Insurance Co Ltd repudiates the claim. |
| February 24, 2012 | The respondent addresses a legal notice alleging deficiency in service. |
| August 31, 2013 | District Forum dismisses the complaint. |
| November 28, 2014 | SCDRC allows the appeal of the respondent. |
| February 6, 2015 | NCDRC affirms the decision of SCDRC. |
| May 14, 2015 | Supreme Court stays the execution of the NCDRC decision. |
| April 24, 2019 | Supreme Court allows the appeal of the appellant. |
Course of Proceedings
The District Consumer Disputes Redressal Forum, Bhavnagar, dismissed the respondent’s complaint on August 31, 2013, citing the non-disclosure of a previous policy in the proposal form. However, the State Consumer Disputes Redressal Commission (SCDRC) allowed the respondent’s appeal on November 28, 2014, relying on a decision of the National Consumer Disputes Redressal Commission (NCDRC) in Sahara India Life Insurance Company Limited v Rayani Ramanjaneyulu. The NCDRC affirmed this decision on February 6, 2015, stating that the omission to disclose a previous policy would not influence a prudent insurer, as held in Sahara India. The Supreme Court stayed the execution of the NCDRC’s decision on May 14, 2015, subject to the appellant depositing 50% of the decretal amount.
Legal Framework
The case primarily revolves around the interpretation of Section 45 of the Insurance Act, 1938, which at the time read:
“45 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 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”
This section restricts an insurer’s ability to challenge a life insurance policy after two years from its commencement, unless the insurer proves that the policyholder made a false statement on a material matter or suppressed material facts fraudulently, knowing the statement was false or the facts were material to disclose. The court also considered the principle of uberrima fides, which requires utmost good faith on the part of the insured, and the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations 2002, which define “proposal form” and “material” information.
Arguments
Arguments of the Appellant (Reliance Life Insurance Co Ltd):
- The proposer suppressed the fact of having an existing insurance policy, providing false information in response to specific queries in the proposal form.
- The repudiation was within two years of the policy’s commencement due to non-disclosure, and thus the insurer is not required to prove the materiality of the non-disclosure.
- It is the insurer’s prerogative to determine what information is material, not the proposer’s.
- Disclosure of pre-existing life insurance is crucial for the insurer to assess the human life value and real risk.
- Section 45 of the Insurance Act, 1938, modifies common law only after two years of the policy, and repudiation within two years is not governed by it.
- The NCDRC’s judgment is contrary to the Supreme Court’s ruling in Satwant Kaur Sandhu v New India Assurance Co Ltd and the NCDRC’s own earlier decisions in LIC of India v Vidya Devi and Dineshbhai Chandarana v LIC.
- The NCDRC erroneously did not follow its earlier decisions in Vidya Devi and Chandarana, which upheld the repudiation of claims for non-disclosure of previous policies.
- Even a partial or ambiguous non-disclosure of previous policies vitiates the policy, as held in Condogianis v Guardian Assurance Company Ltd.
Arguments of the Respondent (Rekhaben Nareshbhai Rathod):
- The insurance agent induced the insured to sign a blank proposal form, and the insured was not conversant with English.
- The insurer raised the issue of a pre-existing urinary bladder ailment, which was not the basis for the repudiation letter.
- Non-disclosure of a previous policy is not a valid ground for repudiation, as there is no prohibition on holding multiple life insurance policies.
- The non-disclosure is not of material consequence under Section 45 of the Insurance Act, 1938, and would not have influenced the insurer or the premium rate.
- A Special Leave Petition against the NCDRC’s decision in Sahara India was dismissed.
The innovativeness of the appellant’s argument lies in emphasizing the insurer’s right to determine materiality and the significance of non-disclosure within the first two years of the policy.
| Main Submission | Sub-Submissions of Appellant | Sub-Submissions of Respondent |
|---|---|---|
| Non-disclosure of Previous Policy |
✓ Specific disclosure required in proposal form. ✓ False information submitted by proposer. ✓ Breach of duty to furnish full details. |
✓ Insured signed blank form induced by agent. ✓ Insured not conversant with English. |
| Repudiation within Two Years |
✓ Insurer not required to prove materiality. ✓ Insurer determines what is material. ✓ Section 45 does not apply. |
✓ Non-disclosure not of material consequence under Section 45. ✓ Would not have influenced insurer or premium rate. |
| Materiality of Non-disclosure |
✓ Necessary to assess human life value. ✓ Non-disclosure prevents assessment of real risk. ✓ Important for financial underwriting. |
✓ No prohibition on holding multiple policies. ✓ Death was due to a heart attack, covered by the policy. |
| Precedent and Legal Position |
✓ NCDRC judgment contrary to Supreme Court and NCDRC’s own decisions. ✓ Relied on Satwant Kaur Sandhu, Vidya Devi, Chandarana. ✓ Partial non-disclosure vitiates policy as per Condogianis. |
✓ Relied on dismissal of SLP against Sahara India. |
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:
- Whether the insurer was justified in repudiating the insurance claim within two years of the policy’s commencement due to the insured’s non-disclosure of a previous life insurance policy.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision and Reasoning |
|---|---|
| Whether the insurer was justified in repudiating the insurance claim within two years of the policy’s commencement due to the insured’s non-disclosure of a previous life insurance policy. | The Supreme Court held that the insurer was justified in repudiating the claim. The court reasoned that the insured had a duty to disclose all material facts, including the existence of a previous life insurance policy. The court emphasized that the non-disclosure of the previous policy was a material fact that would have influenced the insurer’s decision to issue the policy. The court also noted that the repudiation was within two years of the policy’s commencement, and therefore, the insurer was not required to prove that the non-disclosure was fraudulent. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How the Authority was Considered | Legal Point |
|---|---|---|---|
| Mithoolal Nayak v LIC [1962 Suppl (2) SCR 531] | Supreme Court of India | The Court noted that this case involved a repudiation beyond two years and kept open the issue of what would govern cases where Section 45 of the Insurance Act, 1938, did not apply. | Applicability of Section 45 of the Insurance Act, 1938 |
| Satwant Kaur Sandhu v New India Assurance Co Ltd [(2009) 8 SCC 316] | Supreme Court of India | The Court relied on this case to emphasize that it is not for the proposer to determine whether the information sought is material. | Materiality of facts in insurance contracts |
| Sheoshankar Ratanlalji Khamele v Life Insurance Corporation of India [AIR 1971 Bom 304] | Bombay High Court | The Court cited this case to highlight that Section 45 modifies common law when a policy is repudiated after two years. | Interpretation of Section 45 of the Insurance Act, 1938 |
| LIC of India v Vidya Devi [(2012) 3 CPJ 288 (NC)] | National Consumer Disputes Redressal Commission | The Court noted that the NCDRC had previously upheld the repudiation of a claim for non-disclosure of previous policies. | Non-disclosure of previous policies |
| Dineshbhai Chandarana v LIC [(2010) 3 CPJ 358 (NC)] | National Consumer Disputes Redressal Commission | The Court noted that the NCDRC had previously upheld the repudiation of a claim for non-disclosure of previous policies. | Non-disclosure of previous policies |
| Condogianis v Guardian Assurance Company Ltd [AIR 1921 PC 195] | Privy Council | The Court used this case to emphasize that even partial non-disclosure vitiates a policy. | Duty of disclosure in insurance contracts |
| Lakshmishankar v Gresham Life Assurance Society [AIR 1932 Bom 582] | Bombay High Court | The Court followed this case to highlight that the truth of statements in the proposal are a condition of the liability of the assurance company. | Basis of contract in insurance |
| Life Insurance Corporation of India v Smt GM Channabasamma [(1991) 1 SCC 357] | Supreme Court of India | The Court referred to this case to reiterate that a contract of insurance is uberrima fides and the assured has a solemn obligation to make full disclosure of material facts. | Duty of disclosure in insurance contracts |
| Life Insurance Corpn of India v Asha Goel (Smt) [(2001) 2 SCC 160] | Supreme Court of India | The Court cited this case to emphasize the duty to disclose material facts and the consequences of misstatements or suppression of material facts. | Duty of disclosure in insurance contracts |
| United India Insurance Co Ltd v MKJ Corporation [(1996) 6 SCC 428] | Supreme Court of India | The Court relied on this case to define the term ‘material fact’. | Definition of material fact |
| Modern Insulators Ltd v Oriental Insurance Co Ltd [(2000) 2 SCC 734] | Supreme Court of India | The Court relied on this case to define the term ‘material fact’. | Definition of material fact |
| Carter v Boehm [(1766) 3 Burr 1905] | King’s Bench | The Court cited this case to explain the duty of disclosure in insurance contracts. | Duty of disclosure in insurance contracts |
| VK Srinivasa Setty v Messers Premier Life and General Insurance Co Ltd [AIR 1958 Mys 53] | Mysore High Court | The Court relied on this case to reject the argument that the proposer was unaware of the contents of the form. | Responsibility of the proposer |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant’s submission that the proposer suppressed the fact of having an existing insurance policy. | The Court agreed that the proposer had suppressed the fact of having an existing insurance policy and that it was a material fact. |
| Appellant’s submission that repudiation within two years does not require proof of materiality. | The Court agreed that within two years, the insurer can repudiate the policy if there is a misrepresentation or suppression of material facts. |
| Appellant’s submission that the insurer determines what is material. | The Court agreed that it is for the insurer to determine what is material and that the proposer cannot decide this. |
| Respondent’s submission that the insured signed a blank form and was unaware of the contents. | The Court rejected this argument, stating that the proposer is responsible for the contents of the signed proposal form. |
| Respondent’s submission that non-disclosure of a previous policy is not a valid ground for repudiation. | The Court rejected this submission, stating that non-disclosure of a previous policy is a material fact that can justify repudiation. |
| Respondent’s submission that the non-disclosure was not of any material consequence under Section 45 of the Insurance Act. | The Court rejected this submission, stating that the non-disclosure was material. |
How each authority was viewed by the Court?
The Court relied on Satwant Kaur Sandhu v New India Assurance Co Ltd [ (2009) 8 SCC 316]* to emphasize that it is not for the proposer to determine whether the information sought is material. The Court also relied on Condogianis v Guardian Assurance Company Ltd [AIR 1921 PC 195]* to emphasize that even partial non-disclosure vitiates a policy. The Court distinguished Mithoolal Nayak v LIC [1962 Suppl (2) SCR 531]* as a case involving a repudiation beyond two years, keeping open the issue of what would govern cases where Section 45 of the Insurance Act, 1938, did not apply. The Court also relied on Sheoshankar Ratanlalji Khamele v Life Insurance Corporation of India [AIR 1971 Bom 304]* to highlight that Section 45 modifies common law when a policy is repudiated after two years. The Court noted that the NCDRC had previously upheld the repudiation of a claim for non-disclosure of previous policies in LIC of India v Vidya Devi [(2012) 3 CPJ 288 (NC)]* and Dineshbhai Chandarana v LIC [(2010) 3 CPJ 358 (NC)]*. The Court cited Life Insurance Corporation of India v Smt GM Channabasamma [(1991) 1 SCC 357]* and Life Insurance Corpn of India v Asha Goel (Smt) [(2001) 2 SCC 160]* to reiterate that a contract of insurance is uberrima fides and the assured has a solemn obligation to make full disclosure of material facts. The Court also relied on United India Insurance Co Ltd v MKJ Corporation [(1996) 6 SCC 428]* and Modern Insulators Ltd v Oriental Insurance Co Ltd [(2000) 2 SCC 734]* to define the term ‘material fact’. The Court cited Carter v Boehm [(1766) 3 Burr 1905]* to explain the duty of disclosure in insurance contracts. Finally, the Court relied on VK Srinivasa Setty v Messers Premier Life and General Insurance Co Ltd [AIR 1958 Mys 53]* to reject the argument that the proposer was unaware of the contents of the form.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle of uberrima fides, which requires the insured to act in utmost good faith and disclose all material facts. The Court emphasized that the non-disclosure of a previous life insurance policy was a material fact that could influence the insurer’s decision to issue the policy. The Court also highlighted that the repudiation was within two years of the policy’s commencement, which meant that the insurer was not required to prove that the non-disclosure was fraudulent. The Court also noted that the proposer was aware of the declaration that any untrue or inaccurate statements or non-disclosure of material facts could lead to cancellation of the policy.
| Sentiment | Percentage |
|---|---|
| Duty of Utmost Good Faith | 30% |
| Materiality of Non-Disclosure | 35% |
| Repudiation within Two Years | 20% |
| Proposer’s Responsibility | 15% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning was primarily based on legal principles and precedents, with a lesser emphasis on the specific facts of the case. The legal considerations included the principle of uberrima fides, the interpretation of Section 45 of the Insurance Act, 1938, and the previous decisions of the Supreme Court and other High Courts.
The Court considered the argument that the insured was not aware of the contents of the form, but rejected it, stating that the proposer is responsible for the contents of the signed proposal form. The Court also considered the argument that the non-disclosure was not of material consequence under Section 45 of the Insurance Act, but rejected it, stating that the non-disclosure was material. The Court did not consider any alternative interpretations of the law or facts.
The Court’s decision was based on the principle of uberrima fides, which requires the insured to act in utmost good faith and disclose all material facts. The Court emphasized that the non-disclosure of a previous life insurance policy was a material fact that could influence the insurer’s decision to issue the policy.
The Supreme Court held that the insurer was justified in repudiating the claim. The Court stated that the insured had failed to disclose a material fact, namely, the existence of a previous life insurance policy. The Court also stated that the repudiation was within two years of the policy’s commencement, and therefore, the insurer was not required to prove that the non-disclosure was fraudulent. The Court’s decision was unanimous.
The Court’s decision implies that in insurance contracts, the insured has a duty to disclose all material facts, and that the insurer can repudiate a claim if the insured fails to do so. The decision also implies that the insurer can repudiate a claim within two years of the policy’s commencement without having to prove that the non-disclosure was fraudulent.
The Court did not introduce any new doctrines or legal principles. The Court’s decision was based on existing legal principles and precedents.
Key Takeaways
- Duty of Disclosure: Policyholders have a strict duty to disclose all material facts to the insurer, including any existing insurance policies.
- Materiality: The insurer has the right to determine what information is material for assessing risk.
- Repudiation within Two Years: Insurers can repudiate claims within two years of policy commencement if there is a misrepresentation or suppression of material facts, without having to prove fraud.
- Proposer’s Responsibility: The proposer is responsible for the accuracy of the information provided in the proposal form, regardless of who filled it.
- Impact on Future Cases: This judgment reinforces the insurer’s right to repudiate claims based on non-disclosure, particularly within the initial two-year period.
Directions
The Supreme Court directed that the amount withdrawn by the respondent as per the interim order should not be recovered.
Development of Law
The ratio decidendi of this case is that the non-disclosure of a previous life insurance policy is a material fact that can justify the repudiation of a claim by the insurer, especially within the first two years of the policy. This decision reinforces the principle of uberrima fides and clarifies that the insurer has the right to determine what is material. The Supreme Court did not change any previous positions of law, but rather reaffirmed the existing legal principles and precedents.
Conclusion
In conclusion, the Supreme Court allowed the appeal of Reliance Life Insurance Co Ltd, setting aside the NCDRC’s order. The court held that the insurer was justified in repudiating the claim due to the insured’s non-disclosure of a previous life insurance policy. This judgment reinforces the principle of uberrima fides in insurance contracts and clarifies the insurer’s right to repudiate claims within two years of policy commencement for non-disclosure of material facts.