Branch Manager vs Dalbir Kaur

Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

Civil Appeal No. 3397 of 2020 (Arising out of SLP (C) No. 10652 of 2020)

Branch Manager, Bajaj Allianz Life …Appellants Insurance Company Ltd and Others

Versus

Dalbir Kaur …Respondent

JUDGMENT

Dr Dhananjaya Y Chandrachud, J

1 Leave granted.

2 This appeal arises from the judgment and order dated 20 March 2020 of the

National Consumer Disputes Redressal Commission. Signature Not Verified Digitally signed by ARJUN BISHT Date: 2020.10.16

3 On 5 August 2014, a proposal for obtaining a policy of insurance was submitted 15:54:55 IST Reason:

to the appellants by Kulwant Singh. The proposal form indicated the name of

the mother of the proposer, who is the respondent to these proceedings as the CA 3397/2020 2

nominee. The proposal form contained questions pertaining to the health and

medical history of the proposer and required a specific disclosure on whether

any ailment, hospitalization or treatment had been undergone by the proposer.

Column 22 required a declaration of good health. The proposer answered the

queries in the negative, indicating thereby that he had not undergone any

medical treatment or hospitalization and was not suffering from any ailment or

disease. The declaration under Item 22(c) of the proposal form was in regard to

whether any diseases or disorders of the respiratory system such as but not

limited to blood in sputum, tuberculosis, asthma, infected respiratory disease or

any respiratory system disease including frequent nose bleeding, fever and

dyspnoea were involved. This query was also responded to in the negative.

Acting on the basis of the proposal submitted by the proposer, a policy of

insurance was issued by the appellants on 12 August 2014. Under the policy, the

life of the proposer was insured for a sum of Rs. 8.50 lakhs payable on maturity

with the death benefit of Rs. 17 lakhs.

4 On 12 September 2014, Kulwant Singh died, following which a claim was lodged

on the insurer. The death occurred within a period of one month and seven days

from the issuance of the policy. The claim was the subject matter of an

independent investigation, during the course of which, the hospital treatment

records and medical certificate issued by Baba Budha Ji Charitable Hospital, Bir

Sahib, Village Thatha (Tarntaran) were obtained. The records revealed,

according to the insurer, that the deceased has been suffering from Hepatitis C.

Copies of the investigation report dated 20 December 2014 and 9 January 2015

have been placed on the record. The investigation reports indicate that

proximate to the death, the deceased had been suffering from a stomach

ailment and from vomiting of blood, as a result of which he had been availing of CA 3397/2020 3

the treatment at the above hospital. The claim was repudiated on 12 May 2015

on account of the non-disclosure of material facts.

5 The respondent instituted a consumer complaint before the District Consumer

Disputes Redressal Forum. The District Forum allowed the complaint and directed

the appellants to pay the full death claim together with interest. The first appeal

was rejected by the State Consumer Disputes Redressal Commission (hereinafter

referred to as “SCDRC”) and the revision before the National Consumer Disputes

Redressal Commission (hereinafter referred to as “NCDRC”) has also been

dismissed. The NCDRC has relied on the decision of this Court in Sulbha Prakash

Motegaonkar & Ors vs Life Insurance Corporation of lndia 1. According to the

NCDRC, a disease has to be distinguished from a mere illness. It held that the

death had occurred due to natural causes and there was no reasonable nexus

between the cause of death and non-disclosure of disease. Consequently, while

affirming the judgment of the SCDRC, the NCDRC imposed costs of Rs. 2 lakhs

on the appellants, of which, an amount of Rs. 1 lakh was to be paid to the

complainant and Rs. 1 lakh was to be deposited with the Consumer Legal Aid

Account of the District Forum.

6 Mr Amol Chitale, learned counsel appearing on behalf of the appellants states

that the judgment of the consumer fora in the present case are contrary to the

law which has been laid down by this Court in Life Insurance Corporation of

India vs Asha Goel 2, P.C. Chacko vs Chairman, Life Insurance Corporation of

India 3 and Satwant Kaur Sandhu vs New India Assurance Company Limited 4.

Learned counsel submitted that a policy of insurance is governed by the

1 Civil Appeal No 8245/2015 decided on 5.10.2015 2 (2001) 2 SCC 160 3 (2008) 1 SCC 321 4 (2009) 8 SCC 316 CA 3397/2020 4

principles of utmost good faith. In the present case, the investigation reports

revealed that proximate to the date of death, the deceased had been

hospitalized in July 2014 with a complaint of having vomited blood and a non-

disclosure of the material facts would justify the repudiation of the claim by the

insurer. It was urged that the proposer was duty bound to make a full disclosure

in response to the queries in the proposal forum, which he failed to do. The

suppression of material facts by the insured entitles the appellants to repudiate

the policy under Section 45 of the Insurance Act 1938. Section 45 stipulates that

an insurer is restricted from calling into question a life insurance policy after an

expiry of two years from the date on which it was effected on the ground that a

false or inaccurate statement has been made in the (i) proposal; (ii) report of a

medical officer, referee or a friend of the insured; or (iii) in any other document

leading to the issue of policy. On the expiry of two years, the burden of proof

shifts to the insurer who has to establish that the false or inaccurate statement

was a material matter or related to material facts. In the present case, the

claim in question was repudiated within two years from the commencement of

the policy.

7 Notice was issued by this Court on 21 September 2020, in pursuance of which

the respondent has entered appearance through Mr. Aniket Jain, learned

counsel.

8 Mr Jain has supported the reasoning of the NCDRC, urging that the death in the

present case occurred due to natural cause and there was no nexus between

the cause of death and the alleged non-disclosure.

CA 3397/2020 5

9 A contract of insurance is one of utmost good faith. A proposer who seeks to

obtain a policy of life insurance is duty bound to disclose all material facts

bearing upon the issue as to whether the insurer would consider it appropriate to

assume the risk which is proposed. It is with this principle in view that the proposal

form requires a specific disclosure of pre-existing ailments, so as to enable the

insurer to arrive at a considered decision based on the actuarial risk. In the

present case, as we have indicated, the proposer failed to disclose the vomiting

of blood which had taken place barely a month prior to the issuance of the

policy of insurance and of the hospitalization which had been occasioned as a

consequence. The investigation by the insurer indicated that the assured was

suffering from a pre-existing ailment, consequent upon alcohol abuse and that

the facts which were in the knowledge of the proposer had not been disclosed.

This brings the ground for repudiation squarely within the principles which have

been formulated by this Court in the decisions to which a reference has been

made earlier. In Life Insurance Corporation of India vs Asha Goel, this Court held:

“12…The contracts of insurance including the contract of life assurance are contracts uberrima fides and every fact of material (sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion of the contract and also implies any material alteration in the character of risk which may take place between the proposal and its acceptance. If there is any misstatements or suppression of material facts, the policy can be called into question. For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the policy and it could not be ascertained by reasonable enquiry by a prudent person.” CA 3397/2020 6

10 This has been reiterated in the judgments in P C Chacko vs Chairman, Life

Insurance Corporation of India and Satwant Kaur Sandhu vs New India

Assurance Company Limited. In Satwant Kaur Sandhu vs New India Assurance

Company Ltd., at the time of obtaining the Mediclaim policy, the insured

suffered from chronic diabetes and renal failure, but failed to disclose the details

of these illnesses in the policy proposal form. Upholding the repudiation of

liability by the insurance company, this Court held:

“25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.”

11 Recently, this Court in Reliance Life Insurance Co. Ltd. vs Rekhaben Nareshbhai

Rathod 5, has set aside the judgement of the NCDRC, whereby the NCDRC had

held that the failure of the insured to disclose a previous insurance policy as

required under the policy proposal form would not influence the decision of a

prudent insurer to issue the policy in question and therefore the insurer was

disentitled from repudiating its liability. This Court, while allowing the repudiation

of the insurance claim, held:

“30. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant's health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all

5 (2019) 6 SCC 175 CA 3397/2020 7

information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client. Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth. The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer.

The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the contractual agreement.

31. The finding of a material misrepresentation or concealment in insurance has a significant effect upon both the insured and the insurer in the event of a dispute. The fact it would influence the decision of a prudent insurer in deciding as to whether or not to accept a risk is a material fact. As this Court held in Satwant Kaur (supra) "there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance". Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms.”

12 The decision of this Court in Sulbha Prakash Motegaonkar vs Life Insurance

Corporation of lndia, which has been relied upon by the NCDRC, is clearly

distinguishable. In that case, the assured suffered a myocardial infarction and

succumbed to it. The claim was repudiated by the insurance company on the

ground that there was a suppression of a pre-existing lumbar spondilitis. It was in

this background that this Court held that the alleged concealment was of such

a nature that would not dis-entitle the deceased from getting his life insured. In

other words, the pre-existing ailment was clearly unrelated to the cause of

death. This Court had also observed in its decision that the ailment concealed CA 3397/2020 8

by the deceased was not a life-threatening disease. This decision must,

therefore, be distinguished from the factual position as it has emerged before

this Court.

13 The medical records which have been obtained during the course of the

investigation clearly indicate that the deceased was suffering from a serious pre-

existing medical condition which was not disclosed to the insurer. In fact, the

deceased was hospitalized to undergo treatment for such condition in proximity

to the date of his death, which was also not disclosed in spite of the specific

queries relating to any ailment, hospitalization or treatment undergone by the

proposer in Column 22 of the policy proposal form. We are, therefore, of the

view that the judgment of the NCDRC in the present case does not lay down

the correct principle of law and would have to be set aside. We order

accordingly.

14 However, Mr. Amol Chitale, learned counsel appearing on behalf of the

appellants has informed the Court that during the pendency of the

proceedings, the entire claim was paid over to the respondent, save and

except for the amount of costs. Having regard to the age of the respondent,

who is seventy years old and the death of the assured on whom she was likely to

be dependent, we are of the view that it would be appropriate for this Court to

utilize its jurisdiction under Article 142 of the Constitution, by directing that no

recoveries of the amount which has been paid shall be made from the

respondent. However, while doing so, we expressly hold that the impugned

judgment of the NCDRC does not lay down the correct position in law and shall

accordingly stand set aside.

CA 3397/2020 9

15 The appeal is accordingly disposed of. In the circumstances of the case, there

shall be no order as to costs.

16 Pending applications, if any, stand disposed of.

………….....…...….......………………........J. [Dr Dhananjaya Y Chandrachud]

……….…....…........……………….…........J. [Indu Malhotra]

……….…....…........……………….…........J. [Indira Banerjee]

New Delhi;

October 9, 2020 CKB