Manmohan Nanda vs United India Insurance Co. Ltd. .

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8386/2015

MANMOHAN NANDA APPELLANT(S)

VS.

UNITED INDIA ASSURANCE CO. LTD. & ANR RESPONDENT(S)

JUDGMENT

NAGARATHNA J.

1. This appeal assails order dated 22nd May, 2015, passed by the

National Consumer Disputes Redressal Commission (hereinafter

referred to as “the Commission” for brevity) in Consumer Complaint

No. 92/2010 by which the complaint filed by the appellant was

dismissed.

2. The facts in a nutshell are that the appellant had sought an

overseas mediclaim policy­ B (hereinafter referred to as “mediclaim Signature Not Verified Digitally signed by R Natarajan Date: 2021.12.06 17:25:19 IST

policy”) as he intended to travel to the United States of America (“USA”) Reason:

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to attend the wedding of his sister­in­law’s daughter. The appellant

was medically examined at the instance of respondent No. 1 insurance

company prior to the consideration of his request for issuance of a

mediclaim policy. On his medical examination, the report categorically

noted that the appellant had diabetes­type II (also known as diabetes

mellitus). No other adverse medical condition was found.

3. In the medical exam report, a specific query was sought as to

whether any abnormalities were observed in the electrocardiogram test

of the appellant. There was another query regarding any possible

illness or disease for which the appellant may require medical

treatment in the ensuing trip to the USA. To both these queries, Dr.

Jitendra Jain, the doctor who examined the appellant had answered

“normal” and “no” respectively. The representative of the respondent

insurer on receipt of the medical reports assured the appellant that on

verification of the same the policy would be issued.

4. The insurer thereafter accepted the proposal form and issued the

Overseas Mediclaim Business and Holiday Policy bearing Policy

Number 190100/46/09/ 44/70000008 valid from 19 th May, 2009 to

1st June, 2009, to the appellant. Thereafter, the appellant boarded a

flight to San Francisco, USA on 19 th May, 2009 at around 1:00 a.m.

from Delhi airport and reached San Francisco on the same day at 3

around 2:00 p.m. (local time). On exiting the customs section at San

Francisco airport, appellant felt weak and started sweating. His wife

got him admitted at the SFO Medical Centre at San Francisco airport

and after he received initial medical treatment, he was shifted to the

Mills Peninsula Medical Centre (hereinafter referred to as “Medical

Centre” for the sake of brevity) where angioplasty was performed on

the appellant on 19th May, 2009 and 22nd May and three stents were

inserted to remove the blockage from the heart vessels.

5. In order to avail the benefit under the mediclaim policy,

appellant’s son­in­law contacted M/s Corris International, a foreign

collaborator of respondent No. 1 and 2, which was to provide

emergency assistance and claims administration services to the

insured. M/s Corris International sought certain documents regarding

details of treatment given by the Medical Centre as well as details of

the mediclaim policy for the purpose of considering the same for

indemnifying the appellant. The appellant was discharged on 24 th May,

2009.

6. Two and a half months thereafter, appellant started receiving

bills from the cardio vascular wing of the Medical Centre and SFO

Medical Centre towards the treatment he received at their facility. On

19th August, 2009, the appellant sent a letter annexing all bills in 4

original as well as the discharge summary to the Divisional Manager of

respondent No. 1 at their Bhopal office. The same letter was also sent

to respondent No. 2.

7. On 22nd August, 2009, appellant received a letter from

respondent No. 2 stating that his claim had been repudiated as the

appellant had a history of hyperlipidaemia and diabetes and the policy

did not cover per­existing conditions and complications arising

therefrom. The said repudiation was with regard to Bill No.1 i.e. the

bill raised by the Medical Centre for USD 2,29,719. The appellant

protested against the repudiation and requested his claim to be settled

on a priority basis as the Medical Centre and the other centre in the

USA where he had taken treatment had started pressing for release of

payment. In this regard a representation was sent on 16 th November,

2009. However, by its letter dated 9 th April, 2010, respondent No.1

reiterated its repudiation of the claim made by the appellant.

8. Being aggrieved, the appellant filed a complaint under Section 21

(9) of the Consumer Protection Act, 1986 (hereinafter referred to as

“Act” for brevity) against the respondents, being Consumer Complaint

No.92/2010 before the Commission. A reply was filed to the complaint

by respondent No.1 stating that appellant’s claim was rightly rejected

by respondent No.2 on the ground of non­disclosure of a pre­existing 5

disease as the treatment report of the appellant showed prior

medication such as statins, which is a lipid lowering medicine. The

said reply was filed on 3rd March, 2011. Respondent No.2 also filed its

reply on 27th April, 2011. Appellant filed his rejoinder to the replies of

the respondents in August, 2011. Appellant also filed an additional

affidavit enclosing medical opinions of three doctors on affidavit stating

that prescription of statins to a person having diabetes­type II is by

way of precaution and not because the patient would be suffering from

any cardiovascular disease. Respondent No. 1 and 2 filed their

evidence by way of affidavit and thereafter written submissions were

filed by both sides. Subsequently, the Commission dismissed the

complaint filed by the appellant on the ground of non­disclosure of

material facts. Hence this appeal by the claimant.

9. Before proceeding further, it would be useful to encapsulate the

reasoning of the Commission for dismissing the complaint filed by the

appellant herein, as under:

(i) The Commission concluded that the complainant had a

history of hyperlipidaemia and peptic­ulcer disease in

addition to diabetes mellitus. Since this was disclosed by the

complainant to medical authorities in the USA, the

Commission found that there was no reason why he could

not have disclosed the condition to the respondent­ 6

insurance company at the time of obtaining the mediclaim

policy.

(ii) That statins are lipid lowering agents which are found

beneficial in primary and secondary prevention of cardio­

vascular complications in diabetics. Given that the

complainant had admitted that he had been under statin

medication, it was found that he had a pre­existing disease

of which disclosure had not been made.

(iii) The Commission held that it was the duty of the

complainant to have ensured that complete facts about his

health condition were brought to the knowledge of the

insurance company at the time of obtaining the insurance

policy. The complainant breached this duty of disclosure and

acted in a manner contrary to the principle of ‘uberima fides’

between the insurer and the insured.

(iv) Having regard to general condition 10 of the policy, the

Commission found that for any sickness for which insured

had sought advice or had taken medical treatment even at

the time of issuance of policy, the insured was not entitled to

claim benefit under the policy owing to the “pre­existing

exclusion” under the policy.

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(v) The Commission held that concealment or non­disclosure

of material facts regarding pre­existing heart ailment was a

valid ground for repudiation of the insurance claim by the

respondent ­ Insurer.

10. We have heard Mr. Gopal Sankarnarayanan, learned Senior

Counsel along with Ms. Zehra khan, learned counsel, for the appellant

and Ms. Sunaina Phul, learned counsel for respondent No.1 and

perused the material on record.

11. Learned Senior Counsel for appellant submitted that the

appellant was about 55 years of age when he and his wife travelled to

San Francisco, USA to attend the wedding of his sister­in­law’s

daughter. Appellant was issued overseas mediclaim policy by

respondent No.1 after undergoing the requisite medical tests namely:

1) Blood sugar test, 2) Urine examination 3) Electrocardiogram test.

Dr. Jitendra Jain, Assistant Professor in the Department of Medicine,

Peoples’ Medical College, Bhopal, examined the appellant and

answered the medical questionnaire as provided in the proposal form.

The mediclaim policy, issued to the appellant was for the period

between 19th May, 2009 and 1st June, 2009 and was subsequently

extended to 21st June, 2009. The policy in question contained the 8

nature of coverage and excluded pre­existing conditions as defined in

general condition 10. That on boarding the flight to San Francisco

from Delhi airport on 19th May, 2009, the appellant travelled in good

health and was fit on the flight. It is only on arrival at San Francisco

airport that the appellant felt weak and was admitted to the SFO

Medical Centre for preliminary treatment and was later shifted to the

Medical Centre. The appellant availed the treatment for which the

charges were USD 2,41,932, approximately Rs. 1,08,86,940 at Rs.45

per USD. Since the respondent insurer erroneously repudiated the

claim made by the appellant, the consumer complaint was filed before

the Commission. The Commission by its order dated 22 nd May, 2015,

without appreciating the case of the appellant in its true perspective,

dismissed the complaint on the ground that appellant had not

disclosed true and complete information about his health while taking

the policy and therefore the repudiation clause applied.

12. It was contended by learned Senior Counsel along with learned

counsel for the appellant that the repudiation of the contract on the

ground of suppression of pre­existing disease by appellant was wholly

erroneous. Our attention was drawn to the fact that respondent No.1

had repudiated the claim on the premise that the appellant was

suffering from hyperlipidaemia at the time of seeking the insurance

policy and in fact had been prescribed statins, which fact had not 9

been disclosed to the insurer. It was contended that the appellant had

no knowledge that he was suffering from hyperlipidaemia at the time

of submission of the proposal form. The obligation to disclose any fact

extends only when the said fact is known to the appellant but not

otherwise. In support of this submission, reliance was placed on

Satwant Kaur Sandhu v. New India Assurance Co. ­ (2009) 8 SCC

316. In fact, the proposal form itself stipulates that it should be

completed to the best of the insured’s “knowledge and belief”. The

appellant had stated that he was not suffering from hyperlipidaemia

and that the same was diagnosed for the first time on 19 th May, 2009

at the Medical Centre in San Francisco. The doctor had noted

“hyperlipidaemia”, under the column “IMPRESSION”, after examining

the appellant on 21st May, 2009, but the same did not find a place

under “discharge diagnosis” issued to the appellant on 24 th May,

2009. There was no intention to suppress any material fact by the

appellant at the time of filling the proposal form as the appellant had

no knowledge that he was suffering from hyperlipidaemia as on 15 th

May, 2009, when the proposal form was filled by him.

13. It was next contended that the proposal form was worded in

such a manner that there was no specific query which could have led

to the appellant disclosing that he was suffering from hyperlipidaemia.

This argument was made as an alternative submission on the 10

assumption that the appellant had in fact knowledge that he was

suffering from hyperlipidaemia at the time of filling up of proposal

form seeking insurance policy.

14. It was further contended that the proposal form and the

insurance policy did not define the terms “pre­existing disease,” “pre­

existing ailment,” “pre­existing condition”, “disease” or “illness.” That

query number 2 of part 2 dealing with “medical history” in the

proposal form namely “have you ever suffered from any illness or

disease up to the date of making this proposal”, was too vague and the

appellant left the column blank. Failure to fill in all the queries in the

proposal form cannot be termed as suppression or misdeclaration vide

Canara Bank v. United India Insurance Co. ­ (2020) 3 SCC 455.

15. Further, question number 5 which read, “Have you ever suffered

from any illness or disease or had any accident prior to the first day of

insurance” is also overarching as no person can answer such a

question in the negative. Every person to whom a mediclaim policy is

offered, would have, at some point of time, suffered from some disease

or illness but for the same to be considered as a pre­existing disease,

ailment, condition or illness on which ground a claim could be

repudiated, there is need for a specific definition to be incorporated in

the policy. This is because every disease or illness cannot be 11

considered as a pre­existing disease or condition so as to exclude the

benefit of the policy to a policy holder. According to the learned Senior

Counsel for the appellant, the nature of a disease or illness which

would exclude a policy holder or an insured from the benefits of the

said policy must be clearly mentioned in the policy itself. The same

cannot be vague or non­specific so as to enable the insurer to

interpret the policy to its benefit whenever a claim is made under the

mediclaim policy.

16. It was submitted that for an insurer to repudiate the policy it

must establish suppression or a misrepresentation of material facts

on the part of the insured vide Oriental Insurance Co Ltd. v.

Mahendra Construction ­ (2019) 18 SCC 209 and LIC of India v.

Smt. G.M. Channabasamma ­ (1991) 1 SCC 357. In order to

repudiate the policy, the insurance company was also required to

prove the following:

(a) That the heart attack suffered by the appellant on 19 th May, 2009 was caused by diabetes mellitus­type II and hyperlipidaemia,

(b) That hyperlipidaemia was a “pre­existing condition,” 12

(c) That this fact was known to the appellant and was suppressed by him at the time of filling up the proposal form, i.e. on 15th May, 2009.

17. Instead, respondent insurer only denied that the acute coronary

syndrome for which the complainant­appellant herein had to be

treated at the Medical Centre was a sudden and unexpected sickness.

The respondents, on the other hand, found that a past history of

diabetes mellitus and hyperlipidaemia were the main causes for the

cardiovascular ailment for which the insured was treated. In support

of this stand, the insurer filed only an affidavit of evidence of its panel

doctor, Dr. P.R. Purandare, which merely opined­ “It is obvious that

the insured was suffering from diabetes mellitus and hyperlipidaemia.

Also, he was taking medications for the same.”

18. There was no evidence let in by the respondents to show that the

pre­existing condition of diabetes mellitus­ type II was the cause for

the heart attack suffered by the appellant on 19 th May, 2009 or that

the appellant had any pre­existing heart related illness, disease or

condition.

19. It was further urged that the appellant had filed discharge

summary notes of the doctors at the Medical Centre where he was

treated for the period between 19th May, 2009 and 24th May, 2009 and 13

a perusal of the said documents would indicate that the appellant was

“without prior coronary history.” That from the discharge summary

notes per se, there can be no proof of the appellant suffering from

hyperlipidaemia as on 15th May, 2009 when he filled the proposal form

or that the same was a pre­existing condition. That in fact, the

discharge summary indicated the “discharge diagnosis” given to the

appellant on 24th May, 2009 which only mentioned:

(a) Acute anterior wall myocardial infraction with congestive heart,

(b) Diabetes­type II.

20. That the respondent failed to prove that the heart attack

suffered by the appellant on 19th May, 2009 was caused by diabetes

mellitus­ type II and hyperlipidaemia. That appellant had disclosed

that he was a diabetic and was on medication and the tests done for

the same showed good results. It was submitted that the respondent

further failed to prove that the appellant was suffering from

hyperlipidaemia at the time of filling the proposal form and had made

a false representation and suppressed material facts.

21. Referring to the specific terms of the insurance policy, it was

contented by the learned Senior Counsel for appellant that an

insurance policy should be given a purposive interpretation in favour

of the insured­ appellant herein. The insurance policy and its 14

components must be read as a whole and given a meaning which

furthers the expectations of parties and also of the realities of the

insurance business vide Canara Bank v. United India Insurance

Co. ­ (2020) 3 SCC 455. Further, the exemption of liability clauses in

insurance contracts are to be construed contra proferentem, in favour

of the insured in case of ambiguity vide Sushilaben Indravadan

Gandhi v. New India Assurance Co. Ltd. ­(2021) 7 SCC

151. Reliance was also placed on Hari Om Agarwal v. Oriental

Insurance Co. ­ 2007 (98) DRJ 246 wherein the Delhi High Court

found that repudiation of a claim towards treatment for a heart attack

on the ground of pre­existing ailment of diabetes, which was

disclosed, was illegal because the object of the insurance policy was to

“cater to medical expenses incurred by the assured” and therefore the

exclusion clause could be overridden in light of the object.

22. It was contended by learned Senior Counsel for the appellant

that the insurance company had failed to prove that the appellant had

suppressed any material fact which was in his knowledge at the time

of filling the proposal form and that the heart attack suffered by the

appellant on 19th May, 2009 arose “out of a pre­existing condition”

and was therefore outside the purview of the insurance policy. 15

23. As opposed to the aforesaid arguments, learned counsel for

respondent No.1 supported the repudiation of the policy by the

insurer and the dismissal of the complaint by the Commission on

grounds of misrepresentation and non­disclosure of material facts in

the proposal form, by the appellant insured. It was submitted that

had the appellant disclosed that he was suffering from

hyperlipidaemia which was an existing disease as on the date of the

making of the proposal, the insurer may not have issued the

mediclaim policy to him. The insured therefore did not disclose this

vital fact and had not answered the column related to illness or

disease suffered by him up to the date of the filling up of the proposal

form. It was contended that there was a specific clause in the

schedule of the policy under the heading “important” to the following

effect :

“Notwithstanding anything stated in the policy, it is hereby agreed that all claims occasioned by, happening through or in consequence of any disease which is existing on the date of commencement of risk, whether specifically declared or not, the proposal form completed by the insured, is excluded from the scope of the policy.”

24. It was also necessary that the policy form had to be completed

disclosing all material facts and failure to do so could nullify the policy

itself.

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25. It was contended by learned counsel for respondent No. 1 that

the medical history which was suppressed by the appellant in the

proposal form required to be filled up by him prior to the issuance of

the policy, was in fact disclosed to the doctors in USA where he was

given treatment, by stating that he was prescribed statins which is for

the purpose of controlling/treating hyperlipidaemia. In sum and

substance, the submission was that the non­disclosure or the failure

to disclose the past medical history relating to a pre­existing medical

condition in the proposal form was a good reason to repudiate the

policy. This aspect was rightly appreciated by the Commission and

consequently the Commission dismissed appellant’s complaint, which

Order would not call for any interference in this appeal.

26. Learned counsel for the respective parties have relied upon

certain judgments of this Court in support of their submissions,

which shall be referred to later.

Points for consideration

27. Having regard to the submissions of the learned Senior Counsel

and learned counsel for the respective sides, the following points

would arise for our consideration:

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(i) Whether the appellant herein had suppressed or not disclosed material facts in the proposal form which could have led the insurer to repudiate the policy in question?

(ii) Whether the Commission was justified in dismissing the complaint?

(iii) What Order?

28. The fact that a policy namely, Overseas Mediclaim Policy­B, was

issued by the respondent insurance company to the appellant is not

in dispute. The appellant intended to travel to USA to attend his

sister­in­law’s daughter’s wedding which was to take place in May,

2009. Consequently, the appellant sought an overseas mediclaim

policy. Dr. Jitendra Jain, the doctor who examined the appellant prior

to issuance of the policy noted as per Annexure A­2 that the appellant

had diabetes mellitus­II (DM­2) which was controlled on drugs. There

was no mention of any past history of any disease, operation,

accident, investigation etc. An electrocardiogram test (ECG) was taken

and the doctor noted the same as “normal.” The doctor further noted

that there was no current illness or disease which would possibly

require medical treatment during the proposer’s (appellant’s)

forthcoming trip. The doctor did not recommend any stress test. It was

also found that in the blood and urine tests of the appellant there was

no trace of sugar. The serum glucose/fasting test result showed 92%, 18

which was well within the normal values i.e. between 70­110 mgs %.

The urine examination also did not reveal any abnormality. Thereafter

the appellant was requested to fill up the proposal form.

29. Before we proceed, it is necessary to discuss two aspects of the

matter which give rise to the controversy in the present appeal. The

first is what may be expressed in the legal maxim uberrimae fidei or

the principle of good faith and the corresponding principle of

disclosure of all material facts by the parties to an insurance policy.

The second principle is expressed in the contra proferentem rule.

Uberrimae Fidei

30. It is observed that insurance contracts are special contracts

based on the general principles of full disclosure inasmuch as a

person seeking insurance is bound to disclose all material facts

relating to the risk involved. Law demands a higher standard of good

faith in matters of insurance contracts which is expressed in the legal

maxim uberrimae fidei.

31. Mac Gillivray on insurance law 13th Ed. has summarised the

duty of an insured to disclose as under:

“...the assured must disclose to the insurer all facts material to an insurer's appraisal of the risk which are known or deemed to be known by the assured but neither known nor deemed to be 19

known by the insurer. Breach of this duty by the assured entitles the insurer to avoid the contract of insurance so long as he can show that the non­disclosure induced the making of the contract on the relevant terms.”

32. Lord Mansfield in Carter v. Boehm (1766) 3 Burr 1905 has

summarised the principles necessitating disclosure by the assured in

the following words:

“Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only; the underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge to mislead the underwriter into a belief that the circumstance does not exist. The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void; because the risk run is really different from the risk understood and intended to be run at the time of the agreement. The policy would be equally void against the underwriter if he concealed...Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.”

The aforesaid principles would apply having regard to the nature

of policy under consideration, as what is necessary to be disclosed are

“material facts” which phrase is not definable as such, as the same

would depend upon the nature and extent of coverage of risk under a

particular type of policy. In simple terms, it could be understood that

any fact which has a bearing on the very foundation of the contract of

insurance and the risk to be covered under the policy would be a

“material fact”.

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33. Under the provisions of Insurance Regulatory and Development

Authority (Protection of Policyholders’ Interests) Regulations,2002 the

explanation to Section 2 (d) defining “proposal form” throws light on

what is the meaning and content of “material.” For an easy reference

the definition of “proposal form” along with the explanation under the

aforesaid Regulations has been extracted as under:

“2. Definitions.­­In these regulations, unless the context otherwise requires­

(d) "Proposal Form" means a form to be filled in by the proposer for insurance, for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted.

Explanation: "Material" for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer.”

Thus, the Regulation also defines the word "material" to mean

and include all "important", "essential" and "relevant" information in

the context of guiding the insurer in deciding whether to undertake

the risk or not.

34. Just as the insured has a duty to disclose all material facts, the

insurer must also inform the insured about the terms and conditions

of the policy that is going to be issued to him and must strictly

conform to the statements in the proposal form or prospectus, or 21

those made through his agents. Thus, the principle of utmost good

faith imposes meaningful reciprocal duties owed by the insured to the

insurer and vice versa. This inherent duty of disclosure was a

common law duty of good faith originally founded in equity but has

later been statutorily recognised as noted above. It is also open to the

parties entering into a contract to extend the duty or restrict it by the

terms of the contract.

35. The duty of the insured to observe utmost good faith is enforced

by requiring him to respond to a proposal form which is so framed to

seek all relevant information to be incorporated in the policy and to

make it the basis of a contract. The contractual duty so imposed is

that any suppression or falsity in the statements in the proposal form

would result in a breach of duty of good faith and would render the

policy voidable and consequently repudiate it at the instance of the

insurer.

36. In relation to the duty of disclosure on the insured, any fact which

would influence the judgment of a prudent insurer and not a

particular insurer is a material fact. The test is, whether, the

circumstances in question would influence the prudent insurer and

not whether it might influence him vide Reynolds v. Phoenix 22

Assurance Co. Ltd. (1978) 2 Lloyd’s Rep. 440. Hence the test is to

be of a prudent insurer while issuing a policy of insurance.

37. The basic test hinges on whether 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 if it had been

disclosed. Therefore, the fact must be one affecting the risk. If it has

no bearing on the risk it need not be disclosed and if it would do no

more than cause insurers to make inquiries delaying issue of the

insurance, it is not material if the result of the inquiries would have

no effect on a prudent insurer.

38. Whether a fact is material will depend on the circumstances, as

proved by evidence, of the particular case. It is for the court to rule as

a matter of law, whether, a particular fact is capable of being material

and to give directions as to the test to be applied. Rules of universal

application are not therefore to be expected, but the propositions set

out in the following paragraphs are well established :

(a) Any fact is material which leads to the inference, in the circumstances of the particular case, that the subject matter of insurance is not an ordinary risk, but is exceptionally liable to be affected by the peril insured against. This is referred to as the ‘physical hazard”.

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(b) Any fact is material which leads to the inference that the particular proposer is a person, or one of a class of persons, whose proposal for insurance ought to be subjected at all or accepted at a normal rate. This is usually referred to as the ‘moral hazard’.

The materiality of a particular fact is determined by the

circumstances of each case and is a question of fact.

39. If a fact, although material, is one which the proposer did not

and could not in the particular circumstances have been expected to

know, or if its materiality would not have been apparent to a

reasonable man, his failure to disclose it is not a breach of his duty.

40. Full disclosure must be made of all relevant facts and matters

that have occurred up to the time at which there is a concluded

contract. It follows from this principle that the materiality of a

particular fact is determined by the circumstances existing at the time

when it ought to have been disclosed, and not by the events which

may subsequently transpire. The duty to make full disclosure

continues to apply throughout negotiations for the contract but it

comes to an end when the contract is concluded; therefore, material

facts which come to the proposer’s knowledge subsequently need not

be disclosed.

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41. Thus, a proposer is under a duty to disclose to the insurer all

material facts as are within his knowledge. The proposer is presumed

to know all the facts and circumstances concerning the proposed

insurance. Whilst the proposer can only disclose what is known to

him, the proposer’s duty of disclosure is not confined to his actual

knowledge, it also extends to those material facts which, in the

ordinary course of business, he ought to know. However, the assured

is not under a duty to disclose facts which he did not know and which

he could not reasonably be expected to know at the material time.

The second aspect of the duty of good faith arises in relation to

representations made during the course of negotiations, and for this

purpose all statements in relation to material facts made by the

proposer during the course of negotiations for the contract constitute

representations and must be made in good faith.

42. The basic rules to be observed in making a proposal for

insurance may be summarized as follows :

(a) A fair and reasonable construction must be put upon

the language of the question which is asked, and the

answer given will be similarly construed. This involves

close attention to the language used in either case, as

the question may be so framed that an unqualified

answer amounts to an assertion by the proposer that 25

he has knowledge of the facts and that the knowledge

is being imparted. However, provided these canons

are observed, accuracy in all matters of substance will

suffice and misstatements or omissions in trifling and

insubstantial respects will be ignored.

(b) Carelessness is no excuse, unless the error is so

obvious that no one could be regarded as misled. If the

proposer puts ‘no’ when he means ‘yes’ it will not avail

him to say it was a slip of the pen; the answer is

plainly the reverse of the truth.

(c) An answer which is literally accurate, so far as it

extends, will not suffice if it is misleading by reason of

what is not stated. It may be quite accurate for the

proposer to state that he has made a claim previously

on an insurance company, but the answer is untrue if

in fact he has made more than one.

(d) Where the space for an answer is left blank, leaving

the question un­answered, the reasonable inference

may be that there is nothing to enter as an answer. If

in fact there is something to enter as an answer, the

insurers are misled in that their reasonable inference

is belied. It will then be a matter of construction 26

whether this is a mere non­disclosure, the proposer

having made no positive statement at all, or whether in

substance he is to be regarded as having asserted that

there is in fact nothing to state.

(e) Where an answer is unsatisfactory, as being on the

face of it incomplete or inconsistent the insurers may,

as reasonable men, be regarded as put on inquiry, so

that if they issue a policy without any further enquiry

they are assumed to have waived any further

information. However, having regard to the inference

mentioned in head (4) above, the mere leaving of a

blank space will not normally be regarded as sufficient

to put the insurers on inquiry.

(f) A proposer may find it convenient to bracket together

two or more questions and give a composite answer.

There is no objection to his doing so, provided the

insurers are given adequate and accurate information

on all points covered by the questions.

(g) Any answer given, however accurate and honest at the

time it was written down, must be corrected if, up to

the time of acceptance of the proposal, any event or 27

circumstance supervenes to make it inaccurate or

misleading.

[Source : Halsbury’s Laws of England, Fourth Edition, Para 375, Vol.25 : Insurance]

43. Sometimes the standard of duty of disclosure imposed on the

insured could make the insured vulnerable as the statements in the

proposal form could be held against the insured. Conversely, certain

clauses in the policy of insurance could be interpreted in light of the

contra proferentem rule as against the insurer. In order to seek specific

information from the insured, the proposal form must have specific

questions so as obtain clarity as to the underlying risks in the policy,

which are greater than the normal risks.

Contra Proferentem Rule

44. 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. This Rule is often invoked while interpreting

standard form contracts. Such contracts heavily comprise of forms

with printed terms which are invariably used for the same kind of

contracts. Also, such contracts are harshly worded against individuals 28

and not read and understood most often, resulting in grave legal

implications. When such standard form contracts ordinarily contain

exception clauses, they are invariably construed contra proferentem

rule against the person who has drafted the same.

45. Some of the judgments which have considered the contra

proferentem rule are referred to as under :

a) In General Assurance Society Ltd., v. Chandmull

Jain ­ AIR 1966 SC 1644, it was held that where there

is an ambiguity in the contract of insurance or doubt, it

has to be construed contra proferentem against the

Insurance Company.

b) In Delhi Development Authority v. Durga Chand

Kaushish ­ AIR 1973 SC 2609, it was observed:

"In construing a document one must have regard, not to the presumed intention of the parties, but to the meaning of the words they have used. If two interpretations of the document are possible, the one which would give effect and meaning to all its parts should be adopted and for the purpose, the words creating uncertainty in the document can be ignored."

c) Further, in Central Bank of India v. Hartford Fire

Insurance Co. Ltd. AIR 1965 SC 1288, it was held:

29

"What is called the contra proferentem rule should be applied and as the policy was in a standard form contract prepared by the insurer alone, it should be interpreted in a way that would be favourable to the assured."

d) In Md. Kamgarh Shah v. Jagdish Chandra AIR 1960

SC 953, it was observed that where there is an ambiguity

it is the duty of the court to look at all the parts of the

document to ascertain what was really intended by the

parties. But even here the rule has to be borne in mind

that the document being the grantor's document it has to

be interpreted strictly against him and in favour of the

grantee.

e) In United India Insurance Co. Ltd. v. Orient

Treasures (P) (2016) 3 SCC 49 this Court quoted

Halsbury’s laws of England (5th Ed. Vol. 60, Para 105) on

the Contra Proferentem rule as under :

“Contra proferentem rule.­Where there is ambiguity in the policy the court will apply the contra proferentem rule. Where a policy is produced by the insurers, it is their business to see that precision and clarity are attained and, if they fail to do so, the ambiguity will be resolved by adopting the construction favourable to the insured. Similarly, as regards language which emanates from the insured, such as the language used in answer to questions in the proposal or in a slip, a construction favourable to the insurers will prevail if the insured has created any ambiguity. This rule, however, only becomes operative where the words are truly ambiguous; it is a Rule for resolving ambiguity and it cannot be invoked with 30

a view to creating a doubt. Therefore, where the words used are free from ambiguity in the sense that, fairly and reasonably construed, they admit of only one meaning, the Rule has no application.”

f) Learned counsel for the appellant have relied upon

Sushilaben Indravadan Gandhi and Ors. v. The New

India Assurance Co. Ltd. and Ors. (2021) 7 SCC 151

wherein it was observed that any exemption of liability

clause in an insurance contract must be construed, in

case of ambiguity, contra proferentem against the insurer. In the said case reliance was placed on Export Credit

Guarantee Society v. Garg Sons International (2014)

1 SCC 686 wherein this court held as under:

“The insured cannot claim anything more than what is covered by the insurance policy. "The terms of the contract have to be construed strictly, without altering the nature of the contract as the same may affect the interests of the parties adversely." The clauses of an insurance policy have to be read as they are. Consequently, the terms of the insurance policy, that fix the responsibility of the insurance company must also be read strictly. The contract must be read as a whole and every attempt should be made to harmonise the terms thereof, keeping in mind that the Rule of contra proferentem does not apply in case of commercial contract, for the reason that a Clause in a commercial contract is bilateral and has mutually been agreed upon.”

46. Delving on the facts of the case and on consideration of IMT­5

and IMT­16 of the comprehensive private car (B) policy with regard to 31

the limitation of liability clause, it was observed that the contra

proferentem rule applies in case of real ambiguity and if on a reading

of the whole policy the meaning of the clauses of a contract are clear

there is no room for the application of the doctrine. On the facts of the

said case, the appeal was allowed by holding that the insurance

company was liable to pay the entire amount claimed. The said case

arose from an appeal against the order of the High Court of Gujarat

wherein the Court had directed that the liability of the insurer shall be

limited to a sum of Rs. 25,000/­ and the remaining claim amount

shall be payable by the employer (hospital) of the deceased. Ambiguity

arising with regard to the interpretation of the term ‘employee’ as

appearing in the limitation of liability clause in the insurance contract

was construed contra proferentem against the insurance company by

holding that the deceased was not an employee of the hospital and

that therefore, the entire liability would lie upon the insurer. This

Court, therefore, required the insurer therein to pay the entire claim

amount to the wife of the deceased.

47. MacGillivray on Insurance Law (9th Ed., Sweet and Maxwell

London, 1997 at p. 280) deals with the rule of Contra Proferentem as

under :

“The contra proferentem Rule of construction arises only where there is a wording employed by those drafting the Clause which leaves the court unable to decide by ordinary 32

principles of interpretation which of two meanings is the right one. 'One must not use the Rule to create the ambiguity ­ one must find the ambiguity first.' The words should receive their ordinary and natural meaning unless that is displaced by a real ambiguity either appearing on the face of the policy or, possibly, by extrinsic evidence of surrounding circumstances.”

48. Colinvaux’s Law of Insurance (6th Ed., 1990 at p. 42) has

elucidated on the said rule in the following words:

“Quite apart from contradictory clauses in policies, ambiguities are common in them and it is often very uncertain what the parties to them mean. In such cases the Rule is that the policy, being drafted in language chosen by the insurers, must be taken most strongly against them. It is construed contra proferentem, against those who offer it. In a doubtful case the turn of the scale ought to be given against the speaker, because he has not clearly and fully expressed himself. Nothing is easier than for the insurers to express themselves in plain terms. The assured cannot put his own meaning upon a policy, but, where it is ambiguous, it is to be construed in the sense in which he might reasonably have understood it. If the insurers wish to escape liability under given circumstances, they must use words admitting of no possible doubt.”

49. The aforesaid principles could be applied to the present case

having regard to the nature of the policy in question i.e. a mediclaim

policy, the specific queries in the proposal form and the answers

thereto given by the appellant in the context of the general and

specific clauses therein.

33

50. But before entering upon the factual controversy in the instant

case, it would be useful to discuss the relevant judgments cited at the

Bar :

(i) Learned Senior Counsel for appellant have relied upon

the following judgments in support of the claim of the

appellant :­

a) Satwant Kaur Sandhu v. New India

Assurance Co. (2009) 8 SCC 316 :

In the said case the husband of the appellant

therein had taken a mediclaim policy provided by the

respondent insurer therein for the period from 7 th May,

1990 to 6th May, 1991. The appellant therein suddenly

fell ill and was admitted to a hospital in Ludhiana and

thereafter to a health centre in Chennai where his

condition deteriorated ultimately leading to his death on

26th December, 1990. The insurance company therein

was informed about his death and a claim for

reimbursement was made. The respondent insurer

therein made inquiries from Madras Institute of

Nephrology (Health Centre) and obtained a certificate

dated 6th May, 1992, stating that the deceased was a

known case of “chronic renal failure/diabetic 34

nephropathy” and that the complainant was on regular

haemodialysis at his place leading to his death. The

insurance company therein repudiated the claim. The

core question considered by this Court in the said case

was whether the fact that the policy holder was

suffering from chronic diabetes and renal failure at the

time of taking out the mediclaim policy was a material

fact and therefore, on account of non­disclosure of this

fact in the proposal form, the respondent Insurance

Company was justified in law in repudiating the claim of

the appellant therein.

This Court dealt with the concept of material fact

and observed at para 20 as under:

“20. 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.”

Ultimately this Court held as under:

“21. Bearing in mind the aforestated legal position, we may advert to the facts in hand.

35 As noted earlier, the proposal form contained the following two questions:

Details of illness which may require treatment in the near future;

Details of treatment/surgical operation in the last two months.

Answers given by the proposer to the two questions were "Sound Health" and "Nil" respectively. It would be beyond anybody's comprehension that the insured was not aware of the state of his health and the fact that he was suffering from diabetes as also chronic Renal failure, more so when he was stated to be on regular haemodialysis. There can hardly be any scope for doubt that the information required in the afore­ extracted questions was on material facts and answers given to those questions were definitely factors which would have influenced and guided the respondent ­ Insurance Company to enter into the Contract of Mediclaim Insurance with the insured.”

Learned counsel for the respondent insurer has

also relied upon Satwant Kaur Sandhu supra and

has emphasised on para 20 of the said judgment

extracted above.

It was observed that there was clear suppression

of material facts relating to the health of the insured

and that therefore, the respondent insurer was fully

justified in repudiating the insurance contract. But the

aforesaid judgment is sought to be distinguished by

learned counsel for appellant.

36 (b) In LIC of India v. Smt. G.M. Channabasemma

(1991) 1 SCC 357, it was observed that there is an

obligation upon the assured to disclose all material facts

which may be relevant to the insurer but after issuing a

policy, the burden of proving that the insured had made

false representations and suppressed material facts is

on the insurer. In the said case, it was held that the

physician’s statement did not lead to a conclusion that

the respondent therein was influenced by a serious

disease for a long time. On consideration of the evidence

led by the parties therein, it was observed that the

insurer had failed to prove that the insured was

suffering from diabetes or tuberculosis at the time of

filling up the proposals for the policies or that he had

given any false answer in his statements or suppressed

any material fact which he was under a duty to disclose.

The finding of the Trial Court that the assured had

committed fraud on the insurer while taking out the

policies was reversed and the appeal was allowed.

(c) Canara Bank v. United India Insurance Co.

(2020) 3 SCC 455, is a case in which this Court held

that if a column is left blank, the insurance company 37

should ask the insured to fill up the column. 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 non­disclosure should be of some very

material fact. Therefore, the insurer therein was

directed to indemnify the insured in the case. The

judgment in Satwant Kaur Sandhu (supra) was

distinguished and held not applicable in this case.

d) Hari Om Agarwal v. Oriental Insurance Co. 2007

(98) DRJ 246, is a decision on a mediclaim policy. In

the said case, it was held that the insured had suffered

from diabetes as well as hypertension at the time of

submission of the proposal. The insured was advised to

undergo ECG which he did. Thereafter, the proposal

was accepted and the cover note was issued. Clause 4.1

of the policy therein came up for interpretation. It was

observed that hypertension and diabetes could lead to a

host of ailments such as stroke, cardiac disease, renal 38

failure, liver disorder, depending upon various factors.

Such ailments can equally arise in non­diabetics and

those without hypertension. Giving a contextual

interpretation to clause 4.1 of the policy, it was

observed that such an interpretation was necessary to

avoid rendering a medical cover meaningless. Hence the

main purpose rule was pressed into service by holding

that clause 4.1 of the said policy could not be used to

override the primary liability of the insurer.

(ii) The following citations were relied upon by learned

counsel for respondent No. 1 in support of validity of the

repudiation of the insurance claim:

a) Reliance Life Insurance v. Rekhaben Nareshbhai

Rathod, (2019) 6 SCC 175, is a case where the insured

therein, while seeking a life insurance policy failed to

disclose in the proposal form that he had earlier

obtained another insurance cover for his life, two

months before obtaining the policy in question. The

spouse of the assured therein submitted a claim under

the terms of the policy after the death of the assured.

The insurance company repudiated the claim on the

ground of non­disclosure of the fact that insured had 39

taken out another policy to insure his life before

obtaining the policy in question. The State Commission

found that the repudiation of claim was unjustified as

the omission of the insured to disclose a previous policy

of insurance would not have influenced the mind of a

prudent insurer. The National Commission affirmed the

findings of the State Commission. In an appeal before

this Court, the decision of the National Commission was

reversed and the Court allowed the claim to be

repudiated by the insurer. It was held that the disclosure

of the earlier cover was material to an assessment of the

risk which was being undertaken by the insurer. The

duty of full disclosure required that no information of

substance or interest to the insurer be omitted or

concealed.

b) In Life Insurance Corporation of India v. Manish

Gupta, (2019) 11 SCC 371, the respondent therein had

obtained a mediclaim policy from the appellant insurer.

The proposal form sought disclosure of health details

and medical information of the assured. With regard to

the query as to whether the proposer/assured had

suffered from any “cardio­vascular disease e.g. 40

palpitations, heart attack, stroke, chest pain,” the

assured answered in the negative. The assured

underwent a mitral valve replacement surgery. A claim

for treatment expenses was made by the hospital where

treatment was administered and the said claim was

repudiated by the insurer on the ground of non­

disclosure of pre­existing cardiac condition. An appeal

filed before this Court was allowed. This Court, on

consideration of documentary material placed before it

found that the discharge card of the assured recorded

his history of “rheumatic heart disease since childhood.”

This Court therefore allowed the repudiation of claim by

the insurer on the ground that the assured had failed to

disclose, at the time of seeking the mediclaim policy, that

he had suffered from rheumatic heart disease since

childhood.

51. We have also considered the following judgments :

c) In Branch Manager Bajaj Allianz Life Insurance

Co. v. Dalbir Kaur ­ AIR 2020 SC 5210, a proposal

form was submitted to the appellant therein for a life

insurance policy containing questions pertaining to the

health and medical history of the proposer and required 41

a specific disclosure as to whether the proposer had

undergone any treatment. The proposer answered the

queries in the negative. Further a query regarding

specific diseases or disorders suffered was also

responded to in the negative. A policy of insurance was

issued by the insurer on 12th August, 2014, insuring the

life of the proposer for a sum of Rs. 8.50 lakhs payable

on maturity with the death benefit of Rs. 17 lakhs. On

12th September, 2014, the insured, Kulwant Singh, died

giving rise to a claim under the policy. The claim was

subjected to an independent investigation and the

records revealed that the deceased had been suffering

from hepatitis C. The claim was repudiated giving rise to

a consumer complaint which was allowed by the District

Forum. The appeal before the State Forum was also

dismissed, so also by the National Commission, the

revision was dismissed. Being aggrieved the insurance

company had preferred an appeal before this Court. It

was held that the investigation conducted by the insurer

in the said case clearly indicated that the deceased was

suffering from a pre­existing medical condition which

was not disclosed to the insurer despite specific queries 42

relating to any ailment, hospitalisation or treatment

undergone by the proposer in column 22 of the proposal

form therein. Hence the judgment of the Commission

was set aside but since the claim amount was paid to

the respondent, exercising jurisdiction under Article 142

of the Constitution it was directed that no recoveries be

made by the respondent insurer therein.

In the aforesaid judgment, this Court

distinguished Sulbha Prakash Motegaonkar and

Ors. v. Life Insurance Corporation of India, Civil

Appeal No. 8245/2015 decided on 5th October, 2015,

by holding that in the said case the assured therein

suffered myocardial infraction 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 spondylitis. It was in this background

that this Court held that the alleged concealment was

of such a nature that would not dis­entitle the

deceased from getting his life insured. In other words,

the pre­existing ailment was clearly unrelated to the

cause of death.

43

52. On a consideration of the aforesaid judgments, the following

principles would emerge:

(i) There is a duty or obligation of disclosure by the

insured regarding any material fact at the time of

making the proposal. What constitutes a material fact

would depend upon the nature of the insurance policy

to be taken, the risk to be covered, as well as the

queries that are raised in the proposal form.

(ii) What may be a material fact in a case would also

depend upon the health and medical condition of the

proposer.

(iii) If specific queries are made in a proposal form then it is

expected that specific answers are given by the insured

who is bound by the duty to disclose all material facts.

(iv) 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 blank, the

insurance company accepts the premium and issues a

policy, it cannot at a later stage, when a claim is made

under the policy, say that there was a suppression or

non­disclosure of a material fact, and seek to repudiate

the claim.

44

(v) The insurance company has the right to seek details

regarding medical condition, if any, of the proposer by

getting the proposer examined by one of its empanelled

doctors. If, on the consideration of the medical report,

the insurance company is satisfied about the medical

condition of the proposer and that there is no risk of

pre­existing illness, and on such satisfaction it has

issued the policy, it cannot thereafter, contend that

there was a possible pre­existing illness or sickness

which has led to the claim being made by the insured

and for that reason repudiate the claim.

(vi) The insurer must be able to assess the likely risks that

may arise from the status of health and existing

disease, if any, disclosed by the insured in the proposal

form before issuing the insurance policy. Once the

policy has been issued after assessing the medical

condition of the insured, the insurer cannot repudiate

the claim by citing an existing medical condition which

was disclosed by the insured in the proposal form,

which condition has led to a particular risk in respect of

which the claim has been made by the insured. 45

(vii) In other words, a prudent insurer has to gauge the

possible risk that the policy would have to cover and

accordingly decide to either accept the proposal form

and issue a policy or decline to do so. Such an exercise

is dependant on the queries made in the proposal form

and the answer to the said queries given by the

proposer.

53. We shall now consider the facts of the present case. The relevant

portion of proposal form for the overseas mediclaim policy­B is

extracted as under:

UNITED INDIA INSURANCE COMPANY LIMITED Regd. & Head Office United India House 24, Whites Road, CHENNAI­600 014 PROPOSAL FORM FOR OVERSEAS MEDICLAIM POLICY­B (Business & Holiday) (To be submitted in Original with 2 Copies) (Available to persons in the age group of 6 months to 70 years) IMPORTANT PLEASE MAKE SURE YOU READ AND FULLY UNDERSTAND THIS DOCUMENT BEFORE YOU TRAVEL FROM THE REPUBLIC OF INDIA FAILURE TO FOLLOW THE INSTRUCTION GIVEN COULD RESULT IN REJECTION OF ANY CLAIM THAT MIGHT BE MADE THE OVERSEAS MEDICLAIM POLICY PROVIDES INDEMNITY FOR EXPENSES NECESSARILY INCURRED FOR IMMEDIATE TREATMENT OF ILLNESS, DISEASES CONTRACTED OR INJURY FIRST SUSTAINED (DURING THE PERIOD OF INSURANCE OF OVERSEAS TRAVEL SUBJECT TO POLICY TERMS & CONDITIONS) AND IN ADDITION ALSO PERSONAL ACCIDENT TOTAL LOSS OF CHECKED BAGGAGE, DELAY OF CHECKED BAGGAGE, LOSS OF PASSPORT AND PERSONAL LIABILITY COVERS (DURING THE PERIOD OF INSURANCE OF OVERSEAS TRAVEL SUBJECT TO POLICY TERMS & CONDITIONS).

IN THE ABSENCE OF MEDICAL REPORTS AS SPECIFIED IN 46

ITEM II B SUM INSURED WILL STAND REDUCED TO AN EQUIVALENT AMOUNT OF US $ 10,000 IN RESPECT OF MEDICAL EXPENSES INCURRED THROUGH ILLNESS OR DISEASE ONLY, SUBJECT TO EXCLUSION OF PRE­EXISTING DISEASE.

THE ATTENTION OF THE PROPOSER IS DRAWN TO ITEM II (MEDICAL HISTORY) OF THE PROPOSAL FORM ESPECIALLY IN RELATION TO PREVIOUS TREATMENT FOR ILLNESS OR DISEASE SUCH AS RENAL DISORDERS, OR DISEASES CEREBRAL OR VASCULAR STROKES, HEART AILMENT OF ANY KIND, MALIGNANCY, TUBERCULOSES, ENCEPHALITIS, NEUROLOGICAL DISORDERS, GALL BLADDER DISORDER, ARTHRITIS REQUIRING SURGERY AND IF ANY TREATMENT HAS BEEN RECEIVED FOR ANY OF THE ABOVE DISORDERS AT ANY TIME IN THE PAST, SUCH TREATMENT MUST BE DISCLOSED TO THE POLICY ISSUING OFFICE.

NEITHER THE INSURERS NOR CLAIMS SETTLING AGENTS SHALL BE RESPONSIBLE FOR THE AVAILABILITY, QUALITY OR RESULTS OF ANY MEDICAL TREATMENT OR THE FAILURE OF THE INSURED TO OBTAIN MEDICA TREATMENT. THE PROPOSAL FORM SHOULD BE COMPLETED TO THE BEST OF YOUR KNOWLEDGE & BELIEF & ALL MATERIAL FACTS SHOULD BE DISCLOSED FAILURE TO DO SO MAY NULLIFY COVER UNDER THE POLICY ISSUED.

NOTE: Plan A­1, A­27, A­3 (Worldwide travel excluding USA/Canada) Plan B­1, B­2, B­3 & B­4 (Worldwide travel including USA/Canada) Plan E­1 & E­2 (Corporate Frequent Travel to all destinations including USA/Canada) IF

a) The proposer is travelling to USA &/or Canada & is above 40 years, OR

b) The proposer is travelling to any other country and is above 60 years, OR

c) Answer to questions in II(A) reveal that the proposer had suffered any time the past or is suffering from any disease/illness.

The Proposal form should be accompanied with 1) ECG printout with report & 2) fasting blood sugar & urine sugar urine strip test report of any other medical report required by the company etc. along with the attached questionnaire II(B) to be completed & signed by the doctor with minimum M.D. qualification conducting the test. In the absence of such medical tests & reports due to a shortage of time before travel, cover may still be granted subject to a satisfactory proposal form by the sum insured under policy, in respect of expenses incurred for the treatment of illness disease shall be restricted to US $ 10,000 only, which shall not cover the cost of Medical treatment for pre­existing disease. In case of accident however the full sum insured benefit would be available.

47

54. The proposal form was submitted by the appellant on 15 th May,

2009. The proposed date of departure of the appellant to USA was 19 th

May, 2009. As required, the proposal form was accompanied with: (a)

ECG test printout with report, (b) fasting blood sugar and urine strip

test report. The proposal form also stated :

“In the absence of such medical tests and reports due to a shortage of time before travel, cover may still be granted subject to a satisfactory proposal form by the sum assured under the policy, in respect of expenses incurred for the treatment of illness, disease shall be restricted to US 10,000 Dollars only which shall not cover the cost of medical treatment for pre­ existing disease. In case of accident, however, the full sum of insured benefit will be available.”

55. Learned counsel for the insurer contended that in the columns

dealing with medical history ­ query no. 2 which reads, “have you ever

suffered from any illness or disease up to the date of making this

proposal” no answer was given by the appellant. Hence, there was

suppression of the fact that the appellant was suffering from a heart

disease for which he was prescribed statins and the said fact was

material fact as it related to a pre­existing disease or illness which is

excluded under the policy. In support of this submission, reliance was

placed on the following clause:

“IMPORTANT Notwithstanding anything stated in the policy it is hereby and agreed that all claims occasioned by, happening through or in consequence of any disease which is existing at the date of commencement of risk, whether specifically declared or not, the proposal form completed by the insured, is excluded from the scope of the policy.” 48

In support of this clause, reliance was placed on clause 10 (b)

(typed as 11 (b) in Annexure A­6.) and 10 (c) which state that the

policy was not designed to provide an indemnity in respect of medical

services, the need for which arises out of a pre­existing condition as

defined under clause 10 (b). A pre­existing condition was defined to

mean “any sickness for which the insured person had sought medical

advice or had taken medical treatment in the preceding 10 months prior

to the commencement of travel.”

56. It was contended that there was non­disclosure or suppression

of the fact that the appellant had been advised to take statins owing to

a cholesterol problem, which is a risk­factor for cardiac disease and

this fact was not disclosed in the proposal form whereas it was

mentioned to the doctor who treated the appellant in USA. Hence the

repudiation of the policy was justified.

57. We have considered the aforesaid submissions in light of the

relevant clauses in the proposal form and by taking into consideration

the arguments of the learned Senior Counsel for the appellant.

58. On a reading of the queries pertaining to medical history it is

noted as under:

49

(i) Query no. 1 which reads, “are you in good health and free from physical and mental disease and infirmity?” The answer given was “yes.”

This indicates the current status of health at the time of filling up of the proposal form.

(ii) On the other hand, query no. 2 which reads “have you ever suffered from any illness or disease up to the date of making this proposal?”, is a query with regard to the past health condition of the insured.

(iii) The above is discerned from query no. 4 which reads, “have you ever been admitted to any hospital, nursing home/clinic for treatment or observation?”

(iv) Query no. 5 which reads, “have you suffered from any illness or disease or had an accident prior to the first day of insurance?”

59. On a contextual and conjoint reading of the aforesaid queries it is

evident that the object of seeking answers from a proposer to the

aforesaid queries was, as a prudent insurer to discern whether the

proposer had any pre­existing condition for which he had taken

medical advice or medical treatment in the 12 months preceding the

commencement of travel. Any disclosure of an illness or disease

suffered/diagnosed in 12 months preceding the commencement of

travel would indicate a pre­existing condition which fact may lead a

prudent insurer not to provide an indemnity in respect of medical 50

services, the need for which may arise during the term of the

mediclaim policy or lead the insurer to reduce the scope and coverage

of risk under the policy.

60. In the instant case, since the appellant herein answered query

no. 1 in the affirmative and query no. 4 and 5 in the negative it

implies that he did not suffer from any illness or disease up to the

date of making his proposal apart from what had been disclosed by

him, namely diabetes mellitus­II. The respondent insurer being

appraised about the said medical condition of the appellant, issued

policy to the appellant herein. The respondent insurer did not

consider the said medical condition of the appellant as a risk factor for

any possible cardiac ailment during the term of the policy so as to

decline acceptance of the proposal form and issuance of the mediclaim

policy. Also, report of the ECG was considered by one of the panel

doctors of respondent­insurer and having found the same to be

normal, the policy was issued to the appellant.

61. That apart, query no. 8 in the policy is worded in following terms:

“Please give details of any knowledge of any positive existence of any ailment, sickness or injury which may require medical attention whist on tour abroad.”

The answer to the same was “NIL.” 51

62. In support of the aforesaid answer, the submission of learned

Senior Counsel along with learned counsel for appellant was that ECG

report and blood and urine test reports were given as the appellant

had knowledge of his ailment, namely, diabetes mellitus­II and the

same were taken into consideration favourably by the insurer as the

said reports showed normal results. It was contended by learned

Senior Counsel for the appellant that the appellant had no knowledge

of any heart ailment which could require medical attention whilst on

tour abroad.

63. It was further submitted that the appellant was on statins and

the same was prescribed to him as diabetes mellitus­II which was

disclosed by the appellant in the proposal form is one of the risk

factors for cardiac disease. Thus, in order to reduce the risk of a

cardiac ailment in future, statins were prescribed. The same is also

prescribed for controlling hyperlipidaemia but the appellant did not

suffer from any heart ailment or hyperlipidaemia.

64. We find considerable force in the argument made on behalf of

the appellant. This is because while diabetes mellitus­II is a risk factor

for a cardiac ailment in a person, it is not a hard and fast rule that

every person having diabetes mellitus­II would necessarily suffer from

a cardiac disease. Conversely, a person who does not suffer from 52

diabetes mellitus­II can also suffer from a cardiac ailment. Thus, what

the appellant had knowledge of was the existence of diabetes mellitus­

II, for which he was under treatment. In order to disclose the status of

the said disease he had submitted his ECG report, blood and urine

test reports which showed normal results. The fact that ECG report

showed normal parameters would indicate that the appellant had no

cardiac disease. The prescription of statins to the appellant was only

as a precaution to prevent a possible cardiac ailment from developing

in the future as diabetes mellitus­II is a risk factor for such a

disease. But by that, it cannot be deduced or inferred that because

the appellant had a cardiac ailment or hyperlipidaemia, he was

prescribed statins.

65. Further, what was required to be disclosed in query no. 8 under

the caption medical history was

“Knowledge of any positive existence of any ailment, sickness or injury which may require medical attention whist on tour abroad”

This means that any ailment, sickness or injury of which the

proposer had positive knowledge of, and which may require imminent

medical attention whilst on tour abroad and during the term of the

policy had to be disclosed. If the proposer had no knowledge of any

ailment he had, obviously there could be no disclosure of any ailment

or sickness which would require medical attention whilst on tour 53

abroad. In fact, the aforesaid query has also to be considered in the

context of the further declaration sought by the insurance company to

the effect that the proposer was:

(a) not travelling against the advice of a physician,

(b) not on the waiting list of any medical treatment,

(c) not travelling for the purpose of receiving medical treatment,

(d) not received a terminal prognosis for a medical condition before the date of submitting the proposal form.

66. Viewed in the aforesaid perspective, it is held that the

respondent insurance company could not have repudiated the policy

on the ground that acute myocardial infraction suffered by the

appellant on landing at San Francisco, USA was a “pre­existing and

related complication” which was excluded under the policy. The

insurer was informed about the pre­existing condition of the

appellant, namely, diabetes mallitus­II and it was for insurer to gauge

a related complication under the policy as a prudent insurer and then

issue the policy when satisfied. In the absence of the same, the

treatment availed by the appellant for acute myocardial infraction in

USA could not have been termed as a direct offshoot of

hyperlipidaemia and diabetes mellitus so as to be labelled as a pre­

existing disease or illness which the appellant suffered from and had 54

not disclosed the same. At any rate, the appellant had in the proposal

form disclosed that he was suffering from diabetes mellitus­II and for

which the medical test reports were submitted along with the proposal

form which were considered by the insurance company before the

policy was issued to the appellant. In fact, the appellant stated in his

representation dated 16th November, 2009, against the repudiation of

the policy that he was taking lipid­lowering medicines not because he

was suffering from hyperlipidaemia but as it was customary to take

such medication for prevention of cardio­vascular complications in

diabetics. He also stated that he had informed the physician, Dr.

Jitendra Jain, who examined him prior to obtaining the policy, of the

medicines he had been taking. Therefore, the insurance company was

well aware of the fact that the insured was a diabetic and was taking

all necessary medication for preventing further complications and

controlling the disease. Hence in our view, there was no suppression

of any material fact by the appellant to the insurer.

67. Further on the disclosures made by the appellant with regard to

his existing disease, namely diabetes mellitus­II, the insurance

company considered the same and issued the policy in question to the

appellant. The respondent insurance company as a prudent insurer

considered the details given by the appellant in the proposal form and

issued the policy. The insurance company did not think that the 55

medical and health condition of the appellant was such which did not

warrant issuance of a mediclaim policy. The insurance company

therefore did not decline the proposal of the assured as a prudent

insurer.

68. Therefore, the respondents were not right in stating that as per

the terms and conditions of the policy “all the complications arising out

of pre­existing condition is not payable.” As already noted, acute

myocardial infraction can occur in a person who has no history of

diabetes mellitus­II. One of the risk factors for the aforesaid cardiac

episode is diabetes mellitus­II. The fact that the appellant had

diabetes mellitus­II was made known to the insurance company.

Therefore, it is observed that any complication which would arise from

diabetes mellitus­II was also within the consideration of the insurer.

Despite the aforesaid facts regarding the medical record of the

insured, the insurance company decided to issue the policy to the

appellant. The aforesaid clause has to be read against the respondent

insurer by applying the contra proferentem rule against it. Otherwise,

the very contract of insurance would become meaningless in the

instant case. Hence, in our considered view, the respondent­insurance

company was not right in repudiating the policy in question. 56

69. The object of seeking a mediclaim policy is to seek

indemnification in respect of a sudden illness or sickness which is not

expected or imminent and which may occur overseas. If the insured

suffers a sudden sickness or ailment which is not expressly excluded

under the policy, a duty is cast on the insurer to indemnify the

appellant for the expenses incurred thereunder.

70. Hence in the instant case, the repudiation of the policy by the

respondent insurance company was illegal and not in accordance with

law. Consequently, the appellant is entitled to be indemnified under

the policy. In view of the aforesaid discussion, we hold that the

Commission was not right in dismissing the complaint filed by the

appellant herein.

71. The appeal is allowed in the following terms:

(i) The respondents are directed to indemnify the appellant

regarding the expenses incurred by him towards his medical

treatment within a period of one month from the date of receipt

of a copy of this judgment with interest at the rate of 6% per

annum from the date of filing the claim petition before the

Commission till realisation.

(ii) Since the expenses incurred by the appellant was in terms

of US Dollars and the claim would be paid in terms of Indian 57

Rupees, the exchange rate as it existed on the date the claim

petition was filed by the appellant herein before the Commission

or at Rs.45 INR, whichever is lesser, shall be reckoned for the

purpose of determining the conversion rate of US Dollars into

Indian Rupees vide Meenakshi Saxena & Anr. Vs. ECGC

Limited (formerly known as Export Credit Guarantee

Corporation of India Limited) & Anr. – (2018) 7 SCC 479.

(iii) The appellant is also entitled to Rs. 1,00,000/­ payable by

the respondents towards the cost of litigation.

..……………………………………………….J [DR DHANANJAYA Y CHANDRACHUD]

………………………………………...J [B.V. NAGARATHNA]

NEW DELHI;

6th DECEMBER, 2021.