Satwant Kaur Sandhu vs New India Assurance Company Ltd

1. This appeal, by special leave, is directed against the judgment

and order dated 8th December, 2000 passed by the National

Consumer Disputes Redressal Commission, ("the National

Commission" for short) in Revision Petition No.322 of 1999

whereby the Commission has affirmed the order passed by the

State Consumer Disputes Redressal Commission, New Delhi

(for short "the State Commission"), rejecting appellant -

complainant's claim against the respondent - Insurance Company for compensation on account of deficiency in service

for not processing her claim under a mediclaim policy.

2. Succinctly put, the material facts giving rise to the present

appeal are as follows:

On 7th May, 1990 appellant's husband, late Shri Pritpal Singh

Sandhu, 48 years old and an advocate by profession, after

completing necessary formalities insured himself under a mediclaim

policy provided by the respondent. The policy was for a period from

7th May, 1990 to 6th May, 1991. The annual premium of Rs.1500/-

was also paid by him. On 11th September, 1990, Pritpal Singh

suddenly fell ill and was admitted in Dayanand Medical College and

Hospital, Ludhiana. On 7th December, 1990 he was shifted to

Madras Institute of Nephrology also known as, Vijaya Health Centre,

Chennai where his condition deteriorated, ultimately leading to his

death on 26th December, 1990. The appellant informed the

respondent about the death of her husband on 17th January, 1991.

On 29th April, 1991 she filed a claim for Rs.23,217.80 for

reimbursement of the expenses incurred on hospitalization.

3. The respondent - Insurance Company made inquiries from

Madras Institute of Nephrology (Vijaya Health Centre) and

obtained a certificate dated 6th May, 1992, (Annex.P-6) stating

2 that the deceased was a known case of "Chronic Renal

Failure/Diabetic Nephropathy"; was on regular haemodialysis

at his place and after admission on 7th December, 1990 with

severe breathlessness developed sudden cardiac arrest on

26th December, 1990 leading to his death. The certificate

also stated that the insured was a known diabetic for the last

16 years. Thereupon, the respondent vide letter dated 30th

August, 1993 informed the appellant that her claim had been

repudiated. Being aggrieved, the appellant filed Consumer

Complaint Case No. 48 of 1996 before the Consumer Dispute

Redressal Forum No.IV at Bunkar Vihar Nand Nagri, New

Delhi ("District Forum" for short) with the prayer that the

Insurance Company should be directed to pay the claim

amount of Rs.23,217.80 along with interest @ 24% per

annum and compensation for agony as also the litigation

expenses.

4. Before the District Forum, the stand of the respondent was

that the claim preferred by the appellant had been repudiated

on the basis of the report supplied by Vijaya Health Centre,

Chennai where appellant's husband had died. In the written

statement filed by the respondent before the District Forum, it

was stated that while filling up the proposal form, against

3 queries No.10 and 11, the insured had stated that he was in

sound health and had not undergone any treatment or

operation in the last 12 months, whereas the medical report

revealed that he was a known case of "Chronic Renal

Failure/Diabetic Nephropathy" being diabetic for the last 16

years. It was also added that the opinion of two independent

doctors was obtained to affirm that the claim could not be

honoured as material facts relating to the health of the

insured were concealed at the time of taking out the policy.

5. The District Forum vide its order dated 20th May, 1997,

refuted the opinion of the independent doctors on the ground

that they had never personally treated the deceased. The

Forum noted that report of Vijaya Hospital was not supported

by any circumstantial evidence and was, therefore, unreliable.

The policy was repudiated on 30th August, 1993 i.e. almost 2

years and 8 months after the death of the deceased.

Preferring to rely on the letter written by the elder brother of

the deceased, Col. Gurcharanjit Singh on 21st June, 1993 to

the Asstt. Manager, New India Assurance Co. stating that

deceased became unwell some time in September/October,

1990 and thereafter his condition deteriorated fast resulting

ultimately in his death, the District Forum concluded that the

4 Insurance Company was guilty of deficiency in service

because repudiation was not based on full material

information and that there was inordinate delay in deciding

the claim under the policy. The District Forum accordingly

directed the respondent to pay the claimed amount with

interest at 12% per annum from 1st April, 1991 i.e., 3 months

after the death of the insured till the date of actual payment.

The respondent was also required to pay Rs.1000/- as cost of

litigation.

6. Aggrieved, the respondent - Insurance Company preferred

appeal before the State Commission. The State Commission

vide its order dated 31st December, 1998, allowed the appeal

and set aside the order of the District Forum. The relevant

part of the order reads as under:

"Death of the insured occurred within seven months of taking the mediclaim policy and Section 45 of the Insurance Act is not even remotely attracted. We are of the considered view that repudiation of the claim was on a consideration of the aforesaid record of the Madras Institute of Nephrology and, therefore answer to col. 10 of the proposal form amounted to mis-representation and suppression of material facts regarding health made by the policy holder. No case of deficiency in service has been established."

7. Being aggrieved by the order of the State Commission, the

appellant filed Revision Petition before the National

5 Commission. As noted earlier, the National Commission has

dismissed the Revision Petition, by a short order, which reads

thus:

"It is a case of concurrent finding of fact recorded both by the District Forum and the State Commission. We do not find any reason to interfere with the order passed by the State Commission. The Revision Petition is dismissed."

8. Mr. D.S. Lambat, learned counsel appearing for the appellant

contended that the National Commission has grossly erred in

upholding the State Commission's order on the premise of

"concurrent finding of fact" by the Fora below when both the

Forums had arrived at different findings regarding suppression

of material facts about the state of health of the insured. It

was, thus, urged that the National Commission misled itself in

passing an order which did not bear consonance with the

factual position on record. Learned counsel also submitted

that the State Commission had erred in relying on inadmissible

and unproved contents of a document viz. certificate dated 6th

May, 1992, to reverse a logical and cogent finding by the

District Forum. Lastly, it was contended that the National

Commission acted illegally in dismissing appellant's Revision

Petition without assigning any reason and appreciating the fact

that the claim was repudiated after 30 months, which,

6 according to the counsel, by itself amounted to deficiency of

service by the respondent.

9. Per Contra, learned counsel for the respondent submitted that

the repudiation of claim was fully justified because at the time

of submission of the proposal form, the respondent had made

a false declaration that he was possessing sound health and

had not undergone any treatment in the last 12 years and

taking the facts disclosed as correct the policy was issued. It

was urged that a mediclaim policy is issued solely on the basis

of the facts disclosed and the representation made by an

insured in the proposal form filled in and submitted by him

without subjecting the insured to any medical tests. It was

also pointed out that the proposal form contains a declaration

to the effect that if after the insurance is effected, it is found

that the statement, answers or particulars stated in the

proposal form and its questionnaire are incorrect or untrue in

any respect, the insurance company shall incur no liability

under this insurance. It was, thus, asserted that the insured

having suppressed the fact that he was suffering from Diabetic

Nephropathy/Chronic Renal Failure, which fact was within his

knowledge, the respondent was justified in repudiating the

claim.

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10. The core question for consideration is whether the fact that at

the time of taking out the mediclaim policy, the policy holder

was suffering from chronic Diabetes and Renal failure was a

material fact and, therefore, on account of non-disclosure of

this fact in the proposal form, the respondent - Insurance

Company was justified in law in repudiating the claim of the

appellant?

11. Having bestowed our anxious consideration to the matter, we

are of the opinion that in the light of the material on record,

answer to the question posed has to be in the affirmative.

12. There is no dispute that Section 45 of the Insurance Act, 1938

(for short "the Act"), which places restrictions on the right of

the insurer to call in question a life insurance policy on the

ground of mis-statement after a particular period, has no

application on facts at hand, inasmuch as the said provision

applies only in a case of life insurance policy. The present

case relates to a mediclaim policy, which is entirely different

from a life insurance policy. A mediclaim policy is a non-life

insurance policy meant to assure the policy holder in respect

of certain expenses pertaining to injury, accidents or

hospitalizations. Nonetheless, it is a contract of insurance

8 falling in the category of contract uberrimae fidei, meaning a

contract of utmost good faith on the part of the assured. Thus,

it needs little emphasis that when an information on a specific

aspect is asked for in the proposal form, an assured is under a

solemn obligation to make a true and full disclosure of the

information on the subject which is within his knowledge. It is

not for the proposer to determine whether the information

sought for is material for the purpose of the policy or not. Of

course, obligation to disclose extends only to facts which are

known to the applicant and not to what he ought to have

known. The obligation to disclose necessarily depends upon

the knowledge one possesses. His opinion of the materiality of

that knowledge is of no moment. (See: Joel Vs. Law Union &

Crown Ins. Co.1)

13. In United India Insurance Co. Ltd. Vs. M.K.J. Corporation2,

this Court has observed that it is a fundamental principle of

insurance law that utmost faith must be observed by the

contracting parties. Good faith forbids either party from non-

disclosure of the facts which the party privately knows, to draw

the other into a bargain, from his ignorance of that fact and his

1 [1908] 2 K.B. 863 2 (1996) 6 SCC 428

9 believing the contrary. (Also see: Modern Insulators Ltd. Vs.

Oriental Insurance Co. Ltd.3).

14. MacGillivray on Insurance Law (Tenth Edition) has

summarised the assured's duty 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 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 non-disclosure induced the making of the contract on the relevant terms."

15. Over three centuries ago, in Carter Vs. Boehm4, Lord

Mansfield had succinctly summarised the principles

necessitating a duty of 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 risqui run is really different from the risqui understood and intended to be run at the time of the agreement...The policy 3 (2000) 2 SCC 734 4 (1766) 3 Burr. 1905

1 0 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."

16. Having said so, as noted above, the next question for

consideration would be as to whether factum of the said illness

was a "material" fact for the purpose of a mediclaim policy and

its non-disclosure was tantamount to suppression of material

facts enabling the Insurance Company to repudiate its liability

under the policy?

17. The term "material fact" is not defined in the Act and,

therefore, it has been understood and explained by the Courts

in general terms to mean as any fact which would influence

the judgment of a prudent insurer in fixing the premium or

determining whether he would like to accept the risk. Any fact

which goes to the root of the Contract of Insurance and has a

bearing on the risk involved would be "material".

18. As stated in Pollock and Mulla's Indian Contract and

Specific Relief Acts `any fact the knowledge or ignorance of

which would materially influence an insurer in making the

contract or in estimating the degree and character of risks in

fixing the rate of premium is a material fact.'

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19. In this regard, it would be apposite to make a reference to

Regulation 2(1)(d) of the Insurance Regulatory and

Development Authority (Protection of Policyholders' Interests)

Regulations, 2002, which explains the meaning of term

"material". The Regulation reads thus:

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

(a) xxx xxx xxx (b) xxx xxx xxx (c) xxx xxx xxx

(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 to decide whether to undertake the

risk or not.

20. The upshot of the entire discussion is that in a Contract of

Insurance, any fact which would influence the mind of a

1 2 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.

21. Bearing in mind the aforestated legal position, we may advert

to the facts in hand. As noted earlier, the proposal form

contained the following two questions:

"10. Details of illness/would : Sound Health which may require treatment in near future

11. Details of Treatment/surgical : Nil operation in the last two months

Details of Treatment

Duration of Treatment From.....to......

Doctor / Hospital

If fully recovered, attached certificate

For attending Doctor/Surgeon"

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22. 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. It is also pertinent to note that in the claim form the

appellant had stated that the deceased was suffering from

Chronic Renal Failure and Diabetic Nephropathy from 1st

June, 1990, i.e. within three weeks of taking the policy.

Judged from any angle, we have no hesitation in coming to the

conclusion that the statement made by the insured in the

proposal form as to the state of his health was palpably untrue

to his knowledge. There was clear suppression of material

facts in regard to the health of the insured and, therefore, the

respondent - insurer was fully justified in repudiating the

insurance contract. We do not find any substance in the

1 4 contention of learned counsel for the appellant that reliance

could not be placed on the certificate obtained by the

respondent from the hospital, where the insured was treated.

Apart from the fact that at no stage the appellant had pleaded

that the insured was not treated at Vijaya Health Centre at

Chennai, where he ultimately died. It is more than clear from

the said certificate that information about the medical history of

the deceased must have been supplied by his family members

at the time of admission in the hospital, a normal practice in

any hospital. Significantly, even the declaration in the

proposal form by the proposer authorises the insurer to seek

information from any hospital he had attended or may attend

concerning any decease or illness which may affect his health.

23. Before parting with the case, we may also deal with the

submission of learned counsel for the appellant that the order

of the National Commission is flawed because it has declined

to interfere on a wrong premise that both the Fora below had

arrived at "concurrent findings", which was not so. It is true

that there is an apparent error in the order of the National

Commission, inasmuch as the State Commission had, in fact,

disagreed with the view taken by the District Forum but having

regard to the fact that on our independent examination of the

1 5 material on record, the claim by the appellant has been found

to be fraudulent, we are of the opinion that no useful purpose

would be served by remitting the matter to the National

Commission for fresh adjudication on merits.

24. In view of the foregoing discussion, we do not find any merit in

this appeal, which is dismissed accordingly but with no order

as to costs.

...........................................J. ( D.K. JAIN )

...........................................J. ( R.M. LODHA )

NEW DELHI;

JULY 10, 2009.

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