Insurance Company Must Insist On Disclosure Of Specific Details, Can't Repudiate Policy Later On Grounds Of Suppression: Allahabad HC

The Allahabad High Court has held that if the insurance company wants specific details to be filed in the form for issuing insurance policy, it must insist upon the person seeking the policy to disclose the same. Once the policy has been issued to the person without disclosing such facts and premium has been recovered by the insurance company, it cannot repudiate the contract on grounds of suppression/ non-disclosure of material facts.The bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit held,“If specific queries are made in the proposal form then it is the duty of the insured to answer that specific queries, but 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 the insurance company accepts the premium, and thereafter, issued policy bond, it cannot at a subsequent stage repudiate the claim of the insured. It is the duty of the insurer to verify the details of previous policy which is already on record with them.”Holding that “material fact” depends on the nature of policy, risk covered, queries raised in the proposal and the health of the insured at the time of issuance of policy, the Court held, “The test is whether the facts in question would influence the prudent insurer or not. If 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 then the fact will be a material fact.”Factual BackgroundPetitioner's wife obtained a life insurance policy from Life Insurance Corporation of India (LIC) wherein petitioner was a nominee. After her death, the husband-petitioner applied to LIC for disbursement of insurance money due upon her death. However, the claim was rejected on grounds that the insured had withheld certain information regarding her previous policy while applying for the one in dispute. Since it was concealment, the claim was declared not payable. Petitioner filed an application before the Regional Manager, LIC Kanpur who also rejected his claim on the same grounds. Thereafter, petitioner approached Assistant Secretary/Deputy Secretary/Secretary, Insurance Ombudsman, Lucknow who also rejected his claim on grounds that complaint was not in accordance with Rule 13(1), 14(1), 14(3), 14(5), 17(3)(ii) of Insurance Ombudsman Rule, 2017, was barred by limitation and was beyond the pecuniary jurisdiction.Accordingly, the petitioner approached the High Court on grounds that according to their agent, previous policies was known to LIC and that the same need not be disclosed. Counsel for respondents argued that there were columns in the form which were required to be filled with the details of the previous policy and the same were left blank by the deceased. Since there was breach of condition of the policy, it was argued that the policy was liable to repudiation. High Court VerdictThe Court held that the order passed by the Insurance Ombudsman was completely vague and arbitrary. It held that all conditions for filing the complaint were satisfied by the petitioner. The Court noted that Section 45 of the Insurance Act, 1938 provides that an insurance policy cannot be questioned on any grounds whatsoever after expiration of 3 year period from the date of policy. Section 45(2) provides that an insurance policy can be questioned within three years from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy on grounds of fraud. Explanation-II of Section 45(2) reads as“Mere silence as to facts likely to affect the assessment of the risk by the insurer is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the insured or his agent keeping silence, to speak, or unless his silence is, in itself, equivalent to speak.”Section 45(3) provides that if the insured can establish that there was no intention to commit fraud, the insurer cannot repudiate the insurance policy on grounds of fraud. The Court noted that Section 45(4) of the Insurance Act provides that no insurance policy can be cancelled within 3 years of date of issuance on the ground that any statement of or suppression of a fact material to the expectancy of the life of the insured was incorrectly made in the proposal or other document on the basis of which the policy was issued or revived or rider issued provided that if the policy is repudiated on grounds of suppression and not fraud, the premium deposited by the insured must be returned. The Court observed that in Mahakali Sujatha v. Future Generali India Life Insurance Co. Ltd. and Mahaveer Sharma v. Exide Life Insurance Co. Ltd. the Apex Court held that for repudiation on grounds of suppression, the burden to prove the allegation of non-disclosure of the material fact and that the non-disclosure was fraudulent is on the insurer.In Manmohan...

Insurance Company Must Insist On Disclosure Of Specific Details, Can't Repudiate Policy Later On Grounds Of Suppression: Allahabad HC

Upasna Agrawal

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