Cannot Burden Insurer To Follow Up An Inadequate Disclosure Of Material Facts By The Insured: SC [Read Judgment]
"The burden cannot be cast upon the insurer to follow up on an inadequate disclosure by conducting a line of enquiry with the previous insurer in regard to the nature of the claims, if any, that were made under the earlier insurance policy."
The Supreme Court has observed that it is duty of the insured while making the proposal to make a clear and specific disclosure of material facts and that the insurer cannot be burdened to follow up an inadequate disclosure.
As per the relevant policy in this case (Oriental Insurance Company Ltd. vs. Mahendra Construction), the details of claims lodged during the preceding three years were required to be disclosed but were not furnished by the insured. The Insurance Company repudiated the claim.
The National Consumer Commission (NCDRC), in this case, observed that as the previous insurance policy was annexed to the proposal, the insurer could have known of the claims lodged with the previous insurer on making an enquiry. It was held that if there was a nondisclosure of information under paragraph 25(g), the insurer could have returned the proposal. According to NCDRC, the insurer could have discovered the true state of facts with the exercise of ordinary diligence and thus was not justified in repudiating the claim.
Disagreeing with this approach of the commission, the bench comprising Justice DY Chandrachud and Justice Hemant Gupta, on appeal filed by the insurance company said that the insurance is governed by the principle of utmost good faith, which imposes a duty of disclosure on the insured with regard to material facts. The court said
"The burden cannot be cast upon the insurer to follow up on an inadequate disclosure by conducting a line of enquiry with the previous insurer in regard to the nature of the claims, if any, that were made under the earlier insurance policy. On the contrary, it was the plain duty of the respondent while making the proposal to make a clear and specific disclosure. The insurance policy with New India Assurance Company Limited was for the period from 15 November 2004 to 14 November 2005. The excavator remained uninsured from 15 November 2005 until 10 October 2006. The case of the respondent was that during that period, it was under repair. This fact, together with the receipt of the earlier insurance claim, was material to the decision of the insurer on whether to accept the proposal for insurance. The disclosures which were required in paragraph 25(g) of the proposal form were material to assess the risk profile of the vehicle at the time of accepting the proposal for insurance"
Allowing the appeal, the bench held that the insured was under an obligation to make a full disclosure of the status of the previous insurance policy.