# RELIANCE LIFE INSURANCE CO LTD & ANR v. REKHABEN NARESHBHAI RATHOD

- **Citation:** [2019] 6 S.C.R. 733
- **Court:** Supreme Court of India
- **Decided:** 2019-04-24
- **Case number:** Civil Appeal No. 4261 of 2019
- **Bench:** Dr Dhananjaya Y Chandrachud, Hemant Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/reliance-life-insurance-co-ltd-anr-v-rekhaben-nareshbhai-rathod-33930
- **Pages:** 29

## Headnote

Consumer Protection Act, 1986: Deficiency of service -
Insurance policy - Repudiation of claim - Spouse of the respondent
took a policy from insurance company - Two months later he
submitted proposal for life insurance policy of the appellantinsurance company and in the proposal form, on the query as to
whether the proposer was currently insured or had applied for life
insurance cover, his answer was in negative - Appellant issued a
policy to him - After about a year he died - Appellant repudiated
the claim of respondent on the ground of suppression of material
fact relating to details of life insurance policies held by her husband
- Consumer complaint by respondent - Held: s.45 curtails the
common law rights of the insurer after lapse of two years from the
date the cover for life insurance was effected - However, the
repudiation in the instant case was within a period of two years
from the commencement of the insurance cover - The contracts of
insurance are governed by the principle of utmost good faith - The
duty of mutual fair dealing requires all parties to a contract to be
fair and open with each other to create and maintain trust between
them - The duty of full disclosure requires that no information of
substance or of interest to the insurer is omitted or concealed -
Whether or not the insurer would have issued a life insurance cover
despite the earlier cover of insurance is a decision which was
required to be taken by the insurer after duly considering all relevant
facts and circumstances - Prior to undertaking the risk, this
information could potentially allow the insurer to question as to
why the insured had in such a short span of time obtained two
different life insurance policies - Such a fact is sufficient to put the
insurer to enquiry - The information which was sought by the insurer
was indeed material to its decision as to whether or not to undertake
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a risk - The proposer was aware of the fact, while making a
declaration, that if any statements were untrue or inaccurate or if
any matter material to the proposal was not disclosed, the insurer
may cancel the contract and forfeit the premium - The failure of the
insured to disclose the policy of insurance obtained earlier in the
proposal form entitled the insurer to repudiate the claim under the
policy - Insurance Regulatory and Development Authority
(Protection of Policyholders' Interests) Regulations 2002 - Regn
2(d).
Insurance Act 1932: s.45 - Repudiation of policy of life
insurance - Limitation period - Held: s.45 stipulates restrictions
upon the insurer calling into question a policy of life insurance
after the expiry of two years from the date on which it was effected
- Beyond two years, the burden lies on the insurer to establish the
inaccuracy or falsity of a statement on a material matter or the
suppression of material facts - In addition to this requirement, the
insurer has to establish that this non-disclosure or, as the case may
be, the submission of inaccurate or false information was
fraudulently made and that the policy holder while making it knew
of the falsity of the statement or of the suppression of facts which
were material to disclose - s.45 curtails the common law rights of
the insurer after two years have elapsed since the cover for life
insurance was effected.
Doctrines/Principles: Doctrine of uberrima fidei - Insurance
is governed by the doctrine of uberrima fidei - This postulates that
there must be complete good faith on the part of the insured - The
relationship between an insurer and the insured is recognized as
one where mutual obligations of trust and good faith are paramount
- In a contract of insurance, the insured can be expected to have
information of which she/he has knowledge - This justifies a duty
of good faith, leading to a positive duty of disclosure - Insurance.
Insurance Regulatory and Development Authority (Protection
of Policyhold

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RELIANCE LIFE INSURANCE CO LTD & ANR.
v.
REKHABEN NARESHBHAI RATHOD
(Civil Appeal No. 4261 of 2019)
APRIL 24, 2019
[DR DHANANJAYA Y CHANDRACHUD AND
HEMANT GUPTA, JJ.]
Consumer Protection Act, 1986: Deficiency of service -
Insurance policy - Repudiation of claim - Spouse of the respondent
took a policy from insurance company - Two months later he
submitted proposal for life insurance policy of the appellantinsurance company and in the proposal form, on the query as to
whether the proposer was currently insured or had applied for life
insurance cover, his answer was in negative - Appellant issued a
policy to him - After about a year he died - Appellant repudiated
the claim of respondent on the ground of suppression of material
fact relating to details of life insurance policies held by her husband
- Consumer complaint by respondent - Held: s.45 curtails the
common law rights of the insurer after lapse of two years from the
date the cover for life insurance was effected - However, the
repudiation in the instant case was within a period of two years
from the commencement of the insurance cover - The contracts of
insurance are governed by the principle of utmost good faith - The
duty of mutual fair dealing requires all parties to a contract to be
fair and open with each other to create and maintain trust between
them - The duty of full disclosure requires that no information of
substance or of interest to the insurer is omitted or concealed -
Whether or not the insurer would have issued a life insurance cover
despite the earlier cover of insurance is a decision which was
required to be taken by the insurer after duly considering all relevant
facts and circumstances - Prior to undertaking the risk, this
information could potentially allow the insurer to question as to
why the insured had in such a short span of time obtained two
different life insurance policies - Such a fact is sufficient to put the
insurer to enquiry - The information which was sought by the insurer
was indeed material to its decision as to whether or not to undertake
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a risk - The proposer was aware of the fact, while making a
declaration, that if any statements were untrue or inaccurate or if
any matter material to the proposal was not disclosed, the insurer
may cancel the contract and forfeit the premium - The failure of the
insured to disclose the policy of insurance obtained earlier in the
proposal form entitled the insurer to repudiate the claim under the
policy - Insurance Regulatory and Development Authority
(Protection of Policyholders' Interests) Regulations 2002 - Regn
2(d).
Insurance Act 1932: s.45 - Repudiation of policy of life
insurance - Limitation period - Held: s.45 stipulates restrictions
upon the insurer calling into question a policy of life insurance
after the expiry of two years from the date on which it was effected
- Beyond two years, the burden lies on the insurer to establish the
inaccuracy or falsity of a statement on a material matter or the
suppression of material facts - In addition to this requirement, the
insurer has to establish that this non-disclosure or, as the case may
be, the submission of inaccurate or false information was
fraudulently made and that the policy holder while making it knew
of the falsity of the statement or of the suppression of facts which
were material to disclose - s.45 curtails the common law rights of
the insurer after two years have elapsed since the cover for life
insurance was effected.
Doctrines/Principles: Doctrine of uberrima fidei - Insurance
is governed by the doctrine of uberrima fidei - This postulates that
there must be complete good faith on the part of the insured - The
relationship between an insurer and the insured is recognized as
one where mutual obligations of trust and good faith are paramount
- In a contract of insurance, the insured can be expected to have
information of which she/he has knowledge - This justifies a duty
of good faith, leading to a positive duty of disclosure - Insurance.
Insurance Regulatory and Development Authority (Protection
of Policyholders' Interests) Regulations 2002: Regn 2(d) - Proposal
form - Held: Regn 2(d) specifically defines the expression "proposal
form" as a form which is filled by a proposer for insurance to furnish
all material information required by the insurer in respect of a risk
- The purpose of the disclosure is to enable the insurer to decide
whether to accept or decline to undertake a risk - The disclosures
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are also intended to enable the insurer, in the event that the risk is
accepted, to determine the rates, terms and conditions on which a
cover is to be granted.
Insurance Regulatory and Development Authority (Protection
of Policyholders' Interests) Regulations 2002: Regn 2(d),
Explanation - Furnishing of all material information in the proposal
form - Meaning of expression 'Material' - Held: The explanation
defines the expression "material" to mean and include "all important
essential and relevant information" for underwriting the risk to be
covered by the insurer - The expression "material" in the context
of an insurance policy can be defined as any contingency or event
that may have an impact upon the risk appetite or willingness of the
insurer to provide insurance cover - In a contract of insurance,
any fact which would influence the mind of a prudent insurer in
deciding whether to accept or not accept the risk is a material fact
- If the proposer has knowledge of such fact, she or he is obliged
to disclose it particularly while answering questions in the proposal
form.
Insurance Regulatory and Development Authority (Protection
of Policyholders' Interests) Regulations 2002: Regn 2(d) -
Consequence of inaccurate answer in the proposal form - Held:
An inaccurate answer will entitle the insurer to repudiate because
there is a presumption that information sought in the proposal form
is material for the purpose of entering into a contract of insurance
- In a proposal form the applicant declares that she/he warrants
truth - The contractual duty so imposed is such that any suppression,
untruth or inaccuracy in the statement in the proposal form will be
considered as a breach of the duty of good faith and will render the
policy voidable by the insurer - The finding of a material
misrepresentation or concealment in insurance has a significant
effect upon both the insured and the insurer in the event of a dispute
- In the instant case, the insurer had sought information with respect
to previous insurance policies obtained by the insured - The
disclosure of the earlier cover was material to an assessment of the
risk which was being undertaken by the insurer - Prior to
undertaking the risk, this information could potentially allow the
insurer to question as to why the insured had in such a short span
of time obtained two different life insurance policies - Such a fact
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
NARESHBHAI RATHOD
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was sufficient to put the insurer to enquiry - The information which
was sought by the insurer was indeed material to its decision as to
whether or not to undertake a risk.
Insurance: Plea of ignorance of contents of proposal form -
Held: Proposer is not absolved of the consequence of appending
his signatures to the proposal on the submission that he was unaware
of the contents of the form that he was required to fill up - In the
instant case, the proposer duly appended his signature to the
proposal form and the grant of the insurance cover was on the
basis of the statements contained in the proposal form - Barely two
months before the contract of insurance was entered into with the
appellant, the insured had obtained another insurance cover for
his life in the sum of Rs 11 lakhs - The failure of the insured to
disclose the policy of insurance obtained earlier in the proposal
form entitled the insurer to repudiate the claim under the policy -
The argument of the respondent that the signatures of the assured
on the form were taken without explaining the details is not
acceptable.
Allowing the appeal, the Court
HELD: 1. The repudiation in the instant case was within a
period of two years from the commencement of the insurance
cover. This assumes significance because of the provisions of
Section 45 of the Insurance Act 1932, as they stood at the material
time. Section 45 stipulated restrictions upon the insurer calling
into question a policy of life insurance after the expiry of two
years from the date on which it was effected. After two years
have elapsed the insurer cannot call it into question on the ground
that: (i) a statement made in the proposal; or (ii) a statement
made in any report of a medical officer, referee or friend of the
insured; or (iii) a statement made in any other document leading
to the issuance of the policy was inaccurate or false, unless certain
conditions are fulfilled. Those conditions are that : (a) such a
statement was on a material matter; or (b) the statement
suppressed facts which were material to disclose and that (i) they
were fraudulently made by the policy holder; and (ii) the policy
holder knew at the time of making it that the statements were
false or suppressed facts which were material to disclose. The
cumulative effect of Section 45 is to restrict the right of the insurer
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to repudiate a policy of life insurance after a period of two years
of the date on which the policy was effected. Beyond two years,
the burden lies on the insurer to establish the inaccuracy or falsity
of a statement on a material matter or the suppression of material
facts. Moreover, in addition to this requirement, the insurer has
to establish that this non-disclosure or, as the case may be, the
submission of inaccurate or false information was fraudulently
made and that the policy holder while making it knew of the falsity
of the statement or of the suppression of facts which were material
to disclose. [Paras 12, 13][747-C; G; 748-A-D]
2.1 Insurance is governed by the doctrine of uberrima fidei.
This postulates that there must be complete good faith on the
part of the insured. The relationship between an insurer and the
insured is recognized as one where mutual obligations of trust
and good faith are paramount. [Para 15][748-G-H; 749-C]
MacGillivray on Insurance Law Twelfth Edition,
Sweet and Maxwell (2012) - referred to
2.2 The Insurance Regulatory and Development Authority
of India, by a notification dated 16 October 2002 issued the
Insurance Regulatory and Development Authority (Protection
of Policyholders' Interests) Regulations 2002. Regulation 2(d)
specifically defines the expression "proposal form" as a form
which is filled by a proposer for insurance to furnish all material
information required by the insurer in respect of a risk. The
explanation defines the expression "material" to mean and include
"all important essential and relevant information" for underwriting
the risk to be covered by the insurer. Regulation 4(3) stipulates
that while filling up the proposal, the proposer is to be guided by
the provisions of Section 45. Where a proposal form is not used,
the insurer under Regulation 4(4) is to record the information,
confirming it within a stipulated period with the proposer and
ought to incorporate the information in the cover note or policy.
In respect of information which is not so recorded, the onus of
proof lies on the insurer who claims that there was a suppression
of material information or that the insured provided misleading
or false information on any matter that was material to the grant
of the cover. [Paras 23, 24][755-A-B, 756-B-E]
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
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3. The expression "material" in the context of an insurance
policy can be defined as any contingency or event that may have
an impact upon the risk appetite or willingness of the insurer to
provide insurance cover. Materiality from the insured's
perspective is a relevant factor in determining whether the
insurance company should be able to cancel the policy arising
out of the fault of the insured. Whether a question concealed is
or is it not material is a question of fact. Materiality of a fact also
depends on the surrounding circumstances and the nature of
information sought by the insurer. It covers a failure to disclose
vital information which the insurer requires in order to determine
firstly, whether or not to assume the risk of insurance, and
secondly, if it does accept the risk, upon what terms it should do
so. In a contract of insurance, any fact which would influence the
mind of a prudent insurer in deciding whether to accept or not
accept the risk is a material fact. If the proposer has knowledge
of such fact, she or he is obliged to disclose it particularly while
answering questions in the proposal form. [Para 25][756-E-H;
757-A-D]
4. It is standard practice for the insurer to set out in the
application a series of specific questions regarding the applicant's
health history and other matters relevant to insurability. The
object of the proposal form is to gather information about a
potential client, allowing the insurer to get all information which
is material to the insurer to know in order to assess the risk and
fix the premium for each potential client. Proposal forms are a
significant part of the disclosure procedure and warrant accuracy
of statements. Utmost care must be exercised in filling the
proposal form. In a proposal form the applicant declares that she/
he warrants truth. The contractual duty so imposed is such that
any suppression, untruth or inaccuracy in the statement in the
proposal form will be considered as a breach of the duty of good
faith and will render the policy voidable by the insurer. The system
of adequate disclosure helps buyers and sellers of insurance
policies to meet at a common point and narrow down the gap of
information asymmetries. This allows the parties to serve their
interests better and understand the true extent of the contractual
agreement. The finding of a material misrepresentation or
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concealment in insurance has a significant effect upon both the
insured and the insurer in the event of a dispute. The fact it would
influence the decision of a prudent insurer in deciding as to
whether or not to accept a risk is a material fact. [Para 26]
[757-H; 758-A-D]
5. In the instant case, the insurer had sought information
with respect to previous insurance policies obtained by the
assured. The duty of full disclosure required that no information
of substance or of interest to the insurer be omitted or concealed.
Whether or not the insurer would have issued a life insurance
cover despite the earlier cover of insurance is a decision which
was required to be taken by the insurer after duly considering all
relevant facts and circumstances. The disclosure of the earlier
cover was material to an assessment of the risk which was being
undertaken by the insurer. Prior to undertaking the risk, this
information could potentially allow the insurer to question as to
why the insured had in such a short span of time obtained two
different life insurance policies. Such a fact is sufficient to put the
insurer to enquiry. The information which was sought by the
insurer was indeed material to its decision as to whether or not
to undertake a risk. [Paras 27, 28][758-F-H; 759-B]
6. The submission that the proposer was unaware of the
contents of the form that he was required to fill up or that in
assigning such a response to a third party, he was absolved of the
consequence of appending his signatures to the proposal cannot
be accepted. The proposer duly appended his signature to the
proposal form and the grant of the insurance cover was on the
basis of the statements contained in the proposal form. Barely
two months before the contract of insurance was entered into
with the appellant, the insured had obtained another insurance
cover for his life in the sum of Rs 11 lakhs. The failure of the
insured to disclose the policy of insurance obtained earlier in the
proposal form entitled the insurer to repudiate the claim under
the policy. The argument of the respondent that the signatures
of the assured on the form were taken without explaining the
details cannot be accepted. [Paras 29, 31][759-E-F; 760-B]
VK Srinivasa Setty v. Messers Premier Life and General
Insurance Co Ltd AIR 1958 Mys 53 - relied on.
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
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Mithoolal Nayak v. LIC 1962 Suppl (2) SCR 531 -
distinguished.
Satwant Kaur Sandhu v. New India Assurance Co Ltd.
(2009) 8 SCC 316 : [2009] 10 SCR 560 ; Sahara
India Life Insuance Company Limited v. Rayani
Ramanjaneyulu
(2014) CPJ 582 ;
Sheoshankar
Ratanlalji Khamele v Life Insurance Corporation of
India AIR 1971 Bom 304 ; LIC of India v. Vidya Devi
(2012) 3 CPJ 288 (NC) ;
Dineshbhai Chandarana v
LIC (2010) 3 CPJ 358 (NC) ; Condogianis v. Guardian
Assurance Company Ltd. AIR 1921 PC 195 ;
Lakshmishankar v. Gresham Life Assurance Society AIR
1932 Bom 582 ; Life Insurance Corporation of India
v. Smt GM Channabasamma (1991) 1 SCC 357 ; Life
Insurance Corpn of India v. Asha Goel (Smt) (2001) 2
SCC 160 : [2000] 5 Suppl. SCR 646 ; United India
Insurance Co Ltd v. MKJ Corporation (1996) 6 SCC
428 : [1996] 5 Suppl. SCR 20 ; Modern Insulators Ltd
v. Oriental Insurance Co Ltd. (2000) 2 SCC 734 : [2000]
1 SCR 1076 - referred to.
Carter v Boehm (1766) 3 Burr 1905 - referred to.
MacGillivray on Insurance Law Twelfth Edition,
Sweet and Maxwell (2012) - referred to
Case Law Reference
(2014) CPJ 582
referred to
Para 7
1962 Suppl (2) SCR 531
distinguished
Para 9 (ii)
[2009] 10 SCR 560
referred to
Para 9 (iii)
AIR 1971 Bom 304
referred to
Para 9 (vi)
(2012) 3 CPJ 288 (NC)
referred to
Para 9 (vii)
(2010) 3 CPJ 358 (NC)
referred to
Para 9 (vii)
AIR 1921 PC 195
referred to
Para 9 (x)
AIR 1932 Bom 582
referred to
Para 17
(1991) 1 SCC 357
referred to
Para 20
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[2000] 5 Suppl. SCR 646
referred to
Para 21
[1996] 5 Suppl. SCR 20
referred to
Para 22
[2000] 1 SCR 1076
referred to
Para 22
AIR 1958 Mys 53
relied on
Para 32
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4261
of 2019.
From the Judgment and Order dated 20.02.2015 of the National
Consumer Disputes Redressal Commission in Revision Petition No. 359
of 2015.
E. R. Kumar, Aditya Sharma, Ms. Swati Bhardwaj, Manu Bajaj,
M/s. Parekh & Co., Advs. for the Appellants.
Amar Dave, Sabyasachi De, Asit Kumar Roy, Snehasish
Mukherjee, Advs. for the Respondent.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y. CHANDRACHUD, J.
1. Leave granted.
2. This appeal is from a decision of the National Consumer
Disputes Redressal Commission1 dated 20 February 2015. The State
Consumer Disputes Redressal Commission2 at Ahmedabad allowed an
appeal of the insured - respondent and sustained a claim under a policy
of life insurance. This decision has been upheld in revision by the NCDRC.
The insurer is hence in appeal.
3. On 10 July 2009, the spouse of the respondent took a policy of
life insurance from Max New York Life Insurance Co Ltd, for a sum of
Rs 11 lakhs. Barely two months thereafter, on 16 September 2009 he
submitted a proposal for a life insurance term plan policy of the appellant
for an insurance cover of Rs 10 lakhs. Among the questions that the
proposer was required to answer in the proposal form was whether he
was currently insured or had previously applied for life insurance cover,
critical illness cover or accident benefit cover. This query was answered
in the negative. Item 17 of the proposal form required a disclosure of:
1 "NCDRC"
2 "SCDRC"
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
NARESHBHAI RATHOD
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"DETAILS OF LIFE INSURANCE POLICIES HELD/
PROPOSALS APPLIED WITH LIFE INSURANCE
COMPANIES (INCLUDING EXISTING POLICIES WITH
RELIANCE LIFE INSURANCE COMPANY LTD.)"
The information which was required to be furnished under the
above head included: (i) name of the life to be assured/proposer; (ii)
name of company; (iii) contract/proposal number; (iv) basic sum assured;
(v) sum assured under rider; and (vi) year of commencement. The
proposer was also required to furnish details in regard to the present
status and terms of acceptance and to fill up one of the accompanying
boxes namely: (i) declined; (ii) postponed; (iii) rated up; (iv) rejected; (v)
in force; (vi) lapsed; and (vii) applied.
4. The proposer answered the query as to whether he was
currently insured for a cover of life insurance, critical illness or accident
benefit in the negative. On the details of other insurance covers held by
him, the proposer had indicated "NA" or a "not applicable" response.
The declaration which was required to be furnished by the proposer
with the proposal form was in the following terms:
"I understand and agree that the statements in this proposal form
shall be the basis of the contract between me and Reliance Life
Insurance Company Limited ("the Company") and that if any
statements made by me are untrue or inaccurate or if any of the
matter material to this proposal is not disclosed by me then the
Company may cancel the contract and all the premiums paid, will
be forfeited."
5. On 22 September 2009, the appellant issued a policy of life
insurance to the spouse of the respondent based on the disclosures
contained in the proposal form. The respondent's spouse died on 8
February 2010. On 24 May 2011, nearly fifteen months after the date of
death, the respondent, who was a nominee under the policy issued by
the appellant, submitted a claim of Rs 10 lakhs under the terms of the
policy. The claim was supported by a medical certificate stating that the
policy holder had suffered from sudden chest pain prior to his death. On
7 June 2011, the appellant sought copies of medical reports including, as
the case may be, death or discharge summaries together with previous
medical records of the deceased. On 14 July 2011, in response to the
appellant's e-mail dated 29 June 2011, Max New York Life Insurance
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Co Ltd informed the appellant that the spouse of the respondent had
been insured with them for a sum of Rs 11 lakhs and that the claim had
been settled. The appellant repudiated the respondent's claim on 30
August 2011 stating thus:
"In the light of suppression of material fact, where glaring omission
to answer especially the question no (17) relating to details of the
life insurance policies held by the life assured, we are constrained
to repudiate the claim under the policy in terms of Section 45 of
the Insurance Act 1938."
6. On 24 February 2012 the respondent addressed a legal notice
alleging a deficiency in service and then moved a consumer complaint
before the District Consumer Disputes Redressal Forum, Bhavnagar3.
The appellant contested the claim.
7. On 31 August 2013, the District Forum dismissed the complaint
inter alia, on the ground that there was a non-disclosure of the fact that
the insured had held a previous policy in the proposal form filled up by
the proposer. The appeal filed by the respondents was, however, allowed
by the SCDRC on 28 November 2014 relying on a decision of the
NCDRC in Sahara India Life Insurance Company Limited v Rayani
Ramanjaneyulu4. This decision of the SCDRC was affirmed by the
NCDRC on 6 February 2015, for the reason that the omission of the
insured to disclose a previous policy of insurance would not influence
the mind of a prudent insurer as held in Sahara India (supra).
8. On 14 May 2015, this Court while issuing a notice, stayed the
execution of the decision of the NCDRC, subject to the appellant
depositing 50 percent of the decretal amount before the District Forum.
The respondent was permitted to withdraw the amount on deposit.
Pursuant to the interim order of 1 June 2015, the appellant handed over
a demand draft in the amount of Rs 16,18,987 drawn on the State Bank
of India to the respondent, which has been encashed.
9. Learned counsel appearing on behalf of the appellant submits
that:
(i) In spite of the specific disclosures required in item 17 of the
proposal form, the proposer suppressed the fact that he had an existing
policy of insurance. In answering the query in the negative the proposer
3 "District Forum"
4 III (2014) CPJ 582
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
NARESHBHAI RATHOD [DR. DHANANJAYA Y. CHANDRACHUD, J.]
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submitted ex facie false information. This was in breach of the bounden
duty of the proposer to furnish full and complete details in response to
the queries contained in the proposal form;
(ii) The commencement date of the policy being 22 September
2009, the claim in the present case was repudiated within two years, on
30 August 2011, due to the non-disclosure of the previous life insurance
policy held by the proposer. If the information sought by the insurer in
the proposal form is not disclosed, is suppressed or if a false answer is
furnished by the proposer, the insurer is entitled to repudiate the insurance
policy or any claim arising from it under Sections 17 and 19 of the Contract
Act 1872 (Mithoolal Nayak v LIC5);
(iii) In a case covered by (ii) above, the insurer is not required to
establish that the non-disclosure, suppression or falsity of response by
the proposer is material. This is for the reason that it is for the insurer,
and not the proposer, to determine whether the information which has
specifically been sought in the proposal form is material or otherwise
(Satwant Kaur Sandhu v New India Assurance Co Ltd6);
(iv) It is only when an insurer seeks to repudiate a policy of life
insurance or a claim arising under it after two years of the effective date
of the policy that by reason of Section 45 of the Insurance Act 1938, the
insurer will have to demonstrate that the information sought in the
proposal form was material;
(v) Disclosure of a pre-existing life insurance cover of the proposer
is necessary to enable the insurer to assess the human life value of the
proposer before the issuance of a policy. The consequence of nondisclosure of a pre-existing cover is that the insurer is unable to assess
the real risk. This is an important facet of financial under-writing;
(vi) Section 45 modifies the common law where a life insurance
policy is repudiated due to a misstatement or suppression of facts after
two years have expired from the date of commencement of the policy.
A repudiation within two years is not governed by Section 45
(Sheoshankar Ratanlalji Khamele v Life Insurance Corporation
of India7);
5 1962 Suppl (2) SCR 531
6 (2009) 8 SCC 316
7 AIR 1971 Bom 304
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(vii) The judgment of the NCDRC is contrary to the law laid
down by this Court in Satwant Kaur Sandhu (supra) and the earlier
decisions of the NCDRC itself (LIC of India v Vidya Devi8 and
Dineshbhai Chandarana v LIC9);
(viii) In Sahara India (supra) which was relied upon by the
NCDRC, the earlier decision in Vidya Devi (supra) which in turn had
followed Chandarana (supra) was noticed but erroneously not followed.
Vidya Devi and Chandarana specifically, dealt with non-disclosure of
the previous policies by the insurer in the proposal form and upheld the
repudiation of the claim by the insurer;
(ix) In Vidya Devi, the NCDRC rejected the argument that the
suppression of a previous policy was not material since the insured was
an illiterate person had affixed a signature on blank papers; and
(x) In Condogianis v Guardian Assurance Company Ltd10,
the Privy Council has held that even a partial non-disclosure or ambiguous
disclosure regarding the previous policies in the proposal form vitiates
the policy, which is thus liable to be rescinded.
On the above grounds, a challenge has been addressed to the
judgment of the NCDRC.
10. On the other hand, learned counsel appearing on behalf of the
respondent supported the decision appealed against, urging that:
(i) The insurance agent induced the insured to take a policy of life
insurance by taking his signature on a blank proposal form together with
the premium in cash. The insured was not conversant with English and
it was the duty of the insurer to translate the proposal form into Gujarati.
The proposal form was either filled in by the appellants or their agent
and the witness was unknown to the insured;
(ii) Though in the letter of repudiation dated 30 August 2011, it
was only the alleged suppression of a previous policy which was pressed
in aid, the appellants sought to support the repudiation before the
consumer forum on the ground that there was a pre-existing urinary
bladder ailment. The insured had suffered from the infection in 2002,
several years before the submission of the proposal form;
8 (2012) 3 CPJ 288 (NC)
9 (2010) 3 CPJ 358 (NC)
10 AIR 1921 PC 195
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
NARESHBHAI RATHOD [DR. DHANANJAYA Y. CHANDRACHUD, J.]
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(iii) A non-disclosure of a previous insurance policy cannot be a
valid ground for repudiation of the claim. There is no prohibition in law
from a person holding any number of life insurance policies from different
insurers. The insurer has admitted that the death of the insured on 8
February 2010 was due to a heart attack and hence the claim was covered
within the terms of the policy;
(iv) The non-disclosure of a previous insurance cover is not of
any material consequence under Section 45 of the Insurance Act 1932.
The alleged omission or commission is not of any material consequence
and would have not influenced the mind of the appellant while issuing
the policy nor would it affect the rate of premium; and
(v) A Special Leave Petition [SLP (C) No 130740 of 2014] against
the decision of the NCDRC in Sahara India (supra) has been dismissed.
On the above grounds, learned counsel appearing on behalf of the
respondent supported the view of the NCDRC.
11. While considering the rival submissions, it is necessary to
preface our analysis with reference to two basic facts. The first pertains
to the nature of the disclosure made by the insured in the proposal form.
The second relates to the ground for repudiation of the claim. The
proposal form required a specific disclosure of the life insurance policies
held by the proposer and all proposals submitted to life insurance
companies, including the appellant. The proposer was called upon to
furnish a full disclosure of covers for life insurance, critical illness or
accident benefit under which the proposer was currently insured or for
which the proposer had applied. The answer to this was given in the
negative. Furthermore, item 17 of the proposal form required a detailed
disclosure of the other insurance policies held by the proposer including
the sum assured. A disclosure was also required of the status of pending
proposals. These were answered with a "not applicable" response,
following the statement that the proposer did not hold any other insurance
cover. The fact that two months prior to the policy which was obtained
from the appellant on 16 September 2009, the insured had obtained a
policy from Max New York Life Insurance Co Ltd in the amount of Rs
11 lakhs has now been admitted. There was evidently a non-disclosure
of the earlier cover for life insurance held by the insured.
The second aspect of the case which merits to be noticed is that
the repudiation of the claim on 30 August 2011 was on the ground that
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there was a non-disclosure of a material fact on the part of the insured
in not disclosing that he held a prior insurance cover. The insurer stated
that if this was to be disclosed in the proposal form, it would have called
for and evaluated financial income documents together with the terms
for the acceptance of the cover. Though the insurer has subsequently,
during the pendency of the proceedings made an effort to sustain its
repudiation on the ground that the insured had a pre-existing illness which
was not disclosed, it is necessary to record that this was not pressed in
aid during the hearing before this Court.
12. The repudiation in the present case was within a period of
two years from the commencement of the insurance cover. This assumes
significance because of the provisions of Section 45 of the Insurance
Act 1932, as they stood at the material time:
"45 No policy of life insurance effected before the commencement
of this Act shall after the expiry of two years from the date of
commencement of this Act and no policy of life insurance effected
after the coming into force of this Act shall, after the expiry of
two years from the date on which it was effected be called in
question by an insurer on the ground that statement made in the
proposal or in any report of a medical officer, or referee, or friend
of the insured, or in any other document leading to the issue of the
policy, was inaccurate or false, unless the insurer shows that such
statement was on a material matter or suppressed facts which it
was material to disclose and that it was fraudulently made by the
policy-holder and that the policy-holder knew at the time of making
it that the statement was false or that it suppressed facts which it
was material to disclose.
Provided that nothing in this section shall prevent the insurer from
calling for proof of age at any time if he is entitled to do so, and no
policy shall be deemed to be called in question merely because
the terms of the policy are adjusted on subsequent proof that the
age of the life insured was incorrectly stated in the proposal".
13. Section 45 stipulates restrictions upon the insurer calling into
question a policy of life insurance after the expiry of two years from the
date on which it was effected11. After two years have elapsed the
11 There is a similar restriction in the case of policies effected before the commencement
of the Insurance Act 1932 after the expiry of two years from the date of the
commencement of the Act, which is not material for the present case.
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
NARESHBHAI RATHOD [DR. DHANANJAYA Y. CHANDRACHUD, J.]
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insurer cannot call it into question on the ground that: (i) a statement
made in the proposal; or (ii) a statement made in any report of a medical
officer, referee or friend of the insured; or (iii) a statement made in any
other document leading to the issuance of the policy was inaccurate or
false, unless certain conditions are fulfilled. Those conditions are that :
(a) such a statement was on a material matter; or (b) the statement
suppressed facts which were material to disclose and that (i) they were
fraudulently made by the policy holder; and (ii) the policy holder knew at
the time of making it that the statements were false or suppressed facts
which were material to disclose. The cumulative effect of Section 45 is
to restrict the right of the insurer to repudiate a policy of life insurance
after a period of two years of the date on which the policy was effected.
Beyond two years, the burden lies on the insurer to establish the
inaccuracy or falsity of a statement on a material matter or the suppression
of material facts. Moreover, in addition to this requirement, the insurer
has to establish that this non-disclosure or, as the case may be, the
submission of inaccurate or false information was fraudulently made
and that the policy holder while making it knew of the falsity of the
statement or of the suppression of facts which were material to disclose.
14. Section 45 curtails the common law rights of the insurer after
two years have elapsed since the cover for life insurance was effected.
In the present case, the Court is called upon to determine the nature of
the authority of the insurer where a policy of life insurance or a claim
under it is sought to be repudiated within two years. The insurer submits
that within a period of two years, its right to repudiate the respondent's
claim is untrammelled and is not subject to the conditions which apply
beyond two years. On the other hand, the submission of the respondent
is that even within a period of two years, a non-disclosure or suppression
must be of a material fact to justify a repudiation. In other words, before
a non-disclosure can be utilized as a ground to repudiate, it must pertain
to a realm where it can be found that the non-disclosure was of a
circumstance or fact which would have affected the decision of the
insurer regarding whether or not to grant a cover.
15. The fundamental principle is that insurance is governed by the
doctrine of uberrima fidei. This postulates that there must be complete
good faith on the part of the insured. This principle has been formulated
in MacGillivray on Insurance Law12succinctly, thus:
12 Twelfth Edition, Sweet and Maxwell (2012)
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"[Subject to certain qualifications considered below], 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 or 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..."
The relationship between an insurer and the insured is recognized
as one where mutual obligations of trust and good faith are paramount.
16. In Condogianis (supra), the Privy Council dealt with an appeal
by Special Leave from a judgment of the High Court of Australia. The
appellant had claimed a declaration under a policy of insurance that the
insurer was liable to pay him for a loss sustained as a consequence of a
fire. In response to the requirement of disclosing whether the proponent
had ever been a claimant of a fire insurance company in respect of the
property proposed or any other property, the insurer had disclosed one
claim which had been made in the past but omitted to disclose another, in
respect of the burning of a motor car. The terms of the declaration
were as follows:
"5. This proposal is the basis of the contract and is to be taken as
part of the policy and (if accepted) the particulars are to be deemed
express and continuing warranties furnished by or on behalf of
the proponent; and any questions remaining unanswered will be
deemed to be replied to in the negative. The proposal is made
subject to the Company's conditions as printed any/or written in
the policy to be issued hereon, and which are hereby accepted by
the proponent."
Lord Justice Shaw, speaking for the Privy Council held:
"6. The case accordingly is one of express warranty: If in point of
fact the answer is untrue, the warranty still holds, notwithstanding
that the untruth might have arisen inadvertently and without any
kind of fraud. Secondly, the materiality of the untruth is not in
issue; the parties having settled for themselves-by making the
fact the basis of the contract, and giving a warranty-that as
between them their agreement on that subject precluded all inquiry
into the issue of materiality. In the language of Lord Eldon
RELIANCE LIFE INSURANCE CO. LTD. v. REKHABEN
NARESHBHAI RATHOD [DR. DHANANJAYA Y. CHANDRACHUD, J.]
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in Newcastle Fire Insurance Co. v.