On 24 April 2019 the Supreme Court handed down its decision in Reliance Life Insurance Ltd v Rekhaben Nareshbhai Rathod, which dealt extensively with insureds' disclosure obligations.(1)
On 10 July 2009 the insured took out a life insurance policy with Max New York Life Insurance worth Rs110,000. On 16 September 2009 the insured submitted a proposal to Reliance Life Insurance for another life insurance policy worth Rs100,000. Among the questions that the insured was required to answer in the Reliance proposal form was whether he was currently insured or had previously applied for life insurance, critical illness or accident benefit cover. The insured answered this question in the negative. The insured also had to answer specific questions regarding other insurance. His response to these questions was "NA" or "not applicable".
Further, the insured provided the following declaration with the proposal form:
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.
On 22 September 2009 Reliance issued the policy to the insured. On 8 February 2010 the insured died of a heart attack.
On 24 May 2011 the insured's wife (the nominee and respondent in the present case) notified Reliance and claimed Rs100,000.
On 30 August 2011 Reliance repudiated the claim due to the suppression of material facts (ie, the insured's failure to provide details of his policy with Max).
On 24 February 2012 the insured's wife sent a legal notice to Reliance and filed a complaint before the District Consumer Forum.
On 31 August 2013 the District Consumer Forum dismissed the complaint on the ground of non-disclosure. However, the appeal filed by the insured's wife was allowed by the State Commission and affirmed by the National Commission in 2015 on the basis that "the omission of the insured to disclose a previous policy of insurance would not influence the mind of a prudent insurer".
The Supreme Court considered:
- the nature of the disclosure made by the insured in the proposal form. In this respect, the court held that "there was evidently a non-disclosure of the earlier cover for life insurance held by the Insured"; and
- the validity of the ground for repudiation of the claim. In this respect, the court held that it was "of the view that 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 court referred to a number of earlier Indian and UK decisions in coming to the above decision. It also made the following observations:
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 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. As this Court held in Satwant Kaur (supra) 'there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance'. Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms…
Learned counsel appearing on behalf of the insurer submitted that where a warranty has been furnished by the proposer in terms of a declaration in the proposal form, the requirement of the information being material should not be insisted upon and the insurer would be at liberty to avoid its liability irrespective of whether the information which is sought is material or otherwise. For the purposes of the present case, it is sufficient for this Court to hold in the present facts that the information which was sought by the insurer was indeed material to its decision as to whether or not to undertake 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 court also referred to the following passage from MacGillivray on Insurance Law:
In more recent cases it has been held that all-important element in such a declaration is the phrase which makes the declaration the 'basis of contract'. These words alone show that the proposer is warranting the truth of his statements, so that in the event of a breach this warranty, the insurer can repudiate the liability on the policy irrespective of issues of materiality.
The court was unimpressed with the respondent's submission that the insured had been unaware of the contents of the proposal form or the assignment of the response to a third party, holding that "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".
Endnotes
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