National Consumer Disputes Redressal
Smt. Daya Rani vs Life Insurance Corporation Of India on 15 September, 2009
RP 2509 / 2002 NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI REVISION PETITION NO. 482 OF 2005 (From the order dated 17.11.04 in Appeal No. 882/SC/1998 of Uttar Pradesh State Consumer Disputes Redressal Commission) 1. Smt. Daya Rani W/o Late Shri Gulbir Singh 2. Km. Ranjana D/o Late Shri Gulbir Singh 3. Km. Sweety D/o Late Shri Gulbir Singh 4. Master Rahul S/o Late Shri Gulbir Singh All Resident of Village & Post Utawara, Tehsil Khair, District Alrigarh (U.P.) Petitioners Vs. Life Insurance Corporation of India, Divisional Office, Samad Road, Aligarh Through its Senior Divisional Manager Respondent BEFORE:- HONBLE MR. JUSTICE ASHOK BHAN, PRESIDENT HONBLE MR. B.K. TAIMNI, MEMBER FOR THE PETITIONER : Mr. G. C. Tyagi, Advocate Mr. Kailash Pandey, Advocate Mr. Mukesh Tyagi, Advocate FOR THE RESPONDENT : Mr. Kamal Mehta, Advocate PRONOUNCED ON 15th SEPT. 2009 O R D E R
MR. B.K. TAIMNI, MEMBER Petitioners were the complainants before the District Forum, where they had filed a complaint alleging deficiency in service on the part of the respondent Insurance Company.
Undisputed facts of the case are that one Shri Gulbir Singh had obtained 3 life insurance policies for rupees one lakh each, commencing from 28.2.90. The premium was paid in time. The insured was murdered on 5.10.90, upon which when the petitioners, who were the nominees in the policies preferred the claim before the Life Insurance Corporation of India, it was repudiated on the ground of suppression of material facts. It is in this situation, a complaint was filed before the District Forum, who by a majority judgement allowed the complaint. Aggrieved by this order, the respondent insurance company filed an appeal before the State Commission, who after hearing the parties allowed the appeal and dismissed the complaint. Aggrieved by this order, this revision petition has been filed before us.
We heard the Ld. Counsel for the parties at some length. It was the case of the Ld. Counsel for the petitioner that information sought for in the proposal form was given in respect of each column and there is no material fact which has been suppressed in view of which the repudiation has to be held to be not in order. The basic facts are not disputed by the Ld. Counsel for the respondent insurance company, except to state that material information about the criminal cases pending against the insured was withheld, which is a material information in terms of summary of Section 45 of the Insurance Act, 1938, which stipulates as under:-
45. Policy not be called in question on ground of mis-statement after two years:- 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 the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance 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 1[was on a material matter or suppressed facts, which it was material to disclose..] Note:- Material shall mean and include all important, essential and relevant information in the context of under-writing the risk to be covered by the corporation.
After hearing the Ld. Counsel for both the parties, what is to be decided by us is the meaning of word material appearing in the policy issued to the deceased / insured as well as in the note appearing under the head summary of Section 45, reproduced earlier.
Ld. Counsel for the petitioner / complainant wishes to rely upon the following Judgements of the Honble Supreme Court:-
1. United India Insurance Co. Ltd. Vs. Harchand Rai Chandan Lal (2004) 8 SCC 644 and SCYD 2004
2. United India Insurance Co. Ltd. Vs. M.K.J. Corporation (1996) 6 SCC 428
3. General Assurance Society Vs. Chandmull Jain AIR 1966 Supreme Court 1644.
As against this the Ld. Counsel for the respondent is relying upon Format of Agent confidential report, the provision of marine Insurance Act, 1963, Halsburys Law of England, IVth Edition and Judgments in the case of All India General Insurance Co. Ltd. & Ors. Vs. S.P. Maheswari (AIR 1960 484 Madras High Court), Banque Financiere de la Cite SA V Westgate Insurance Co. Ltd. (1989) 2 ALL ER Page 952) and extracts of commentary by Avtar Singh, Edition 2004.
We have very carefully gone through these judgements and find that one common strains which runs through these all the judgements cited by the Ld. Counsel for the complainant is, In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves.
One thing which comes out clear from this is, that parties are bound by the terms of the contract, and, it cannot be in dispute that the Policy is a contract between the parties. At the cost of repetition, we reiterate that it is well understood, settled and fundamental principal of insurance law that utmost-good-faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary.. [United India Insurance Co. Ltd. Vs. M.K.J. (supra)]. What emerges from this is that parties are bound by the contract. There is no disputing the fact that the Policy issued in favour of the insured is a contract between the parties. We have already reproduced Summary of Section 45 of the Insurance Act, 1938, which was part of the Policy alongwith the Note therein.
The question before us is, in view of the fact about the FIRs, pending against the insured / deceased, whether he was obliged to declare this information, and whether it could be said to be material information, withheld by the deceased / insured?
In support of the contention that the information regarding the FIRs pending against the deceased / insured amounted to material information, Ld. Counsel for the respondent / opposite party relies upon Hallsbary Law of England, IVth edition, the judgement in the case of All India General Insurance Co. Ltd. & Ors. Vs S.P. Maheshwari (AIR 1960 484 Madras High Court) and the extracts of commentary by Avtar Singh, Edition 2004.
As per Hallsburys Laws of England, IVth edition, under the heading general principles of non-marine insurance, para nos. 365, 366, 368, 370, 374, 375 and 377 read as under:-
365. Requirement of the utmost good faith: In marine insurance it is provided by statute that the contract of insurance is a contract based on the utmost good faith and if the utmost good faith is not observed by either party the contract may be avoided by the other party. This statutory provision has codified in relation to marine insurance, a principle of universal application to all types of insurance contracts. The utmost good faith requires not so much a strict interpretation of the obligation undertaken and strict preservation of the circumstances in which they are undertaken as the performance of positive duties. In its practical application the principle involves that either party has the right to avoid the contract altogether if he establishes against the other party, either (1) that there has been a failure by the other party to disclose a material fact; or (2) that there has been on the part of the other party a misrepresentation, however innocently and honestly made, of a material fact.
366. Duty to make disclosure. The duty to disclose material facts in a contract of insurance is mutual although the occasions for disclosure by the insurers are rare since the facts material to the insurance are not, as a general rule, known to the insurers but only to the proposer for insurance. Particularly, it is the duty of the proposer during the preliminary negotiations to make full disclosure of all material facts. This duty is a positive duty to disclose and mere negative omission constitutes a breach; it is, therefore, misleading to use the word concealment in relation to the duty as it tends to suggest a positive breach of a negative duty as distinct from a negative breach of a positive duty. However, it is sufficient if the facts, which are disclosed put the insurers on inquiry and their inquiry would in the normal course elicit such further facts as may be material.
The duty is a common law duty in the sense that its extent depends upon the general common law principles of insurance; it is not merely a contractual duty arising from the terms of the particular contract in question. In non-marine insurance it is common to introduce into the contract special stipulation which may, expressly or by implication, define, regulate or even limit the amount of disclosure which otherwise would be necessary. The proposer may, for example, be required to make express statements of fact and any statement made in answer to an explicit question will then be a representation of fact; furthermore, the strict truth of a fact thus represented, even if it is not a material fact, is often made an express condition of the contract. On the other hand, the mere asking of such questions, may, as a matter of interpretation of the contract, indicate a limitation of the field within which disclosure by the proposer is required but, unless it is clear that there has been by the terms of the contract a limitation of the field in this way, the full common law duty continues to be operative.
Questions seeking information respecting a persons previous convictions may not be treated as relating to spent convictions. The person questioned must not be prejudiced in law by failing to acknowledge or disclose such a conviction.
367. Material fact. Apart from any special stipulations in the contract limiting the field of disclosure, the rules for determining what facts are material to be disclosed have been codified in relation to marine insurance. After elimination of the factors peculiarly referable to marine insurance, these rules are generally applicable to all contracts of insurance. The basic test hinges upon whether 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 if it had been disclosed. Therefore the fact must be one affecting the risk. If it has no bearing on the risk it need not be disclosed, and if it would do no more than cause the insurers to make inquiries, resulting no doubt in delay in issuing the insurance, it is not material if the result of the inquiries would have no effect on a prudent insurer. It is for the court to rule as a matter of law whether a particular fact is capable of being material and to give directions as to the test to be applied, but the decision ultimately is one of fact depending on the circumstances as proved in evidence. Rules of universal application are not therefore to be expected, but the propositions set out in the following paragraphs as well established.
370. Materiality is a question of fact. The materiality of a particular fact, subject to proper direction as to the test to be applied, is a question of fact. It may nevertheless be necessary or advisable to have evidence of experts as to insurance practice, seeing that the test hinges on whether the representation is of such a nature as to influence the judgement of a prudent insurer, not on whether the representation influenced the particular insurer looking at the proposal. In many cases the fact speaks for itself and no such evidence is required.
However, materiality is not a question of belief or opinion tested subjectively, and the proposer does not discharge his duty by a full and frank disclosure of what he believes to be material, however, honest his belief; he must go further and disclose any fact which a reasonable man would have thought material. If the fact, although material is one which the proposer did not and could not in the particular circumstances have been expected to know or if its materiality would not have been apparent to a reasonable man, his failure to disclose it is not a breach of his duty. In any case, he need not disclose matters of common notoriety which the underwriter may be presumed to know, matters of which the underwriter is, in fact, well aware or matter as to which he has waived information.
374. Representation of material facts. The second aspect of the duty of good faith arises in relation to representation which may be made during the course of negotiations for the contract, and for this purpose all statements made by the proposer in relation to material facts constitute representations. Just as all material facts within his knowledge must be fully and frankly disclosed, so also any statements made about such facts must be accurate in the sense that they do not mislead. A representation may be inaccurate either because it is wholly false, as where the proposer states, contrary to the fact, that he is already insured elsewhere, or because although the facts actually stated are literally true, the statement is not complete and creates a misleading impression owing to the omission of other facts which ought to have been included.
Failure to disclose the full facts may thus render false those which are stated. For example, where a proposer stated that negotiations were pending with other insurers because the sum to be insured was large but omitted to state that some of the other insures had already refused the proposal, the representation made was held to be false. However, it is sufficient if the substance of the statement is accurate; an unimportant mis-statement which does not colour the whole picture or the omission of trifling details which would not affect an insurers mind is irrelevant.
A mis-statement does not matter if the true position is in fact known to the insurers, as then the mis-statement can have no effect in causing the contract to be concluded.
375. Honest misrepresentation. It is the rule in marine insurance that if the information is given which is in fact inaccurate in a material particular, although the mis-statement is innocent and the truth of the statement has not been made a matter of contract, it may be a ground for avoiding the policy even after loss.
This is generally accepted as being applicable in all classes of insurance. However, if it is made clear that what the proposer is asked to state or what he is purporting to state is no more than what he believes to be the situation, in non-marine insurance it is only the belief which has to be true, that is to say honestly held on reasonable grounds. In life insurance it is readily assumed that statements by a proposer as to his health are asked for and given on the basis of his belief because the ordinary man cannot be expected to know what is happening to his internal organs or what specific symptoms may indicate, but the same tolerance is not afforded to a positive statement as to his habits being temperate.
Accordingly, in life insurance there are a number of dicta and one express decision to the effect that this branch of insurance is an exception to the general rule in that fraud has to be established by insurers seeking to avoid a policy. However, it is common in this class of insurance to find inserted an express condition in the policy that the truth of any statement made in the proposal is either warranted by the proposer, is to be a condition precedent to the enforcement of the contract or is to be the basis on which the contract is made, in which case honesty of belief in the truth of the statement is not sufficient. Further, where, as commonly occurs, a mis-statement involves a non-disclosure of something which is material, the contract may always be avoided on the latter ground. (emphasis supplied)
377. Effect of non-disclosure or misrepresentation. The effect of non-disclosure or misrepresentation, within the principles already discussed, is that the insurers have the right to repudiate, that is to say to avoid, the contract. This right does not depend on any implied term in the contract itself, but is an inherent right derived as a matter of law from the nature of the contract. It must be distinguished from the equitable remedy of rescission which is available in the case of all contracts entered into as a result of misrepresentation. The remedy is not normally available where there has been a mere non-disclosure; there must be a misrepresentation, although innocent misrepresentation will suffice. Furthermore, that remedy involves in all cases the principle of restitution in integrum, which means that the parties must be put back so far as may be into the position, which they occupied before the contract was made, in particular by restoring any consideration which has been paid. However, where he insurers answer a claim by repudiating the policy on the ground of fraud, misrepresentation or non-disclosure, they are not bound to offer a return of premium, and the court will not normally allow the proposer to set up his own fraud or misconduct in order to found a claim to such repayment.
It may be different if it is the insurers who go to the court for relief in a case where all they can establish is a misrepresentation which is innocent and there is no clause in the policy to cover this position; in such a case the court may make it a condition of granting relief that any premiums paid are to be returned. The insurers need only go to the court for a decree where specific statutory provision has been made to that effect although it is always possible, if thought necessary, to seek an order for the delivery up of the policy for cancellation. The common law right is one which can only be exercised in relation to the whole contract. The insurers are not entitled to treat the contract as subsisting for some purposes, but not for others; if they elect to repudiate the policy, there ceases for any purpose to be a contract between the parties. It is an entirely different situation, governed by different principles, where insurers seek to repudiate, not the policy, but a claim under it.
Like any other, the right can be waived, and insurers often find that their conduct, after acquiring full knowledge of the relevant non-disclosure or misrepresentation, is regarded either as amounting to an affirmation of the contract or as leading the assured to suppose that it is being affirmed and to act accordingly, so as to debar the insurers afterwards, from exercising the right on that ground. The principles governing such a waiver are the same as in relation to a breach of condition.
Any person who, by a statement which he knows to be misleading or by the reckless making of any statement, induces or attempts to induce another person to enter into or to offer Ld. Counsel for the respondent / opposite party also relied upon the extracts of commentary by Avtar Singh, Edition 2004, chapter 7 dealing with utmost good faith, para nos. 13 and 16 reads as under:-
13. Prudent insurer test of materiality In Marine Insurance Act, section 20(2) says that the test of materiality is the Judgement of a prudent insurer. It is not what is material in the opinion of a reasonable assured. The same test generally applies in non-marine Insurances also.
In relation to the duty of disclosure falling on the insured, every fact is material which would influence the judgement of a prudent Insurer not the particular insurer. The test is whether the circumstance in question would influence the prudent insurer and not whether it might influence him.
Whether it would influence the particular insurer is irrelevant. The prudent insurer test is adopted in Motor Insurance cases also in s. 149 (6) Indian M.V. Act, 1988 and s. 149(5) of the English Road Traffic Act, 1972.
The question then is, if so how can a proposer in discharge of his duty of utmost good faith be found fault with if he does not disclose what in the opinion of the insurer is material. The answer seems to be that whereas section 19 lays down the doctrine of utmost good faith, section 20(1) in its concrete form says that the assured must disclose every material circumstance known or ought to be known to him and leaves the test of materiality to the judgement of the prudent insurer in s.20(2).
The question is whether any particular circumstance is in fact material and not whether the proposer believed it to be so. The obligation to disclose, therefore, necessarily depends upon the knowledge you possess. Your opinion of the materiality of that knowledge is of no moment.
16. Physical and moral hazard In assessing a risk, the underwriter must give due weight to the quality of the hazards involved in the risk. The term hazard is used in insurance business to denote the feature in a risk, which tend to bring about the event or increase the loss when the even takes place. These are of two kinds, namely, physical and moral.
Physical hazard pertains to the physical features of the property to be insured. Such factors as the location, age and nature of the property, manner and materials of its construction, its occupation such as storing of combustibles or otherwise and the manufacturing process carried on, etc., will indicate the extent of the physical hazard involved in the risk to be covered. This is capable of fairly accurate assessment either from the details given of the proposed risk or by a personal inspection of the subject matter of insurance.
Different remedial underwriting measures are adopted in accepting risks presenting bad features.
Higher premium is charged for covering more hazardous risks. Where minor damages are very common as in the case of furniture etc., losses upto an amount may be excluded. Comprehensive insurance may be denied where the motor car is an old model and obtaining replacement parts will be difficult. If the assured agrees to carry out improvements which reduce the hazard, such as installing suitable fire-fighting equipment, etc., premium will be reduced and so on.
Moral hazard pertains to the human factors which may contribute to the occurrence of the event insured against. Not only the character or moral integrity of the insured, but also his motive in seeking cover, his behaviour towards his employees, and the behaviour of his employees have a bearing on moral hazard.
(Emphasis supplied) We have very carefully gone through the material brought on record by both the parties. There is no dispute, that as laid down by law in this country as well as, as per the judgements being relied upon by the respondent / opposite parties, that the contract of insurance is of utmost-good- faith.
The question before us is as to how does one articulate good-faith? In this regard, we wish to rely upon the para 366 of the Halsburys law of England (reproduced above), where it is clearly stipulated, In non-marine insurance it is common to introduce into the contract special stipulation which may, expressly or by implication, define, regulate or even limit the amount of disclosure which otherwise would be necessary. (emphasis supplied) and goes on to add, .. the mere asking of such questions, may, as a matter of interpretation of the contract, indicate a limitation of the field within which disclosure by the proposer is required but, unless it is clear that there has been by the terms of the contract a limitation of the field in this way, the full common law duty continues to be operative. (emphasis supplied) It is not disputed before us that, as per prevailing law and practice of Insurance in this country, while taking Insurance Cover, the insured has to fill-in a proposal form which is prescribed by the Insurer. Taking into consideration the commentary given in Halsburys law of England, in a non-marine insurance Policy, which is the case before us, in our view, the insurer would be limiting-the amount-of disclosure, by what he asks the insured to in the proposal form.
In the instant case, there is no dispute that all the information given in the proposal form are correct and not under challenge. What is sought to be challenged is the facts lying outside the proposal form. We are constrained to observe that if the insurer has limited the amount of disclosure, i.e., limited to the reply to the question in the proposal form, then nothing should be expected from the insured, to give voluntarily information which is not sought for by the insurer, in this case, the respondent. The questions in the proposal form, i.e., the contract between the parties, would indicate the limitation of the field within which the disclosure by the proposer is required by the insurance company. In these facts and circumstances, we are not going into the question as to whether the non-disclosure of the deceased / the insured was expected to fill in the happenings outside the proposal form.
The insurance company itself has limited the information, sought by them, by specifically giving out the questions to be answered by the insured, which are contained in the proposal form.
As already stated no information given in the proposal form is under challenge.
With the written submissions / brief synopsis furnished by the respondent before us, a blank form relating to Agent Confidential Report / Moral Hazard Report has been enclosed, in which column 6 reads as under:-
Are aware of anything in the occupation, financial or social position of the life proposed, his/her personal habits or any other circumstances which might be likely to add to the risk?
As it is, we have got this form blank, which does not help the case of the Respondent. If a filled-in form was provided, only then it would have been germane to the issue before us. This form was to be filled-in by the agent, who is the agent of the Insurance Company.
Nothing has been brought on record, in any manner, whether such an information was sought for, from the deceased, and what information did he give?, to bring him within the ambit of suppressing material information. We draw a blank here. For fault of the Agent, the deceased / insured cannot be held responsible.
In the aforementioned circumstances, we find that the deceased cannot be fastened with any liability for suppressing any information, material or otherwise as it was not sought, for the simple reason that the information sought for, was limited by the insurer voluntarily and on his own volition by way of questions, contained in the proposal form.
In the aforementioned circumstances, information, material or otherwise loses its significance for the simple reason that insurers, limited the queries, to the question(s) of their own volition and insured cannot be expected to volunteer other information, unless asked for. Golden opportunity to get any such information, with regard to moral hazard was lost by the Agent of the Insurers / respondent, which their Agent did not get the Agents form filled-in.
Fault, if any, is that of the Agent and constructively, of that of the Insurance Company, whose Agent he was.
We have very carefully gone through the provision 45 of the Insurance Act, which will have no applicability in the present instance for the simple reason that it is not a case of mis-statement, after two years of obtaining the policy as also that it is not the case of the insurer that there was any inaccurate or false information leading to issue of policy. Nothing has been shown to us that any answer given in the proposal form was inaccurate or false.
As far as the question of the murder falling in the category of accident is concerned, this question has already been settled by three-Member Bench of this Commission in the case of Maya Devi Vs. Life Insurance Corporation of India [RP No. 2824 of 2007 decided on 21.05.08], in which it is held that even-though the murder being a accident or otherwise, would be seen in the facts and circumstances of each case and went on to hold, Further, even in case where there is a criminal background of the assured, it would be difficult to hold that his murder was not accidental unless he has taken up the quarrel and that the immediate cause of injury was deliberate and willful act of the insured himself...
In the present case, no such allegation has been made that it was the insured who took-up the quarrel and thus, got murdered, in view of which, respectfully following the law laid down by this Commission in the given facts and circumstances, this case would come within the ambit of accident as occurring in the Policy.
In our view, the State Commission completely erred and completely mis-appreciated the provision of section 45, in view of which we are unable to sustain the order passed by the State Commission, which is set aside and the majority order of District Forum is restored.
The revision petition stands allowed in above terms.
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(ASHOK BHAN, J.) PRESIDENT ..
(B.K. TAIMNI) MEMBER RS/