National Consumer Disputes Redressal
Orintal Insurance Company Limited vs Mahendra Construction on 19 September, 2018
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI FIRST APPEAL NO. 8 OF 2018 (Against the Order dated 03/04/2017 in Complaint No. 01/2009 of the State Commission Jharkhand) 1. ORINTAL INSURANCE COMPANY LIMITED THROUGH ITS BRANCH MANAGER. /RO. DIRECT AGENT BRANCH (D.A.B.)AKASHDEEP PLAZZA, 5TH FLOOR, GOLMURI, P.O. AND P.S. GOLMURI. JAMSHEDPUR. JHARKHAND ...........Appellant(s) Versus 1. MAHENDRA CONSTRUCTION THROUGH ITS PARTNER, KULDIP SINGH. R/O. MANIFIT AZAD BASTI, JEMCO BUS STAND, TELCO. JAMSHEDPUR. JHARKHAND. ...........Respondent(s)
BEFORE: HON'BLE MR. JUSTICE V.K. JAIN,PRESIDING MEMBER
For the Appellant : Mr. Mohan Babu Agarwal, Advocate For the Respondent : Ms. Pankaj Bala Varma, Advocate
Dated : 19 Sep 2018 ORDER
JUSTICE V.K. JAIN, PRESIDING MEMBER
The respondent / complainant obtained an insurance policy from the appellant in respect of a hydraulic excavator machine. The said machine having been set on fire by Naxalites, a claim was preferred before the appellant. The claim was rejected vide letter dated 25.11.2008 which to the extent it is relevant reads as under:-
"(3) The vehicle was earlier insured with M/s New India Assurance Co. Ltd., for the period 15.11.2004 to 14.11.2005 prior to obtaining insurance with us with effect from 11.10.2006 to 10.10.2007, after the gap of approx. eleven months since the expiry of previous policy.
(4) The reason of such gap is stated to be due to repairing of the vehicle consequent upon the damage to vehicle due to burning by naxalities.
(5) As a part of underwriting procedure, all such material facts are required to be disclosed through the printed proposal form to enable the insurer to assess the risk profile of the subject matter proposed for insurance.
(6) But, on perusal it has been found that one of such vital information under para 25(g) of the printed proposal form regarding details on claims lodged during preceding 3 years have not been furnished and thereby we had been deprived of the opportunity to assess the actual risk profile of the vehicle at the time of accepting the proposal for insurance. This tantamount to concealment and misrepresentation of facts in violation of the 'utmost good faith' principle of insurance. The claim, therefore, has been repudiated by the competent authority as ' No Claim' for the reason of concealment of misrepresentation of vital facts."
2. Being aggrieved from the rejection of the claim, the complainant / respondent approached the concerned State Commission by way of a consumer complaint.
3. The complaint was resisted by the appellant primarily on the grounds on which the claim had been repudiated. It was interalia stated in the reply that the issuance policy was obtained by the complainant by misrepresentation by not filling Column No.25(g) of the proposal form whereby it was required to declare the details of the claims lodged during the three preceding years.
4. The State Commission vide impugned order dated 3.4.2017 allowed the complaint and directed the appellant to pay a sum of Rs.23,84,000/- to the complainant along with interest @ 7% per annum from the date of the complaint and compensation quantified at Rs.50,000/-. Being aggrieved, the appellant is before this Commission by way of this appeal.
5. The proposal form which the complainant / respondent had submitted to the appellant did require it to disclose interalia (1) name and address of the previous owner (2) previous policy number and (3) the claims lodged during the previous three years. The complainant / respondent wrote the word "enclosed" instead of giving the details sought in the proposal form. The word "enclosed" was written against Column No.25(d) and 25(e) which required the proposer to disclose the name and address of the previous insurer as well as the previous policy number.
6. It was admitted by the learned counsel for the appellant during the course of arguments, that the previous policy which the complainant had taken from New India Assurance Co. Ltd. was enclosed to the proposal form. On a perusal of the aforesaid insurance policy, the appellant could readily have verified the name and address of the previous insurer as well as the details of the previous policy including its number and its period. Though the claims lodged by the proposer during the preceding three years could not have been known only from a perusal of the previous insurance policy, the appellant could easily have found out the same, by enquiring from the previous insurer as to whether any claim had been lodged by the complainant with them or not. Had the appellant taken the trouble of making the aforesaid enquiry from New India Assurance Co. Ltd., the name of which appeared on the previous insurance policy, it would have easily known that the complainant / respondent had actually lodged a claim with the said company during the period of insurance with it. The appellant could then have decided, in the light of the information received from the New India Assurance Co. Ltd. as to whether it wanted to accept the proposal or not. Alternatively, since the complainant had not given either an affirmative or a negative answer to the Clause 25(g) of the proposal which required him to disclose the claims lodged during the preceding three years, the appellant could have returned the proposal form to the complainant with a request to give a specific answer either in affirmative or in negative, to Clause 25(g) of the proposal form. Though it can hardly be disputed that the complainant itself ought to have disclosed the claim it had lodged with the New India Assurance Co. Ltd., the fact remains that had the appellant exercised due diligence before accepting the proposal submitted by the complainant it could also have obtained the said information from the previous insurer M/s New India Assurance Co. Ltd.
7. In United India Insurance Co. Ltd. Vs. M/s Jindal Poly Buttons Ltd. - Revision Petition No.2920 of 2015, decided on 20.02.2017, the issue which arose before a three-Members Bench of this Commission was as to whether a consumer who had obtained the insurance policy by concealing the fact of having taken an insurance claim in respect of motor vehicle under a previous insurance policy, was entitled to reimbursement of the loss suffered by him on account of damage to the vehicle or not. The decision of the Larger Bench, to the extent it is relevant, reads as under:-
"4. In the matter of Inderpal Rana Vs. Natiional Insurance Co. Ltd. (supra), Tata AIG General Insurance Co. Ltd. Vs. Gulzari Singhe (supra) and National Insurance Co. Ltd. Vs. Harpreet Singh (supra), the Coordinate Benches of this Commission have taken a view that if the insurer has taken an insurance policy with the advantage of No Claim Bonus by fraud / concealment of facts, it would render the insurance contract voidable and repudiation of insurance claim by the concerned insurance company would be justified. However, in the matter of Harpreet Singh (supra), the Division Bench of this Commission relying upon Motor Tariff Rule GR 27 took the view that failure of the insurer to seek confirmation about the genuineness of information furnished by the insured regarding No Claim Bonus from the previous insurer within 21 days constitute the breach of tariff and would disentitle the insurer to take shelter of plea of misrepresentation of fact by the petitioner. Thus, in the said case, the Division Bench directed reimbursement of insurance claim proportionate to the extent of less premium paid by claim the No Claim Bonus.
5. Learned Shri Ravi Bakshi and Shri Yogesh Malhotra, Advocates for the petitioner Insurance Companies have argued on the same lines. They have taken us through the judgments of Hon'ble Supreme Court in the matters of P.C. Chacko & Anr. Vs. Chairman, LIC of India (2008) 1 SCC 321, Satwant Kaur Sandhu Vs. New India Assurance Company (2009) 8 SCC 316 and submitted that in the said judgments, it has been categorically held that if the insured has obtained the insurance policy by misrepresentation / concealment of material fact, the insurance contract would be voidable at the instance of insurer and the insurance company would be justified in repudiating the claims. It is contended by respective counsel for the insurance policies that undisputedly in the above noted revision petitions, complainant / insured had taken benefit of No Claim Bonus by misrepresentation / concealment of facts and therefore, repudiation of claim is justified.
6. Learned Shri Sanjeev Goel and Shri Sandeep Sharma, Advocates on the contrary has contended that GR 27 of Indian Motor Tariff casts an obligation on the insurer to verify the genuineness of claim pertaining to entitlement of claim of No Claim Bonus within 21 days from the date of issue of insurance cover. Had the insurance company followed the mandate of GR 27, it would have come to know that No Claim Bonus has been claimed wrongly and insurance company could have either cancelled the insurance policy or call upon the insured to make good the insurance premium.
7. In order to find answer to the question under reference, it would be useful to have a look on Section 18 & 19 of Indian Contract Act, 1872.
8. Section 18 of Indian Contract Act defines Misrepresentation as under:
"18. Misrepresentation" defined.--"Misrepresentation" means and includes (1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
(2) any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him;
(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement."
9. Section 19 of Indian Contract Act provides that if the consent to an agreement is caused by coercion, fraud or misrepresentation, such agreement is voidable at the instance of the parties whose consent was so caused. The relevant section reads as under:
"19. Voidability of agreements without free consent.--When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.
A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.
Exception--If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. Explanation.--A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable."
10. On reading of the Exception to Section 19, it is clear that even in the case in which consent was caused by misrepresentation or by silence fraudulently, the contract would not be voidable if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.
11. The question which needs to be addressed is whether in a case of insured wrongly claiming No Claim Bonus with regard to the premium for insurance of the vehicle, the insurance company could have means of discovering truth with ordinary diligence?
15. xxxxxxxxxxxxxxxxxxxxxxx In view of the discussion above, the reference is answered as under:
a. The cases in which it is established that the insured by making wrongful declaration has taken benefit of No Claim Bonus and the insurer had means to verify the correctness of the declaration of the insured seeking No Claim Bonus by exercising ordinary diligence of verifying the truthfulness of the claim from the insurer's own record, Exception to 19 of Indian Contract Act would come into play and the insurer would not be justified in repudiating the insurance claim on the ground of misrepresentation or concealment of fact. However, because the insured had taken benefit of No Claim Bonus and paid less premium, the insurance claim would be reduced proportionately.
b. In cases of the insured taking the insurance policy of the vehicle from new insurance company and it is established that the insured by making wrongful declaration has taken benefit of No Claim Bonus and where the insurer had failed to seek confirmation regarding correctness of the declaration submitted by the insured in support of plea for No Claim Bonus within the stipulated period as provided in GR 27 of Indian Motor Tariff, the insurer would not be justified in repudiating the insurance claim. However, because the insured had taken benefit of No Claim Bonus by making false declaration his insurance claim would be reduced proportionately."
8. Though the policy taken by the complainant in this case is not a motor insurance policy and, therefore, GR-27 of Indian Motor Tariff was not applicable, the Larger Bench, in addition to relying upon GR- 27 also relied upon the exception to Section 19 of the Contract Act in support of the conclusion reached by it. In terms of the said exception, even if the insurance policy is obtained by misrepresentation or silence, the contract of insurance is not voidable if the insurer had the means of discovering the truth with ordinary diligence. Since admittedly the previous insurance policy had been annexed to the proposal submitted by the complainant, the appellant, on exercise of due diligence, could easily have verified from New India Assurance Co. Ltd. that the complainant had submitted a claim with it under the previous policy which it had taken from the said insurer. Therefore, considering the exception to the Section 19 of the Indian Contract Act, the appellant cannot deny the benefit of insurance to the complainant on account of the information with respect to the previous claim lodged by the complainant having not been disclosed in the proposal form. However, following the decision rendered by the Larger Bench and considering the fact that the complainant / respondent did not expressly disclose the previous claim lodged with New India Assurance Co. Ltd. while responding to Clause 25(g) of the proposal form, the complainant, in my view, should be paid on non-standard basis by deducting 25% of the amount otherwise payable to it under the contract of insurance.
9. For the reasons stated hereinabove, the appeal is partly allowed by directing the appellant to pay 75% of the amount of Rs.23,84,000/- to the complainant / respondent along with the interest at the rate and for the period awarded by the State Commission. However, in the facts and circumstances of the case, the appellant need not pay the compensation and cost of litigation quantified at Rs.50,000/- by the State Commission, to the complainant / respondent. The appellant is permitted to make payment in terms of this order to the complainant, within three months from today.
......................J V.K. JAIN PRESIDING MEMBER