National Consumer Disputes Redressal
Smt. Asha Garg, Mr. S. Vaidialingam & Mr. ... vs M/S. National Insurance Company , Mr. ... on 24 November, 2005
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION
NATIONAL CONSUMER DISPUTES
REDRESSAL COMMISSION
NEW
DELHI
Original Petition No. 164 of 2001
.1. Smt. Asha Garg
W/o late Shri Kishori Lal
Sharan Garg,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003.
.2. Mr. Sanjeev Lashkari,
S/o late Shri Kishori Lal
Sharan Garg,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003.
.3. Kumar Jyoti Lashkari,
D/o late Shri Kishori Lal
Sharan Garg,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003.
.4. Shri Mohan Lal Lakshari,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003. Complainants
Versus
.1. M/s. United
India Insurance Co. Ltd.
(A Subsidiary
of General Insurance
Corporation
of India)
Jangid Building,
M.I.
Road,
Jaipur 302 002.
.2. M/s. United
India Insurance Co. Ltd.
(A Subsidiary
of General Insurance
Corporation
of India)
Sahara Chamber,
Tonk Road,
Jaipur 302
015.
.3. M/s. United
India Insurance Co. Ltd.
(A Subsidiary
of General Insurance
Corporation
of India)
Registered
& Head Office,
24, Whites
Road,
Chennai 600 013. Opposite Parties
Original Petition No. 272 of 2001
.1. Smt. Asha Garg
W/o late Shri Kishori Lal
Sharan Garg,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003.
.2. Mr. Sanjeev Lashkari,
S/o late Shri Kishori Lal
Sharan Garg,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003.
.3. Kumar Jyoti Lashkari,
D/o late Shri Kishori Lal
Sharan Garg,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003.
.4. Shri Mohan Lal Lakshari,
R/o 383, Hanumanji Ka Rasta,
Tripolia Bazar,
Jaipur 302
003. Complainants
Versus
.1. M/s. National
Insurance Company Ltd.,
(A Subsidiary
of General Insurance
Corporation
of India)
III, Panch Batti,
M.I.
Road,
Jaipur 302
001.
2. M/s. National
Insurance Company Ltd.,
(A Subsidiary
of General Insurance
Corporation
of India)
Head Office:
3, Middleton
Street
CALCUTTA-700 081.
III, Panch Batti, Opposite Parties
BEFORE:
HONBLE MR. JUSTICE M.B.SHAH,
PRESIDENT
DR. P.D.SHENOY, MEMBER.
For the complainants in : Mr.
S.Vaidialingam &
both the cases Mr.
Ashok Sharma,
Advocates.
For the Opp.
Party in both : Mr. Vineet Malhotra
&
the cases Mr.
D.K. Singh,
Advocates.
DATE :
24th NOVEMBER,
2005 .
O R D
E R
M.B. Shah, J. President:
This case illustrates how the purpose of
insurance coverage for indemnifying contemplated peril is frustrated by one or
other method adopted by the Insurance Company and/or the casual manner in which
insurance coverage is granted without proper verification and thereafter it is
sought to be avoided on one or the other pretext.
It
also highlights below mentioned facts and the requirements for change or reform
of the age old proposal and insurance
form containing terms and conditions prescribed and followed by the Insurance
Companies in India:
(i)
mostly, nobody can dispute that
the insurance agents take the signature of the assured on a dotted line;
(ii)
most of the terms and conditions
of insurance policy contain various provisos and exclusion clauses which could
not be understood easily even by the experts in the field, on occasions
ambiguous;
(iii)
the terms and conditions which
are meant for understanding by the insured are mostly in a small print which
would require strenuous reading by the insured, if at all he is vigilant;
(iv)
insurance Companies have not
simplified their proposal form or the form of insurance policies for reasons
best known to them;
(v)
insurance Companies are not keen
to publish the insurance proposal forms or the policies in the regional
languages which could be understood by the insured or a layman; and
(vi)
exclusion clauses are never highlighted or explained by the agent or
Development officer to the insured.
I. The insured
had taken insurance policies one from M/s. United India Insurance Co. Ltd.
and the other from M/s.National Insurance Co. Ltd.
A. Original Petition No. 164 of 2001
Personal
Accident Insurance Policy
Sl. No.
Name of the Insurance
Company
Value of Policy
Period covering
the risk
Remarks
From
To
1.A
M/s.United
India Insurance Co. Ltd.
Note : Proposal was
submitted in September, 1996. Date of policy is 19.2.1997.
Policy No.1
Rs. 9,97,00,000
11.2.1997
10.2.1998
Policy No.2
Rs. 3,00,000
Total
Rs. 10,00,00,000
In
this case, the insurance coverage was given on 11.2.1997 by the United India
Insurance Company Ltd. for a sum of Rs.9.97 Crores and Rs.3 lakhs
by charging a premium of of Rs.68,045/- and Rs.473/-
respectively which was paid by cheque dated 10.2.1997. The same was
acknowledged by receipt dated 11.2.1997. Thereafter, a policy dated 19.2.1997
was issued in favour of the insured for the period between 11.2.1997 and
10.2.1998, for a sum of Rs.10 Crores.
Undisputedly,
the deceased, Kishori Sharan
Garg, applied for an insurance policy for a sum of
Rs.5 crores by submitting a proposal form dated 19th March, 1996 to the United India Insurance Co. For one reason or the other, the
proposal form was kept pending despite production of relevant income tax
returns and the other records sought for by the Insurance Company. Thereafter, again, he applied in September
1996 for an insurance policy
for a sum of Rs.10 crores.
It is also undisputed that on 19.2.1997 the policy for a sum of Rs.9.97
Crores for the period from 11.2.1997 till 10.2.1998 was issued in favour of the
deceased. On 4th March, 1997 an additional premium of Rs.31,463/- was
demanded which was also paid by the deceased. Thereafter, on 7.3.1997 the
policy for Rs.9.97 Crores was amended after including the receipt of further
premium and an endorsement to that effect was made. Similarly, the policy for
the sum of Rs.3 lakhs was also given on the said
date.
It
is also established on record that the deceased, before the United India
Insurance Co. Ltd. could accept the proposal and issue the policy, had
submitted a proposal form to M/s. National Insurance Co. Ltd. on 21.1.1997 and
policy was issued w.e.f. 7.2.1997, effective from
31.1.1997 to 30.1.1998.
Unfortunately, on 27th
March, 1997, when the insured was travelling in his car by road from Jaipur to Delhi met with a fatal accident. His car was smashed and the insured died
on the spot. He was taken to the hospital and was declared as dead. Prosecution against the driver of the truck
is lodged and is pending.
As
the claim was repudiated, the heirs of the deceased (nominees as per the
policy) have filed Original Petition No. 164 of 2001 against the United India
Insurance Company Ltd. claiming payment of Rs.10 Crores with interest at the
rate of 24% p.a. with compensation and costs.
B. Original
Petition No. 272 of 2001 is filed against the National Insurance
Company Ltd. claiming Rs.5 Crores with interest at the rate of 24% p.a. with
compensation and costs. The policy is as under:
Personal Accident Insurance Policy
Sl. No.
Name of the Insurance
Company
Value of Policy
Period covering
the risk
Remarks
From
To
2A
M/s. National Insurance
Co. Ltd.
Rs.5,00,00,000
31.1.1997
30.1.1998
Note: Proposal was
submitted on 21.1.1997. Date of Policy is 7.2.1997
II. Defence
in both the cases is the same. It appears that as the amount insured is large,
the claim was suspected for one or other reason. The accidental death is proved beyond any
doubt and the same is accepted by both the Insurance Companies after
investigation. This would be clear from
the reports submitted By M/s. R.L. Agarwal &
Sons, Engineers, Surveyors & Loss Assessors, and by M/s. Lal International
Security & Detective Service.
(a) Report
of M/s. R.L. Agarwal & Sons, Engineers, Surveyors
& Loss Assessors:
M/s. R.L. Agarwal
& Sons, Engineers, Surveyors & Loss Assessors in their Fourth Report
dated 17.2.1998 (Page 219, Vol. VIII,
Original Petition No.164/2001) which
reads as under:
1. It
was not an attempt to commit suicide, but death due to collision of his car
which he himself was driving, from Jaipur on the National Highway towards Delhi.
We met at Sonepat the truck driver and had
taken his statement after taking several statements at site of Accident.
2. Identity of deceased
has also been established through various documents e.g. Post Mortem report,
police report and independent witnesses.
3.
L.I.C. has also paid their
Accidental death claim
Further,
there were allegations against him that the insured was involved in smuggling
activities and notices were issued to him under Sections 13(1) and 67
of Foreign Exchange Regulations
Act, 1973, Section 11 of Customs Act,
and Clause 3(1) of Import Control Order.
However, finally in a writ petition under Article 22(5) of the Constitution of India, High Court rendered two judgments
dated 21.9.96 and 3.6.1997 releasing the accused.
The
Surveyors opined that
in their opinion if these facts were known to Insurers before granting the cover, they would have taken a
different decision; and that it was concealment of material facts as per
declaration signed on the proposal form.
With
regard to his income it has been stated
that for the year 1992, he was a partner in
Jamnalal Lashkapi Saraf & Co. where his profit was only Rs.3,384.42. In
his second business, namely, Jaipur Builders, loss of
Rs.23,463/- was
shown. For the year 1993-94 his net
profit was Rs.82,29,905/- which was transferred
to capital account. This profit was from Ganpati
Exports.
They have
also given the analysis of
the income of the insured
for the year 1994-95. It is
stated that the exports
sales were Rs:
11,63,43,757/-, gross profit was Rs. 8,29,13,639/- and the net profit was
Rs.3,78,69,482.03. The total turn over
for the year 1995-96 was sated to be
Rs.7,96,91,210/-, gross profit was at
Rs.5,01,37,303/-, Proprietors capital a/c was shown at Rs.9,79,16,858.85 out of which drawings were shown at Rs.7,31,53.000/-.
Considering the alleged income, the Surveyors observed as
under:
From the above information gathered we find very un-usual (Almost
impossible) percentage of Profit being shown.
Most of the goods are
purchased as finished goods.
Bombay Gem & Jewellery Market Export Profits as far as we are aware
is 10% to 20%. It is a miracle if such a
high percentage of profit could be earned from export profits. He must be showing purchases at lower cost
and converting his smuggling income into export profit to prove this aspect.
a) All bills of purchase are required with
specifications of articles purchased, payment details are to be verified.
b) All
corresponding bills of sales are required.
c) Copies
of orders of
the foreign importers are also required
However, in conclusion they have noted
as under:
Conclusion :
No doubt he had been a smuggler who
was investing his illegal income to builders job also showing as export
income.
(b) Report
of M/s. Lal International Security &
Detective Services
Thereafter, again, M/s. Lal International Security & Detective
Services, Surveyors,
Lucknow, were appointed by National Insurance Co. Ltd. In their interim report dated
11.4.1997 they have stated that they visited the spot where the accident took
place; they have recorded the statement with regard to the accident on
27.3.1997 at about 2.30 pm and it was a major accident; police jeep also
reached there; front portion of the car was crushed, but at the time of the
accident he was alive; and, thereafter, the insured was taken to the Government
Hospital at Jaipur where he was declared brought
dead.
Thereafter,
they have submitted additional report dated 26.7.1997. In this report, they
were investigating whether the deceased was involved in any smuggling
activities. It was stated that the insurers have every right to suspect that it
was illegal income which the deceased tried to covert into export income. But,
however, this was required to be verified.
There is also an interim
report dated 20.7.1997 given by M/s. Lal International Security and Detective
Service, wherein, inter alia, it is
stated that, considering the spot, it appears that the accident was unavoidable
if a vehicle overtakes an ahead going vehicle and suddenly a vehicle coming
from opposite side crosses the opposite vehicle, accident was not doubted by
them. They have further stated as under:
The insured had purchased policy of Rs.10 Crores from the United
India Insurance Co.
I visited the Regional Office of the UII Co. and collected the
following details of the policy.
U.I.I.C.
.1. The insured submitted
a proposal form for the personal accident policy of Rs.5 Crores on 19.3.1996.
It was forwarded to the H.O. on 21.3.1996 but it was not approved.
A fresh proposal form
for Rs. 10 Crores was submitted by the insured in
September 1996. It was sent to H.O. on 22.10.1996 and remained pending with the
H.O. After receiving the approval in
February, 1997 the cover was granted.
The details of this
policy are as under:
Sum insured
Policy
No.: 140301/42-02/01/0009/Crores/96-97 Rs. 9.97 Crores
: 140301/42-04/0008/96-97 Rs. 3 Lacs
______________
Total .. Rs.
10.00 Crores
=============
Period : 11.2.1997 to 10.2.1998.
The insured had also purchased a P.A. Policy from the National Insurance Company Ltd. The details of which are as under:
Policy No. 370203/8100236/97 Rs. 5 Crores 31.1.97 to 30.1.1997 L.I.C. I visited the LIC Branch Office and found that only one policy No. 191112215 for Rs.2,00,000/- from 31.3.1994 to 28.2.2004 was issued in the name of the insured.
I also verified the Passport, D.L., and the other papers of the vehicle of the insured with the original and found to be guinine.
In their report they have further stated that they visited the office of CBI and met Mr.Kalis who had stated that the deceased was heavily insured; there were some unconfirmed rumours that the assured was involving in smuggling activities, and nothing adverse had come out till then. They had also met the driver of the deceased who had stated that the deceased used to drive the vehicle himself, sometimes. They had also met Dr.Prakash Chablani, family doctor of the deceased who had stated that the deceased possessed sound health mentally as well as physically and given a copy of his certificate dated 10.7.1997.
An F.I.R. was also lodged to the same effect. There is nothing on record to suggest that the assured was in any trouble, and his earnings in jewellery export business was more than Rs.5 Crores. They recorded their finding as under:
On the basis of documents available, statements in hand and our investigation it appeared to be genuine that an accident took place near Tala Mod in P.C. Chandwaji on 27.3.97 in which the Maruti Car No.RJ-14C/4788 driven by the insured himself collided with Truck No.HR-10/3976 which was coming from the opposite side. The insured got seriously injured and died.
Repudiation letters:
(A). Despite the fact that the fatal accident took place on 27.3.1997, the United India Insurance Co. Ltd. repudiated the claim vide letter dated 16.6.2000 (after a lapse of more than three years) from the date of the claim by contending that there was a misstatement in the proposal form and also concealment of material information with regard to the life insurance policy and the proposal for personal accident for a sum of Rs.5 Crores taken from the National Insurance Company Ltd.
The relevant part of the said repudiation letter is as under:
Reference the above said claim regarding the death of Shri Kishori Sharan Garg, the Company has processed the claim. On receipt of the intimation, the survey has been got conducted from the approved Surveyors of the Company, the investigations have been carried out by Shri G.L.Yadav, retired Deputy Superintendent of Police and on the basis of these documents as well as proposal form and other evidence, the Company has also obtained legal opinion in the matter. Thereafter, the Board of the Company which is the competent authority for such a claim has considered the matter and applied its mind and on the basis of such exercise, the Company has decided to repudiate the claim on the following grounds amongst others:
(a) The proposal form submitted by late Mr. Garg contained mis-statements of facts in regard to questions posed by Clause No. 10(a) and 10(b) of the proposal form.
The clause 10 of the proposal form along with its reply is reproduced for ready reference:
(10) (a) Have you ever proposed for accident Yes/No and/or life insurance?
(b) If so, give name of the Company, amount of insurance? N.A. (C) Has any Company
(i) declined to issue a policy No to you?
(ii) decline to continue the No insurance?
(III) not invited renewal of your No policy?
(iv) imposed any restrictions No on special conditions?
(b) that late Shri Kishore Sharan Garg by making misstatement has also concealed material information like having LIC Policy and proposal for personal accident policy for Rs.5.00 Crores already made.
Had these facts been disclosed in the proposal form or otherwise, this would have led to the investigation by the Company regarding the status, income and means of income of deceased and the inquiry would have led to the Company to refuse the proposal. By making this misstatement, he has been able in his attempt of not to make any inquiry regarding his source of income and business.
Since the contract of insurance is based on utmost good faith and by making misstatements, said late Mr.Garg has been successful in misleading the Company in accepting the proposal.
Sine the risk has been got undertaken on the basis of misstatement of facts, the Company is not under obligation to honour its commitment and has thus decided to repudiate the claim and through this letter you are hereby informed that the claim stands repudiated and file has been ordered to be consigned to records.
(B). Similarly, the National Insurance Company Ltd. had also repudiated the claim vide its letter dated 29.2.2000, which reads as under:
We regret to inform your goodself that the competent authority has repudiated your above referred claim for the under mentioned reasons.
a) The insured failed to disclose/concealed/suppressed the material fact of having already submitted two proposals for Personal Accident Insurance with United India Insurance Co. Ltd. for capital sum insured of Rs.5 Crores and Rs.10 Crores respectively. This non-disclosure/concealment/suppression has caused prejudice against National Insurance Company Ltd. in its assessment of risk as well as the decision to assume the risk. Thus, the insured has violated the sacrosanct principle of observance of good faith prior to as well as subsequent to the issuance of the subject policy.
b) The income attributed to the insured is highly disproportionate. The Claimant & other family members of the Insured have refused to cooperate in verifying the income of the Insured during the processing of the above referred Claim.
Relevant Provisions of Law on Material Suppression:
From the repudiation letters quoted above the question which is required to be decided is whether there was any concealment of material fact which would have bearing on finalising the contract. This is required to be decided by referring to the following provisions:
(a) Section 19 of the Contract Act, 1872 - which makes contract voidable at the option of the party whose consent was caused by fraud or misrepresentation;
(b) Section 45 of the Insurance Act policy not to be called in question on the ground of misstatement after two years;
(c) Commentary by John Birds on Modern Insurance Law; and
(d) The Regulations framed by the Insurance Regulatory and Development Authority;
(a) Section 19 of the Contract Act, 1872, reads thus:
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.
Bare reading of exception and explanation to the Section makes the position clear that (i) the contract would not be voidable if the consent was caused by misrepresentation and the party whose consent was so caused had the means of discovering the truth with ordinary diligence; and (ii) the fraud or misrepresentation did not cause consent to the contract of the party on whom such fraud was practised or to whom such misrepresentation was made, and in such case the contract is not voidable.
Learned Counsel for the Complainants submitted that in India exception and explanation to Sec.19 of the Contract Act makes the position clear in law, so that the terms of the insurance policy do not operate harshly and frustrate the purpose of insurance coverage due to contemplated peril, for which insurance policy is taken. As against this, there is no similar amendment in the Contract Act in the United Kingdom (U.K.). Therefore, the decision rendered by the English Courts would be of not much assistance to the Insurance Company.
(b). Section 45 of the Insurance Act:
Apart from Section 19 of the Contract Act, Section 45 of the Insurance Act provides that Life Insurance Policy cannot be called in question after two years from the date on which it was effected unless on the ground mentioned therein. The relevant part of Section 45 is as under:
45. Policy not to 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 from 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 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 The aforesaid Section is interpreted by the Apex court in the case of Life Insurance Corporation of India & Ors. Vs. Ashal Goel (Smt.) and Anr. (2001) 2 SCC 160 and the Court succinctly held:
. On a fair reading of the section it is clear that it is restrictive in nature. It lays down three conditions for applicability of the second part of the section namely: (a) the statement must be on a material matter or must suppress facts which it was material to disclose; (b) the suppression must be fraudulently made by the policy-holder; and (c) the policy-holder must have known at the time of making the statement that it was false or that it suppressed facts which it was material to disclose. Mere inaccuracy or falsity in respect of some recitals or items in the proposal is not sufficient. The burden of proof is on the insurer to establish these circumstances and unless the insurer is able to do so there is no question of the policy being avoided on ground of misstatement of facts.
..
For determination of the question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to a fact which is in the exclusive knowledge of the person intending to take the policy and it could not be ascertained by reasonable enquiry by a prudent person. (pr.12) Therefore, the approach of the Corporation in the matter of repudiation of a policy admittedly issued by it, should be one of extreme care and caution. It should not be dealt with in a mechanical and routine manner (pr.16) From the aforesaid Section and decision it can be held that for avoiding the contract of insurance:
(a) the Insurance Company must establish that the statement in the proposal form must be on a material matter;
(b) suppression must be fraudulently made by the policy holder,
(c) policy holder must have known that it was false, merely inaccuracy and falsity in respect of some recital in the proposal is not sufficient;
(d) the burden of proof is on the insurer to establish the circumstances and unless the insurer is able to do so there is no question of policy being avoided on the ground of misstatement of facts.
Similarly, in Life Insurance Corporation of India Vs. Smt.G.M.Channabasamma, (1991) 1 SCC 357, it is held that the burden of proof that the insured had made false representation and suppressed material facts is undoubtedly on the L.I.C.
(c). Commentary on Modern Insurance Law, by John Birds:
Learned Counsel for the Complainants submitted that the law in England is different and there were no changes despite the various suggestions as the terms of the insurance proposal form and the insurance policy were unfair and harsh. He, therefore, contended that the judgments of the Courts in England cited by the learned Counsel for the Insurance Company would have no bearing in India because of specific provisions in view of Sec.19 of the Contract Act and Sec. 45 of the Insurance Act. In support of his contentions, he has referred to Modern Insurance Law, 4th Edn., of John Birds, wherein the author has commented and observed that the law regarding the disclosure of material facts was operating harshly in the U.K. because the insured did not realise that the particular facts were in law material. The relevant discussion is as under:
Suggested Reforms in Insurance Contracts in the U.K.:
Practice in And Reform Of Non-Disclosure And Misrepresentation The point that law is capable of operating harshly regarding the disclosure of material facts in particular has already been made earlier in this chapter. Indeed it has been often been said that a proposer for insurance may act with perfect good faith and yet not satisfy the duty of disclosure which the law requires because he did not realise that particular facts were in law material, or did not realise that he had to do any more than truthfully complete the answers to questions on a proposal form. It could be argued that there is no real need for a duty of disclosure in modern conditions other than one requiring the insured to answer honestly questions expressly put to him.
Until fairly recently it seemed as though the law would be reformed in this respect. This was because recommendations for reform have been made by both the Law Reform Committee on 1957 and by the Law Commission in 1980. The important and carefully considered recommendations of the Law Commission, which in practice would probably have meant the withering away of a pure duty of disclosure, were accepted by the government, but were strongly opposed by the insurance industry particularly in respect of their application to business insurance. The unfortunate result of this has been that actual legal reform seems unlikely at present. Instead, the government has accepted reform by way of self-regulation by the insurers themselves. For this reason, it is felt that detailed description of the Law Commissions proposals would be inappropriate in a book of this size.
Statements of insurance practice As has been noted earlier, this self-regulation take the form of declaratory Statements of Insurance Practice. In so far as they do, in practice, provide a measure of protection for the individual insured, they are obviously to be welcomed. In addition, we must note the influence of the Insurance Ombudsman in this area, as discussed below. Unfortunately, one cannot be certain that the statements are universally complied with because those insurers who are not members of the Association of British Insurers of Lloyds are not party to them, although they are expected to comply. A brief review of their terms is necessary.
The revised Statements issued in 1986 reflect the Law Commissions recommendations. As far as non-disclosure and misrepresentation are concerned, their effect is that insurers undertake not to rely on an innocent breach by the insured. By paragraph 2(b) of the Statement of General Insurance Practice, An insurer will not repudiate liability to indemnify a policy-holder:
(i) on grounds of non-disclosure of a material fact which a policy-holder could not reasonably be expected to have disclosed;
(ii) on grounds of misrepresentation unless it is a deliberate or negligent misrepresentation of material fact.
Under the heading of consumer protection the learned Author has observed thus:
Consumer Protection:
Judges have on occasion railed against insurers for not producing their policies in a form intelligible to the ordinary consumer, and consumer representatives and bodies, including the Director General of Fair Trading and the Insurance Ombudsman, have frequently made the same point. The Law Commission clearly intended that conditions and exceptions in insurance contracts should be brought within the ambit of what became the Unfair Contract Terms Act, 1977, but pressure from the insurance industry secured their exclusion from that Act in return for their agreeing to promulgate the Statements of Insurance Practice. However, many insurers did respond to criticism in particular by rewording their policies in plain English. This is clearly to be welcomed, although this does not necessarily mean that the average consumer will still read and understand their insurance policies nor, as we have seen, does it necessarily mean that problems of interpretation will not arise.
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More recently there has been an even more important development, more important because it is not dependent on a self-regulatory structure. This is the introduction of the Unfair Terms in Consumer Contracts Regulations to which reference has already been made. It needed E.C. legislation to produce this measure of consumer protection. Some consideration has already been given to these Regulations. In the context of this chapter, there are three points which need to be made. The first is the general requirement to use plain, intelligible language. This reinforces the trend toward plain English already noted. The second is that the Director General of Fair Trading is under a statutory duty to monitor the use of unfair term and can seek undertakings or court injunctions to prevent their use. The third point is the most important one for present purposes and concerns the question of the application of the core part of the Regultions to the question of the cover provided by an insurance contract.
The core part strikes down any unfair term which contrary to the requirement of good faith causes a significant imbalance in the parties rights and obligations under the contact to the detriment of the consumer. However, it does not apply to any terms which defines the main subject matter of the contract. It is thought that the provisions concerning the risks covered and excepted under an insurance contract must be within this exception, as these do define the main subject matter of the contract. This, it is suggested, is also a sensible interpretation. In the result, it is thought that the impact of the Regulations on the matters under consideration here is limited to the requirement of plain and intelligible language, supported by a statutory reinforcement of the contract proferentem rule.
.1. From the aforesaid commentary it is apparent that the Law Commission in England recommended for withering away of a pure duty of disclosure. However, even though Government accepted the same as there was opposition from the Insurance Companies which led to self-regulations by the insurers.
.2. The revised statement issued in 1986 reflected Law Commissions recommendation; as far as non-disclosure and misrepresentation are concerned, their effect is that insurers conduct not to rely on innocent breach by the insured.
.3. The insurance policy is not to be repudiated on the ground of misrepresentation unless it is deliberate or negligent misrepresentation of material fact.
.4. For the consumer protection, it was pointed out that Judges have on occasion railed (protest) against the insurers for not producing the policies in a form intelligible to the ordinary consumer.
.5. The Law Commission clearly intended that conditions and exceptions in the insurance contract should be brought within the ambit of what became Unfair Contract Terms Act, 1977. But, pressure from the insurance industries secured their exclusion from the Act. It is to be made clear that in India, there is no such exclusion;
Against this in India, Consumer Protection Act, 1986, Sec.2(1)(r) defines exhaustively what is unfair trade practice.
.6. In U.K. also there is demand and criticism as the insurance policies are not in plain English.
.7. The Author has further commented that even if it is a plain English it would not necessarily mean that average consumer will still read and understand the insurance policy, nor it would necessarily mean that terms of interpretation will not arise.
(d) Protection of Policy-Holders Interest:
Fortunately, there was no pressure from the Insurance Companies because of nationalisation.
Therefore, it appears that to avoid harsh operation of the contract of insurance and to safe guard the interests of the insurers, in exercise of powers conferred by Clause (zc) of sub-section (2) of Section 114A of the Insurance Act, 1938 read with Sections 14 and 26 of the Insurance Regulatory and Development Authority Act, 1999, the Authority has framed Insurance Regulatory and Development Authority (Protection of Policy-Holders Interest) Regulations, 2002. Regulations, inter alia, provides what is the material for the purpose of the insurance policy to mean all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer. Some of the relevant provisions are as under:
Regulation 2(1)(d): Proposal Form to mean, a form to be filled in by the proposer for insurance, for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted.
Explanation:
Material for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer.
Regulation (4) defines Proposal for insurance, as :
(1) Except in cases of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
(2) Forms and documents used in the grant of cover may, depending upon the circumstances of each case, be made available in languages recognised under the Constitution of India.
(4) Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information or any matter material to the grant of a cover.
(6) Proposals shall be processed by the insurer with speed and efficiency and all decisions thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposals by the insurer.
The highlighted portion of the aforesaid regulation is to protect the interest of insured. The word material has been defined to mean and include all of important, essential and relevant information in the context of underwriting the risk to be covered by the insurer.
Secondly, it is the duty of the insurer to furnish to the insured free of charge a copy of the proposal form within 30 days of acceptance of proposal. Forms and documents with regard to the policy should be made available in the languages recognised under the Constitution of India.
Thirdly, the onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information or any matter material to the grant of a cover;
Fourthly, the proposal shall be processed within 15 days from the date of its receipt and the decision thereof shall be communicated to insured in writing.
Thus, the most important aspect of the regulations is that the proposal should be processed with speed and efficiency and all decisions taken shall be communicated in writing within a reasonable time not exceeding 15 days from the date of receipt of the proposal by the insurer. Nodoubt, these regulations would have no retrospective effect, but, at the same time, it should be borne in mind that these are general principles which are applicable for the business of insurance.
In our view, if the aforesaid regulations are strictly followed by the Insurance Companies, many such disputes could be easily averted. The work of the Consumer Fora also would be reduced.
Questions to be decided
(i) From the law and facts stated above, we have to find out whether non-disclosure by the assured was of the material fact which would entitle the Insurance Company to avoid the contract. Further, whether, there was fraudulent and intentional concealment by the assured of such material fact.
(ii) The next question is what meaning can be assigned to the phrase material fact.
Findings:
Admittedly, there is no dispute with regard to the issuance of the two personal accident policies one by the United India Insurance Co. Ltd. and the other by the National Insurance Company Ltd., details whereof are as under:
Sl. No. Name of the Insurance Company Value of Policy Period covering the risk Remarks (in Rs.) From To A M/s.United India Insurance Co. Ltd.
Note : Proposal was submitted in September, 1996. Date of policy is 19.2.1997.
Policy No.1 9,97,00,000 11.2.1997 10.2.1998 Policy No.2 3,00,000 Total 10,00,00,000 B M/s. National Insurance Co. Ltd.
5,00,00,000 31.1.1997 30.1.1998 Note: Proposal was submitted on 21.1.1997. Date of Policy is 7.2.1997 The claim in both the cases is for a large amount. It is established beyond reasonable doubt that the death of the insured was because of accident wherein the car in which he was driving was smashed.
It is difficult to generalise and state what is meant by material fact before finalising the contract. It varies from contract to contract and depends upon various circumstances. In one case a particular fact may be material and in the other case the same fact may not be material, before accepting the proposal. (Re: Calcutta Discount Co. Ltd. vs. Income-tax Officer, Companies District I, Calcutta & Anr. AIR, 1961 SC 372, Para
8).
The learned Counsel for the Insurance Company relied upon the observations made by the Apex Court in Mithoolal Vs. Life Insurance Corporation of India, AIR 1962 SC 880. In the said case the Court observed, inter alia, that there was concealment of the serious ailment and the court particularly observed as under:
.Yet, it must be pointed out that the respondent Company had no means of knowing that Mahajan Deolal had been treated for the serious ailment of secondary anaemia followed by dilatation of heart, etc., in September-October 1943 by Dr Lakshmanan. Nor can it be said that if the respondent Company had knowledge of those facts, they would not have made any difference. The principle underlying the Explanation to Section 19 of the Contract Act is that a false representation, whether fraudulent or innocent, is irrelevant if it has not induced the party to whom it is made to act upon it by entering into a contract. We do not think that that principle applies in the present case. The terms of the policy make it clear that the averments made as to the state of health of the insured in the proposal form and the personal statement were the basis of the contract between the parties, and the circumstance that Mahajan Deolal had taken pains to falsify or conceal that he had been treated for a serious ailment by Dr Lakshmanan only a few months before the policy was taken shows that the falsification or concealment had an important bearing in obtaining the other partys consent.
In the present case, the alleged suppression is totally of a different nature and the aforesaid decision, on the contrary, establishes that if the Insurance Company had knowledge of those facts, there is no question of intentionally making a false statement or concealing the relevant facts so as to entitle the insurer to avoid the contract.
Learned Counsel for the Insurance Company stated that all matters mentioned in the proposal form are material and what is material is required to be decided by the Insurance Company. He has also contended that the terms of the contract are to be strictly read and natural meaning required to be given to it. For this purpose, the learned Counsel has referred to various decisions.
Mr. Malhotra produced some extracts from the Lloyds Law Reports (1970) Vol.2, Babatsikos Vs. Car Owners Mutual Insurance Company Ltd. 314 at p.316 we would refer to the relevant part which is as under:
Everything is material which will guide a prudent insurer in determining whether he will take the risk and, if so, at what premium and on what conditions.
In determining the question whether a particular fact is one which ought to be disclosed, the test to be applied is not what the assured thinks, nor even what the insurers think, but whether a prudent and experienced insurer would be influenced in his judgment if he knew of it. There are dicta to suggest that the test is, What would a reasonable assured consider material?
The aforesaid proposition could be applied as a proper test for deciding whether the contract is vitiated because of non-disclosure of some facts. It neither depends upon the decision of the insurer or that of the assured, but it is to be decided with the yardstick of a prudent and experienced insurer and that of what a reasonable assured, would consider it to be material.
In our view, further there can be no doubt that the insurance policy is a contract based on good faith and the terms of the contract are to be read as they are. However, as a general rule, it cannot be held that if any part of the information that is sought in the proposal form is inaccurately stated, it would vitiate the contract irrespective of the fact that inaccurately stated information is irrelevant, unimportant and not essential for concluding the contract or in case it is known to the insurer. However, it is equally important that if there is some vagueness in the proposal form, the benefit would go to the insured and not to the insurer.
Impact of Suppression/Concealment of Material Fact on the Policy taken from the United India Insurance Co. Ltd.
At the outset, we have to keep in mind that the policy in question was not a life insurance policy nor a policy for business/industry for the coverage of perils such as fire, flood etc. It was merely a personal accident insurance policy for a period of one year. As stated in the beginning, it is proved beyond reasonable doubt and accepted by the Insurance Companies that the death of the assured was due to vehicular accident wherein the car of the assured was smashed and he died on the spot. It is also to be visualised that the assured would not undertake risk of having death by vehicular accident, because accident may result either in (a) death, (b) injury which may cripple him for the life (c) other injuries which may result in permanent or temporary disablement of limbs or (d) no injury. He cannot be sure that accident would result in his death. Therefore, alleged material suppression of the fact is to be considered on the basis that the policy which was taken for the personal accident for a period of one year. Further, such information/facts should be important, essential and relevant in the context of underwriting the risk to be covered by the insurer or that such material information/facts were required by the insurer in respect of a risk in order to enable the insurer to decide whether to accept or decline to undertake the risk and in the event of acceptance of the risk to determine the rates, terms and conditions of a cover to be granted.
Keeping this in background we have to decide whether the repudiation is justified. The ground mentioned by the United India Insurance Company in the repudiation letter reads as under:
The proposal form submitted by late Mr. Garg contained mis-statements of facts in regard to questions posed by Clause No. 10(a) and 10(b) of the proposal form. The clause 10 of the proposal form along with its reply is reproduced for ready reference:
(10) (a) Have you ever proposed for accident Yes/No and/or life insurance?
(b) If so, give name of the Company, amount of insurance? N.A. ( c) Has any Company
(ii) declined to issue a policy No to you?
(ii) decline to continue the No insurance?
(IV) not invited renewal of your No policy?
(iv) imposed any restrictions No on special conditions?
A careful reading of the above would lead us to decide in the first instance whether the answer given by the Complainant amounts to suppression of material facts.
(i) The first question, i.e. 10(a) is not clearly worded. It is not pointed a question as to whether the proposal for accident or life insurance was made with the same Insurance Company (i.e. the United India Insurance Co. Ltd. in the present case) or with any other Insurance Company. The question itself is a confusing one.
(ii) Further, when the insured has not replied to a question, which is material according to the Insurance Company, it would have either called for explanation/correct (specific) answer from the insured or would have rejected the proposal. On the contrary, the Insurance Company had accepted the proposal and issued the policy, thereby concluded the contract. This would at least mean that the answer to the said question was not material before accepting the proposal.
(iii) Moreover, for the first part of the question: Have you ever proposed for accident and/ the insured did not answer, though he is aware of the earlier proposals made to it. Because, in the facts and circumstances of the present case, we are of the opinion that the insured has kept the answer blank (i.e.did not answer in either way) for the simple reason that he might have felt it as irrelevant, unimportant and not essential, as he did not make any payment nor did the Insurance Company rejected the proposal, because the Insurance Company did not inform him about the fate of his earlier proposals. Hence, in the circumstances of the case, it cannot be said that the non-disclosure or giving no answer to the qn. No.10(a) would not amount to suppression of material fact or mis-statement that would render the policy repudiated.
(iv) Further the United India Insurance Co. Ltd. has produced on record the proposal form dated 19.3.1996 wherein it has been specifically stated that in Column no.3 that his business was jewellery and income was Rs.8,44,00,000/-; and that in Column No.10, it is mentioned that he was having an LIC policy for Rs.5 lakhs. That proposal form remained with the Insurance Company. They have also produced on record the proposal form dated 21.1.1997. In the said form in Column Nos. 8 and 9 he has mentioned with regard to his claim for policy for Rs.5 Crores. Thereafter, it is scored by writing N.A..
The Insurance Company has not produced the proposal form which was submitted to it in September, 1996 despite repeated requests by the Complainant. However, the Surveyors Lal International in their interim report given the following finding.
From the perusal of the above mentioned P.A. insurances, it was found that the proposal form for the insurance to the U.I.I. Co. was submitted in September, 1996 for P.A. Policy of Rs.10 Crores.
Again a Proposal Form for th PA. Policy of Rs.5 Crores was submitted to the N.I.Co. Ltd. on 21.1.1997.
There was no mention of the proposal submitted earlier to the U.I.I. in the proposal form submitted to N.I. Co. on 21.1.97.
The National Insurance Company granted the policy valid from 31.1.97 to 30.1.98 but the insured did not disclose this fact to the U.I.I. before the Policy by UII was granted to him.
From this report it is apparent that the deceased had submitted a proposal form in September, 1996, but that is not disclosed by the United India Insurance Co. Ltd. The reason for non-disclosure is not known but that record was available for inspection by the Lal International Security and Detective Services. That means that the previous proposals were in the same file. If the Officers of the United India Insurance Co. Ltd. were vigilant or were not inclined to grant the insurance policy on the basis of the previous proposals, they could have easily done so. But, it appears that the defence is made out only after the accident. It is not stated what happened to the proposal which was submitted in 1996, that proposal is not produced on record.
The said detective services has specifically observed that the accident appeared to be genuine. However, he emphasised that the insured has not disclosed to National Insurance Company Ltd. that he has submitted his proposal for insurance for a sum of Rs.10 Crores with the United India Insurance Co. Ltd.
(v) Further, there is a total failure on the part of the United India Insurance Company in not communicating in writing with regard to the acceptance or denial of the proposal given by the assured within reasonable time. As stated above, the insured submitted a proposal form for the personal accident policy for Rs.5 Crores on 19.3.1996 to the United India Insurance Co. Ltd. It was forwarded to the H.O. on 21.3.1996. Nothing was heard. Hence, a fresh proposal form for Rs.10 Crores was submitted by the insured in September 1996. It was sent to H.O. on 22.10.1996 and remained pending with the H.O. For this, the Insurance Company has not produced anything on record to indicate that the said proposals were not accepted by it and has concealed the same. The same was revealed from the reports of Surveyors. However, in these proceedings it would be difficult for us to arrive at the conclusion that the officers of the Insurance Company have used the duly signed blank proposal form which might have been given in September 1996 by placing the date of 21st January, 1997.
(vi) From the facts stated above, it cannot be held that the deceased intentionally suppressed a material fact of submitting two prior proposal forms to the Insurance Company or that the Insurance Company had no means to verify the same. Therefore, with regard to this policy, in our view, the Insurance Company cannot avoid the same or it cannot be held voidable at the option of the insurer. It is to be stated that for some reasons best known to the insurer they gave the first insurance policy for a sum of Rs.9.97Crores, and, thereafter, for a sum of Rs.3 lakhs. We fail to understand the logic behind the same. If something wrong is done by the officers of the Insurance Company the assured or the heirs of the assured cannot be penalised.
From the aforesaid discussion, it is apparent that the previous proposals were given to the same Company. As stated above, the matter was discussed by the Head Office. There is nothing on record that the head office declined to grant the insurance coverage to the Complainant. If the officers of the Insurance Company are negligent in discharge of their duties, the assured should not suffer. In any case there is nothing on record to show that the assured filled in proposal form after considering each and every question and intentionally not disclosed his previous proposals for getting the policy. As held in the case of Asha Goel (Supra) mere inaccuracy or falsity in respect of some recitals in the proposal form is not sufficient to arrive at the conclusion that policy holder has fraudulently suppressed the aforesaid fact. The burden is on the Insurance Company. It cannot be said that the officers of the Insurance Company were unaware of the previous two proposals. Therefore, it would be difficult to arrive at the conclusion that a fact which was in the exclusive knowledge of the assured was intentionally suppressed by him. As such it cannot be said that submission of two prior proposals were in the exclusive knowledge of the assured because the same were within the knowledge of the Insurance Company. This would mean that the defence put up by the Insurance Company for avoiding the contract is unjust and apparently against the interest of the consumers.
Learned Counsel for the Insurance Company further submitted that as per the repudiation letter the Company has also repudiated the claim on the following ground:
That late Shri Kishore Sharan Garg by making misstatement has also concealed material information like having LIC Policy and proposal for personal accident policy for Rs.5.00 Crores already made.
Had these facts been disclosed in the proposal form or otherwise, this would have led to the investigation by the Company regarding the status, income and means of income of deceased and the inquiry would have led to the Company to refuse the proposal. By making this misstatement, he has been able in his attempt of not to make any inquiry regarding his source of income and business.
In our view, this is also totally baseless ground. Firstly, as stated above, the previous proposals were made with the same Insurance Company. As noted above, the first proposal was for a sum of Rs.5 Crores submitted in March, 1996; the second proposal was submitted in September 1996 and that record was made available to M/s. Lal International Security & Detective Services by the Insurance Company. That record was available with the Insurance Company. There is also nothing on record to indicate that at any point of time the United India Insurance Co. Ltd. declined to issue policy to the deceased on his proposal for getting cover for a sum of Rs.5 Crores and thereafter for a sum of Rs.10 Crores.
Secondly, before accepting such proposals for huge amounts, it was their duty to find out the status, income and the means of the income of the assured, if at all required. The record indicates that at the time of first proposal and the second proposal the income, status and means of the income of assured were verified, however, the same is not disclosed by the Insurance Company. It appears that they accepted heavy premium and thereafter this ground is made out. After accepting the heavy premium when peril occurs to deny the policy amount on altogether made up ground would certainly amount to unfair trade practice on the part of the officers of the Insurance Company.
In this view of the matter, the Insurance Company is required to pay the sum assured to the nominees of the deceased as per the policy.
B. Policy taken from the National Insurance Company Ltd.
The next question is with regard to the insurance policy for a sum of Rs.5 Crores issued by the National Insurance Company Ltd. The contention for repudiating the claim is non-disclosure by the assured that he had submitted two proposals for personal accident insurance with the United India Insurance Co. Ltd. for a sum of Rs.5 Crores and Rs.10 Crores respectively.
It is the contention of the learned Counsel for the Complainant that except inadvertent mistake or negligence of the Agent or the Development Officer, there was no justifiable reason for the deceased to conceal the fact that he had made proposal for insurance coverage for a sum of Rs.5 Crores for which no reply was given to him or to state to the National Insurance Company Ltd. that he had applied for insurance coverage for a sum of Rs.10 Crores with the United India Insurance Co. Ltd. which was kept pending for months together. He must have not have thought that such fatal accident would take place which would smash his car and resultant in instantaneous death.
It is equally true that before accepting such proposal and the heavy premium, it was the duty of the Insurance Company to verify the relevant facts including the status and source of income of the assured. However, as both the Companies are different, it was not possible for the National Insurance Company Ltd. to verify whether the two proposals given by the assured were accepted or not accepted. If the said fact was disclosed the National Insurance Company would have verified from the office of the United India Insurance Co. Ltd. and might have taken a decision of not granting insurance policy for the sum of Rs.5 Crores or would have charged increased premium. There was no reason for the assured not to disclose the said fact. To this extent, it can be said that a material fact is not disclosed by the assured, and, therefore, the insurer was entitled to avoid the contract.
A. Original Petition No. 164 of 2001:
In the result the Original Petition is allowed. The United India insurance Co. Ltd. is directed to pay the Complainants a sum of Rs.10,00,00,000/- with interest at the rate of 9% p.a. (approximately) after three months from the date of the death of the assured, i.e. 1st July, 1997. There shall be no order as to costs.
B. . Original Petition No. 272 of 2001:
This Original Petition is dismissed. There shall be no order as to costs.
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J. (M.B.SHAH) PRESIDENT Sd/-
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(P.D.SHENOY) MEMBER