Orissa High Court
Life Insurance Corporation Of India vs Swarnalata Sahu on 13 March, 1995
Equivalent citations: 1996ACJ134, 1995 A I H C 4572, (1995) 79 CUT LT 635
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. This appeal has been filed by the Life Insurance Corporation of India (hereinafter referred to as 'the insurer') and also as defendant for the sake of convenience against the judgment and decree passed by the learned Subordinate Judge, Baripada, decreeing the suit filed by the present respondent (hereinafter referred to for the sake of convenience as 'plaintiff), for realisation of the sum of Rs. 32,000/-. The suit was filed by the plaintiff, claiming to be the nominee of Prabhakar Sahu, the policyholder (described hereafter as 'the deceased'), seeking for a direction to pay the amount covered by insurance. The claim was resisted by the insurer on the ground that there was material suppression of facts at the time of taking the policy.
2. In a nutshell, the case of the parties is as follows:
Prabhakar Sahu undisputedly was the policyholder in respect of policy No. 10832374 and he breathed his last on 17.12.1976 at Baripada Hospital. The policy was for Rs. 30,000/- which commenced sometime in the year 1973 and premiums were being paid regularly by the deceased policyholder, till his death. Plaintiff was the nominee and beneficiary as indicated in the policy. On the death of the deceased policyholder plaintiff became entitled to receive the sum of Rs. 30,000, together with bonus and other dues payable on the policy. Claim was lodged by the plaintiff with the insurer on 19.3.1977 and correspondences were exchanged between her and the insurer from time to time. As desired by the insurer, all the relevant forms duly completed and executed were submitted on 30.3.1977. The death certificate, original policy and the last premium receipt were sent to the Divisional Office of the insurer at Cuttack, which were duly received, as confirmed by letter dated 28.4.1977. Divisional Office required submission of certain other forms, which was done. In spite of necessary steps being taken by the plaintiff, the insurer did not pay the amount. Ultimately finding no way out, the plaintiff sent a notice on 19.6.1978 to the Divisional Office of the insurer at Cuttack through her advocate, demanding the dues, but the same yielded no result. Though receipt of the advocate's notice was acknowledged, the officials wanted the plaintiff to wait for some time. Ultimately the claim was repudiated on the ground that the deceased had not correctly declared about his state of health at the time of submission of proposal for insurance. Though at the time of taking the policy, the deceased policyholder had been duly and thoroughly examined by a doctor of the insurer and the proposal was accepted after such examination, the claim was repudiated without any basis. There was no ailment which was required to be disclosed at the time of making the proposal application. The deceased policy-holder did not suffer from any disease at any point of time. Therefore, the suit was filed claiming Rs. 30,000/- under the policy and the bonus of Rs. 2,000/-. In the written statement filed by the insurer through its Divisional Manager, Cuttack Branch, it was stated that the proposal was submitted by the deceased policyholder on 30.12.1973 and he died on 17.12.1976 due to congestive cardiomyopathy C.H.F. within less than three years from the date of the proposal. On receipt of the claim from the plaintiff, there was suspicion in the minds of the officials of the insurer about the death of a young person so soon if at all his heart condition was sound when the proposal was made. The said suspicion led the insurer to make inquiries about the case. On inquiry it surfaced that the deceased policyholder had a history of ill health such as cough and breathless-ness, long before the proposal was submitted. He was admitted into the S.C.B. Medical College Hospital, Cuttack, on 30.4.1976 with a case history of breath-lessness, cough and effort intolerance for a period of two and half years. From this it was evident that there was suppression of real state of health when the proposal was submitted and in view of the provisions of Section 45 of the Insurance Act, 1938 (in short, 'the Act') the claim was repudiated. It was stated that the plaintiff cannot claim advantage under the fraudulent transaction arising from the fraud practised by her deceased husband taking the coverage.
3. The pivotal issues which were considered by the learned Subordinate Judge were, (a) whether the contract of insurance was invalid due to non-disclosure of the real state of health of the assured as provided under Section 45 of the Act and (b) whether the contract is invalid under Sections 13 and 14 of the Indian Contract Act, 1872 (in short, 'the Contract Act'). These two issues were issue Nos. 4 and 5 and were answered in favour of the plaintiff, holding that there was no material to show any suppression, particularly when the doctor who had examined the deceased and had certified about his health condition at the time the policy was issued was not examined. The suit was accordingly decreed.
4. According to learned counsel for the insurer-appellant, the evidence of the doctor, who was examined by it, i.e., DW 1 clearly established that the medical history of the deceased policyholder revealed about old heart trouble for which he was treated at Cuttack. He was also suffering from breathlessness and effort intolerance. The policy was not based on correct state of health of the deceased policyholder and, therefore, was not enforceable.
The learned counsel for the respondent, however, submitted that no material has been brought on record by the insurer to show that any fraud had been practised or there was any suppression regarding the state of health of the deceased policy-holder. Undisputedly, the doctor who had examined the deceased at the time of submission of proposal form and before the policy was issued, was not examined in the case. It is submitted that the insurer has not discharged its onus and, therefore, there is no merit in this appeal.
5. Section 45 of the Act, which has been pressed into service by the insurer, so far as it is relevant for the purpose of this case reads as follows:
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 policyholder and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose....
It is to be noticed that the operating part of Section 45 states in effect, so far as it is relevant for the purpose of this case, that no policy of life insurance effected after the coming into force of the Act shall, after the expiry of two years from the date of 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. The second part of the section is in the nature of a proviso which creates an exception. It says in effect that if 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 policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose, then the insurer can call in question the policy effected as a result of such inaccurate or false statement. Three conditions for application of second part of Section 45 are-(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 policyholder; and (c) the policyholder 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. Fraud, according to Section 17 of the Contract Act, means and includes, inter alia, any of the following acts committed by a party to a contract with intent to deceive another party or to induce him to enter into a contract: (i) the suggestion as to a fact, of that which is not true by one who does not believe it to be true; (ii) the active concealment of a fact by one having knowledge or belief of the fact. 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.
6. It is well settled that a contract of insurance is contract uberrimae fidei and there must be complete good faith on the part of the assured. The assured is thus under a solemn obligation to make full disclosure of material facts which may be relevant for the insurer to take into account while deciding whether the proposal should be accepted or not. While making a disclosure of the relevant facts, the duty of the insured to state them correctly cannot be diluted. The burden of proving that insured had made false representation and suppressed material facts is undoubtedly on the insurer. These aspects were highlighted by the Apex Court in Mithoolal Nayak v. Life Insurance Corporation of India AIR 1962 SC 814 and Life Insurance Corporation of India v. G.M. Channabasamma 1991 ACJ 303 (SC).
7. As the facts would go to show, undisputedly the insurer's doctor had certified about good health of the deceased policyholder after proposal was submitted. The said doctor interestingly has not been brought before the court. He would have been the best person to throw light on what was the nature of his conclusion on examining the deceased before the policy of insurance was issued. Statements by proposer as to his health are given on the basis of his belief. Bad faith can be imputed only when he fails to disclose a disorder of which he was aware. P.W. 1, the family doctor of the deceased has stated about perfect state of health of the deceased. Doctor of the insurer and responsible officers of the insurer under whose supervision the statements in proposal form are scrutinised, are the best persons to state about truth or otherwise of the statements in the proposal form. They should be examined, unless compelling reasons are shown for their non-examination, so that the truth can be determined. The evidence of the doctor examined by the insurer, who had treated the deceased (DW 1) does not show unerringly about past history of deceased's health. He has stated in his examination-in-chief that a history chart of the patient (meaning the deceased) was maintained, which was not prepared by him. He made the statement on the basis of the history-sheet. Several other persons made entries in it, whose writings he was unable to identify. In cross-examination he has stated that his summary has been noted from the case history of the patient. He also stated that he cannot say on whose information the case history was prepared. He has accepted that the period of disease is given always by approximation in the case history and there was nothing to show actually when the trouble started.
8. The inevitable conclusion is that the insurer has failed to discharge the burden which lay on it to show that the deceased policyholder had made any fraudulent representation and suppression of material facts relating to his state of health and that being the conclusion, the appeal has to be dismissed and is dismissed, but in the circumstances, without costs.