and Another Vs. Chairman, Life Insurance Corporation of India and Others  Insc 1160 (20 November 2007)
Sinha & Harjit Singh Bedi
out of SLP (C) No. 23951 of 2005) S.B SINHA, J.
Application of Section 45 of the Insurance Act, 1938 is in question in this
appeal which arises out of a judgment and order dated 17th December, 2004
passed by a Division Bench of the High Court of Kerala at Ernakulam in A.F.A.
No. 18 of 2000 setting aside the judgment and order of a learned Single Judge
dated 23rd September, 2000 passed in Appeal Suit No.633 of 1993 confirming the
judgment and decree passed by the Subordinate Judge of Kozhikode in OS No. 240
of 1990 dated 27th February, 1993.
Plaintiffs in the suit are the appellants herein. They filed the said suit
inter alia for recovery of the amount of insurance on the death of one Chackochan
(hereinafter referred to as the insured). The insured took an
insurance policy on 21st
February, 1987. He
died on 6th July, 1987. On his death, the appellants
herein claimed the insured amount. On the premise that the insured suppressed
material facts, the policy had been repudiated by the respondent on 10th February, 1989. Non-disclosure and mis-statement
in the proposal form to the various questions to which answers were given by
the insured is said to be the reason for the aforementioned repudiation of the
contract of insurance.
now stands admitted that the insured had undergone an operation for Adenoma
Thyroid. The particulars furnished by him while filling up the application form
for obtaining the said policy were as under :- (a) Did you ever have any
operation, accident or injury? The answer was No. (b) Have your
remained absent from place of your work on ground of health during the last 5 years
? To which answer was No. (c) What has been your state of health? The
answer was good.
fact that the said answers were incorrect is not in dispute. The suit filed by
the appellants, however, was decreed.
an appeal preferred by the respondents, on the premise that despite such wrong
answers, as the injured died on account of polyneuritis, a learned
Single Judge of the High Court opined that there was nothing to indicate that
if the injured had disclosed the factum of previous operation, the
appellant-Corporation might not have inclined to insure and insisted on a
higher premium and thus there was no material to show that the non- disclosure
was of a material fact justifying repudiation of the policy by the Corporation.
an intra court appeal, the Division Bench of the High Court, however, by reason
of the impugned judgment opined that the parties are bound by the warranty
clause contained in the agreement which is also clear from the declaration
signed by the insured and the non-disclosure related to a material fact which
was required to be answered correctly under question No.22(a).
R. Sathish, learned counsel appearing on behalf of the appellants would submit
that a clear finding of fact having been arrived at by the trial court that
despite undergoing Adenoma Thyroid operation four years prior to the date of
proposal of policy, the cause of insureds death being
polyneuritis which had no connection with the operation and the
judgment of the trial court having been affirmed by the learned Single Judge,
should not have been interfered with by the Division Bench. Our attention was
further drawn to the fact that the medical officer had noted a black mole on
lower aspect of left side of neck and from Ext. A1 wherefrom it appeared that
there had been no past history suggestive of allergies, injuries, operations,
diseases like rheumatic fever, syphilis etc. and the deceased having no other
complaint due to operation, the impugned judgment cannot be sustained.
Life Insurance policy, it was submitted is a requirement of social security. In
that view of the matter, a suppression could not have been led to repudiation
of policy, particularly when the doctor who examined the insured was appointed
by the respondent-Corporation itself. Our attention in this behalf has been
drawn to the decision of the Madras High Court in All India General Insurance
Co. Ltd. and another vs. S.P. Maheshwari : AIR 1960 Madras 484 for the proposition that there
exists a distinction between a representation and a
Patwalia, learned Senior Counsel, appearing on behalf of the respondents, on
the other hand, submitted that having regard to the provisions contained in
Section 45 of the Insurance Act and the policy having been repudiated within a
period of 2 years, the impugned judgment should not be interfered with. It was
submitted that undergoing of an operation having a direct nexus with the health
of the insured, suppression thereof has rightly been considered with all
seriousness by the Corporation.
argued that the operation underwent by the insured being a major one, was a
material fact which ought to have been disclosed. Not only the insured had
given wrong answers to the questions, his brother himself being a Life
Insurance Corporations agent and furthermore in view of the fact that a
declaration was given by the insured that no untrue averment was made therein,
the contract of insurance was null and void and all monies which had been paid
in respect thereof would stand forfeited to the Corporation.
counsel for the Corporation has placed strong reliance on Mithoolal Nayak vs.
Life Insurance Corporation of India : 1962 Suppl
(2) SCR 571.
The basic fact of the matter is not in dispute. The insured had undergone an
operation for Adenoma Thyroid. It was a major operation.
the said operation was undergone by him four years prior to the date of the
proposal made by him, he did not disclose thereabout prior to obtaining the
insurance policy. We may notice that he died within six months from the date of
taking of the policy i.e. on 6th July, 1987,
policy having taken on 21st
Section 45 of the Insurance Act reads as under :-
- 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 :
that nothing in this section shall prevent the insurer from calling for proof
of age at any time if he is entitled to do so, and no policy shall be deemed to
be called in question merely because the terms of the policy are adjusted on
subsequent proof that the age of the life insured was incorrectly stated in the
Section 45 postulates repudiation of such policy within a period of two years.
By reason of the aforementioned provision, a period of limitation of two years
had, thus, been specified and on the expiry thereof the policy was not capable
of being called in question, inter alia on the ground that certain facts have
been suppressed which were material to disclose or that it was fraudulently
been made by the policy holder or that the policy holder knew at the time of
making it that the statement was false. Statute, therefore, itself provides for
the limitation for valid repudiation of an insurance policy. It takes into
account the social security aspect of the matter
There are three conditions for application of second part of Section 45 of the
Insurance Act which are :-
statement must be on a material matter or must suppress facts which it was
material to disclose;
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. [See Mithoolal
Nayak (supra] 14. The insureds brother was an agent of the Life
Corporation of India.
he, who had asked the insured to take the insurance policy. He, being an
authorized agent of the Life Insurance Corporation, presumably knew the effect
of misstatement of facts. Misstatement by itself, however, was not material for
repudiation of the policy unless the same is material in nature.
The insured furthermore was aware of the consequence of making a misstatement
of fact. If a person makes a wrong statement with knowledge of consequence therefor,
he would ordinarily be estopped from pleading that even if such a fact had been
disclosed, it would not have made any material change.
The purpose for taking a policy of insurance is not, in our opinion, very
material. It may serve the purpose of social security but then the same should
not be obtained with a fraudulent act by the insured. Proposal can be
repudiated if a fraudulent act is discovered. The proposer must show that his
intention was bona fide. It must appear from the face of the record. In a case
of this nature it was not necessary for the insurer to establish that the
suppression was fraudulently made by the policy holder or that he must have
been aware at the time of making the statement that the same was false or that
the fact was suppressed which was material to disclose. A deliberate wrong
answer which has a great bearing on the contract of insurance, if discovered
may lead to the police being vitiated in law.
is no doubt true that there exists a distinction between a
representation and a warranty. A Division Bench of the
Madras High Court in S.P. Maheshwari (supra) upon taking into consideration the
history of insurance laws in United States of America, in England and in India stated
:- (10) One great principle of insurance law is that a contract of
insurance is based upon utmost good faith Uberrima fides; in fact it is the
fundamental basis upon which all contracts of insurance are made. In this
respect there is no difference between one contract of insurance and another.
Whether it be life or fire or marine the understanding is that the contract is uberrima
fides and though there may be certain circumstances from the peculiar nature of
marine insurance which require to be disclosed, and which do not apply to other
contracts of insurance, that is rather an illustration of the application of
the principle than a distinction in principle. From the very fact that the
contract involves a risk and that it purports to shift the risk from one party
to the other, each one is required to be absolutely innocent of every
circumstance which goes to influence the judgment of the other while entering
into the transaction.
While the parties entered into a contract of insurance the same shall, subject
to statutory interdict, be governed by the ordinary law of contract.
insurer may not rely upon the disclosures made by the insured. It may gather
information from other sources. The Madras High Court, although in our opinion,
has rightly issued a note of caution to construe a representation and
warranty as a general proposition which may operate harshly against
the policy holders, itself noticed:-
The principles underlying the doctrine of disclosure and the rule of good faith
oblige the proposer to answer every question put to him with complete honesty.
implies truthfulness. But it happens that no man can do more than say what he
believes to be the truth.
Whether in a given case the court should take judicial notice of practice
followed in such cases or not would depend upon the facts and circumstances of
each case. If it is found that the agent himself was interested in getting the
policy executed by the Life Insurance Corporation, such common knowledge takes
a back seat.
S.P. Maheshwari (supra), it was stated :
This brings us on finally to the topics of nondisclosure or misrepresentation which
are practically the positive and negative aspects of the same thing. The effect
of misrepresentation on the contract is precisely the same as that of
non-disclosure; it affords the aggrieved party a ground for avoiding the
contract. There are a number of dicta and one decision to the effect that life
insurance is an exception to the general rule that innocent misrepresentation
may afford grounds for avoiding a policy and that the misrepresentation must be
fraudulent to have this effect upon a policy of life insurance. But in order to
give the insurer grounds for avoidance both under non-disclosure as well as
misrepresentations, both must relate only to material information. The
said decision, therefore, is of no assistance to the appellants herein.
are not unmindful of the fact that Life Insurance Corporation being a State
within the meaning of Article 12 of the Constitution of India, its action must
be fair, just and equitable but the same would not mean that it shall be asked
to make a charity of public money, although the contract of insurance is found
to be vitiated by reason of an act of the insured. This is not a case where the
contract of insurance or a clause thereof is unreasonable, unfair or irrational
which could make the court carried the bargaining powers of the contracting
parties. It is also not the case of the appellants that in framing the
aforesaid questionnaire in the application/proposal form, the respondents had
acted unjustifiably or the conditions imposed are unconstitutional.
Life Insurance Corpn. Of India & Ors. v. Asha Goel (Smt) & Anr. [(2001)
SCC 160], whereupon reliance has been placed by Mr. Sathish, it was held :
contracts of insurance including the contract of life assurance are contracts uberrima
fides and every fact of material ( sic material fact) must be disclosed,
otherwise, there is good ground for rescission of the contract. The duty to
disclose material facts continues right up to the conclusion of the contract
and also implies any material alteration in the character of the risk which may
take place between the proposal and its acceptance. If there are any
misstatements or suppression of material facts, the policy can be called into
question. 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. It has not been shown in this case that
repudiation of the contract of insurance was not done by the respondent with
extreme care and caution or was otherwise invalid in law.
Division Bench of the High Court has taken all the aspects of the matter in
consideration and, in our opinion arrived at a just decision.
Strong reliance has been placed by the learned counsel for the appellants on Allianz
Und Stuttgarter Life Insurance Bank Ltd. v. Hemanta Kumar Das [AIR 1938 CAL
641] wherein in regard to some purported statements made by the proposor in
regard to his age was not found to be material as would appear from the
is to be borne in mind that this was an insurance by a man who admittedly was,
at any rate, at the age of over forty-five years. He himself stated that he was
the transaction came within the category of those proposals which require at
the outset the furnishing by the proponents of proof of their age. Noot
Behari Das was required to furnish proof of his age. He produced a horoscope.
The horoscope was accepted by the company as being sufficient. Therefore, we
may take that the company issued the policy upon the footing that they were
insuring the life of a man whose age was fifty four. This is not a case where
the proposer says that his age was fifty four and the Company merely accepted
that statement at its face value and proceeded to issue a policy on that
footing and subsequently, either shortly afterwards or a long time afterwards, admitted
the age as stated in the policy in accordance with the provisions of Cl.9(2)
thereof. This was a case where the whole transaction from the very beginning
proceeded upon the basis that the company had satisfied themselves that the proposer
was of the age of fifty four and then issued the policy accordingly. In my view
therefore the admission contained in the endorsement at page 3 of the policy is
of such a character that the defendants when the policy matured could not be
heard to say that the age of the insured was anything different from what he
himself had stated it to be in February 1934. It is not necessary that one
should apply in terms of the principle of estoppel, because that is merely a
rule of evidence. In my view, this matter goes far deeper than that. The
question of the age of the deceased was a definite and determining factor in
the transaction from the very outset.
is not a case where the company had further enquired into the matter in regard
to the question as to whether the proposor was operated upon or not.
Ratan Lal & Anr. v. Metropolitan Insurance Co. Ltd. [AIR 1959 PAT 413], a
distinction was made between as to what is material and what is not material.
In regard to the disclosure of facts in that case itself, it was opined :
well-settled law in the field of insurance is that contracts of insurance
including the contracts of life assurance are contracts uberrima fides and
every fact of materiality must be disclosed otherwise there is good ground for
rescission. And this duty to disclose continues up to the conclusion of the
contract and covers any material alteration in the character of the risk which
may take place between proposal and acceptance.
Ratio of the said decision, therefore, instead of assisting the case of
appellants, runs counter to his contention.
Keeping in view the facts and circumstances of the case, we are of the opinion
that no case has been made out for our interference with the impugned judgment.
The appeal fails and is accordingly dismissed. No costs.