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Report No. 112

3.4. Category (c).-

The Supreme Court had occasion to examine the scope of the section1. In this case, the policy was issued in March, 1945 but it was to come into effect from January 15, 1945. The insured died in November 1946 and the claim of the assignee of the policy was repudiated on October 10, 1947. The Supreme Court while holding on the facts of the case that the policy-holder was guilty of fraudulent suppression and that the respondent rightly repudiated the claim, laid down the following propositions:-

(1) Whether the revival of a lapsed policy constitutes a new contract or not for other purposes, it is clear from the wording of the operative part of section 45 that the period of two years for the purpose of the section has to be calculated from the date on which the policy was originally effected.

(2) The three conditions for the applicability of the 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 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.

On the basis of this statement of the law the High Courts have held that the repudiation by the L.I.C. of the claims of persons entitled to the insurance amounts on the death of the insured, was wrong. In New India Assurance Co. v. Sulochana, AIR 1962 Assam 65, the Policy came into effect in 1949, the insured died in 1950, and the repudiation of the claim was in 1952. The High Court held that the insurer must prove the ingredients set out in the 2nd proposition laid down by the Supreme Court. So also in LIC v. Janaki Ammal, AIR 1968 Mad 324; LIC v. B. Chandra Vathamma, AIR 1971 AP 41; Manohar Lal v. LIC, AIR 1981 Del 171. Therefore, in order to avoid the onerous part of section 45, the insurer must challenge the claim within two years of the coming into effect of the policy, when the insured had died within the period. This state of law might cause the following difficulties to the insurer:

(1) It does not allow sufficient time to the insurer to make the necessary investigation for repudiating the claim;

(2) A clever claimant may wait for 2 years to elapse before informing the insurer: and

(3) The insurer may not know to whom the repudiation is to be made, because, if the insured is dead the insurer must wait and see to whom the letters of administration to the estate of the deceased are granted.

1. Mithoolal v. LIC, AIR 1962 SC 814.

Section 45 of the Insurance Act, 1938 Back

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