Dr Dhananjaya Y Chandrachud, J
1 Leave granted.
2 This a ppeal arises from the judgment and order d ated 20 March 2020 of the SIGN National Consumer Disputes Redressal Commission.
3 On 5 August 2014, a proposal for obtaining a policy of insurance was submitted to the appellants by Kulwant Singh. The proposal form indic ated the name of the mother of the proposer, who is the respondent to these proceedings as the nominee. The proposal form c ontained questions pertaining to the health and medic al history of the proposer and required a specific disclosure on whether any ailment, hospitalization or treatment had been undergone by the proposer. Column 22 required a declaration of good health. The proposer answered the queries in the negative, indic ating thereby that he ha d not undergone any medic al treatment or hospitalization and was not suffering from any ailment or disease. The declaration under Item 22(c) of the proposal form was in regard to whether any diseases or disorders of the respiratory system such as but not limited to blood in sputum, tuberculosis, asthma, infected respiratory disease or any respiratory system disease including frequent nose bleeding, fever and dyspnoea were involved. This query was also responded to in the negative. Acting on the basis of the proposal submitted by the proposer, a policy of insuranc e was issued by the ap pellants on 12 August 2014. Under the policy, the life of the proposer was insured for a sum of Rs. 8.50 lakhs p ayable on maturity with the death benefit of Rs. 17 lakhs.
4 On 12 September 2014, Kulwant Singh died, following which a claim was lodged on the insurer. The death oc curred within a period of one month and seven d ays from the issuance of the policy. The claim was the subject matter of an independent investigation, during the c ourse of which, the hospital treatment rec ords and medic al c ertific ate issued by Bab a Budha Ji Charitable Hospital, Bir Sahib, Village Thatha (Tarntaran) were obtained. The rec ords revealed, a c c ording to the insurer, that the dec eased has been suffering from Hep atitis C. Copies of the investigation report dated 20 Dec ember 2014 and 9 January 2015 have been pla ced on the rec ord. The investigation reports indic ate that proximate to the death, the dec eased had been suffering from a stoma ch ailment and from vomiting of blood, as a result of which he ha d been availing of the treatment at the above hospital. The claim was repudiated on 12 May 2015 on a c c ount of the non-disclosure of material fa cts.
5 The respondent instituted a c onsumer c omplaint before the District Consumer Disputes Redressal Forum. The District Forum allowed the c omplaint and directed the a ppellants to p ay the full death claim together with interest. The first ap peal was rejected by the State Consumer Disputes Redressal Commission (hereinafter referred to as “SCDRC ”) and the revision before the National Consumer Disputes Redressal Commission (hereinafter referred to as “ NCDRC ”) has also been dismissed. The NCDRC has relied on the decision of this Court in Sulbha Prakash Motegaonkar & Ors vs Life Insurance Corporation of lndia 1. Ac c ording to the NCDRC, a disease has to be distinguished from a mere illness. It held that the death had oc curred due to natural c auses and there was no reasonable nexus between the c ause of death and non-disclosure of disease. Consequently, while affirming the judgment of the SCDRC, the NCDRC imposed c osts of Rs. 2 lakhs on the ap pellants, of which, an amount of Rs. 1 lakh was to be p aid to the c omplainant and Rs. 1 lakh was to be deposited with the Consumer Legal Aid Ac c ount of the District Forum.
6 Mr Amol Chitale, learned c ounsel appearing on behalf of the ap pellants states that the judgment of the c onsumer fora in the present c ase are c ontrary to the law which has been laid down by this Court in Life Insurance Corporation of India vs Asha Goel2, P.C. Chacko vs Chairman, Life Insurance Corporation of India3 and Satwant Kaur Sandhu vs New India Assurance Company Limited4. Learned c ounsel submitted that a policy of insuranc e is governed by the
1 Civil Appeal No 8245 /2015 decided on 5.10.2015
2 (2001) 2 SCC 160
3 (2008) 1 SCC 321
4 (2009) 8 SCC 316 principles of utmost good faith. In the present c ase, the investigation reports revealed that proximate to the date of death, the dec eased ha d been hospitalized in July 2014 with a c omplaint of having vomited blood and a non- disclosure of the material fa cts would justify the repudiation of the claim by the insurer. It was urged that the proposer was duty bound to make a full disclosure in response to the queries in the proposal forum, which he failed to do. The suppression of material fa cts by the insured entitles the a p pellants to repudiate the policy under Section 45 of the Insuranc e Act 1938. Section 45 stipulates that an insurer is restricted from c alling into question a life insurance policy after an expiry of two years from the d ate on which it was effected on the ground that a false or ina c curate statement has been ma de in the (i) proposal; (ii) report of a medic al offic er, referee or a friend of the insured; or (iii) in any other document leading to the issue of policy. On the expiry of two years, the burden of proof shifts to the insurer who has to establish that the false or ina c curate statement was a material matter or related to material fa cts. In the present c ase, the claim in question was repudiated within two years from the c ommencement of the policy.
7 Notice was issued by this Court on 21 September 2020, in pursuanc e of which the respondent has entered ap pearanc e through Mr. Aniket Jain, learned c ounsel.
8 Mr Jain has supported the reasoning of the NCDRC, urging that the death in the present c ase oc curred due to natural c ause and there was no nexus between the c ause of death and the alleged non-disclosure.
9 A c ontra ct of insuranc e is one of utmost good faith. A proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material fa cts bearing upon the issue as to whether the insurer would c onsider it appropriate to assume the risk which is proposed. It is with this principle in view that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at a c onsidered decision b ased on the a ctuarial risk. In the present c ase, as we have indic ated, the proposer failed to disclose the vomiting of blood which ha d taken pla c e barely a month prior to the issuance of the policy of insurance and of the hospitalization which ha d been oc c asioned as a c onsequenc e. The investigation by the insurer indic ated that the assured was suffering from a pre-existing ailment, c onsequent upon alc ohol abuse and that the fa cts which were in the knowledge of the proposer had not been disclosed. This brings the ground for repudiation squarely within the principles which have been formulated by this Court in the decisions to which a referenc e has been ma de earlier. In Life Insurance Corporation of India vs Asha Goel, this Court held:
“ 12…The c ontra cts of insurance including the c ontra ct of life assurance are c ontra cts uberrima fides and every fa ct of material (sic material fa ct) must be disclosed, otherwise, there is good ground for rescission of the c ontra ct. The duty to disclose material fa cts c ontinues right up to the c onclusion of the c ontra ct and also implies any material alteration in the chara cter of risk which may take pla ce between the proposal and its a c ceptance. If there is any misstatements or suppression of material fa cts, the policy c an be c alled into question. For determination of the question whether there has been suppression of any material fa cts it may be necessary to also examine whether the suppression relates to a fa ct which is in the exclusive knowledge of the person intending to take the policy and it c ould not be ascertained by reasona ble enquiry by a prudent person.”
10 This has been reiterated in the judgments in P C Chacko vs Chairman, Life Insurance Corporation of India and Satwant Kaur Sandhu vs New India Assurance Company Limited. In Satwant Kaur Sandhu vs New India Assurance Company Ltd., at the time of obtaining the Mediclaim policy, the insured suffered from chronic diabetes and renal failure, but failed to disclose the details of these illnesses in the policy proposal form. Upholding the repudiation of lia bility by the insurance c ompany, this Court held:
“ 25. The upshot of the entire discussion is that in a c ontra ct of insurance, any fa ct which would influence the mind of a prudent insurer in deciding whether to a ccept or not to a c cept the risk is a “ material fa ct”. If the proposer has knowledge of such fa ct, he is obliged to disclose it particularly while answering questions in the proposal form. Needless to emphasise that any ina ccurate answer will entitle the insurer to repudiate his lia bility bec ause there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a c ontra ct of insurance.”
11 Recently, this Court in Reliance Life Insurance Co. Ltd. vs Rekhaben Nareshbhai Rathod5, has set aside the judgement of the NCDRC, whereby the NCDRC ha d held that the failure of the insured to disclose a previous insuranc e policy as required under the policy proposal form would not influence the decision of a prudent insurer to issue the policy in question and therefore the insurer was disentitled from repudiating its lia bility. This Court, while allowing the repudiation of the insuranc e claim, held:
“ 30. It is stand ard pra ctice for the insurer to set out in the a pplic ation a series of specific questions regarding the applic ant's he alth history and other matters relevant to insura bility. The object of the proposal form is to gather information a bout a potential client, allowing the insurer to get all 5 (2019) 6 SCC 175 information which is material to the insurer to know in order to assess the risk and fix the premium for ea ch potential client. Proposal forms are a signific ant part of the disclosure procedure and w arrant a ccura cy of statements. Utmost c are must be exercised in filling the proposal form. In a proposal form the a pplic ant declares that she / he w arrants truth. The c ontra ctual duty so imposed is such that any suppression, untruth or ina c cura cy in the statement in the proposal form will be c onsidered as a brea ch of the duty of good faith and will render the policy void a ble by the insurer. The system of a dequate disclosure helps buyers and sellers of insuranc e policies to meet at a c ommon point and narrow down the ga p of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the c ontra ctual a greement.
31. The finding of a material misrepresentation or c oncealment in insurance has a signific ant effect upon both the insured and the insurer in the event of a dispute. The fa ct it would influence the decision of a prudent insurer in deciding as to whether or not to a ccept a risk is a material fa ct. As this Court held in Satw ant Kaur (supra) "there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a c ontra ct of insurance". Ea ch representation or statement may be material to the risk. The insurance c omp any may still offer insurance protection on altered terms.”
12 The decision of this Court in Sulbha Prakash Motegaonkar vs Life Insurance Corporation of lndia, which has been relied upon by the NCDRC, is clearly distinguishable. In that c ase, the assured suffered a myoc ardial infarction and suc cumbed to it. The claim was repudiated by the insurance c omp any on the ground that there was a sup pression of a pre-existing lumbar spon dilitis. It was in this b a ckground that this Court held that the alleged c onc ealment was of such a nature that would not dis-entitle the dec eased from getting his life insured. In other words, the pre-existing ailment was clearly unrelated to the c ause of death. This Court ha d also observed in its decision that the ailment c oncealed by the deceased was not a life-threatening disease. This decision must, therefore, be distinguished from the fa ctual position as it has emerged before this Court.
13 The medic al rec ords which have been obtained during the c ourse of the investigation clearly indic ate that the dec eased was suffering from a serious pre- existing medic al c ondition which was not disclosed to the insurer. In fa ct, the deceased was hospitalized to undergo treatment for such c ondition in proximity to the date of his death, which was also not disclosed in spite of the specific queries relating to any ailment, hospitalization or treatment undergone by the proposer in Column 22 of the policy proposal form. We are, therefore, of the view that the judgment of the NCDRC in the present c ase does not lay down the c orre ct principle of law and would have to be set aside. We order a c c ordingly.
14 However, Mr. Amol Chitale, learned c ounsel ap pearing on behalf of the a p pellants has informed the Court that during the pendency of the proc eedings, the entire claim was paid over to the respondent, save and except for the amount of c osts. Having regard to the age of the respondent, who is seventy years old and the death of the assured on whom she was likely to be dependent, we are of the view that it would be ap propriate for this Court to utilize its jurisdiction under Article 142 of the Constitution, by directing that no rec overies of the amount which has been p aid shall be ma de from the respondent. However, while doing so, we expressly hold that the impugned judgment of the NCDRC does not lay down the c orrect position in law and shall a c c ordingly stand set aside.
15 The ap peal is a c c ordingly disposed of. In the circumstanc es of the c ase, there shall be no order as to c osts.
16 Pending ap plic ations, if any, stand disposed of.
… J.
[Dr Dhananjaya Y Chandrachud] … J.
[Indu Malhotra] … J.
[Indira Banerjee] New Delhi;
October 9, 2020 CKB