Reliance Life Insurance Co Ltd & Anr v. Rekhaben Nareshbhai Rathod*
In Reliance Life Insurance Co. Ltd and Anr v Rekhaben Nareshbhai Rathod, the Supreme Court of India has once again reiterated one of the foundational principles of Insurance Law : non-disclosure of material information by an Insured at the time of entering into a contract of insurance would entitle a prudent Insurer to repudiate a claim made under the underlying policy on such ground.
The spouse of the Respondent in this case had obtained a policy of life insurance ("policy") from the Appellant insurance company in September of 2009. Prior to this, the Respondent had also taken a policy of life insurance from Max New York Life Insurance Co. Ltd in July 2009. The information relating to the aforesaid insurance policy however, was not disclosed to the Appellant at a time when the policy was issued to the Respondent. Following the death of the Respondent's spouse, the Respondent made a claim under the Policy in February 2010. While the Appellant was in the process of deciding the coverage of the claim made under the Policy, it was informed by Max New York that the Respondent's spouse had been previously insured with them. Once the suppression of this information came to light, the Appellant repudiated the claim with the Respondent.
The District Commission dismissed the complaint filed by the Respondent on the ground of the aforesaid non-disclosure. The appeal was however allowed both by the State Commission and the National Commission "for the reason that the omission of the insured to disclose a previous policy of insurance would not influence the mind of a prudent insurer".
In appeal, the Supreme Court, while reversing the decisions of both the Commissions and affirming the decision of the District Commission has observed that the failure of the Insured Respondent to disclose the policy of insurance obtained earlier amounted to suppression of a material fact that ought to have been disclosed to the Appellant insurance company and such non-disclosure rightly entitled the latter to repudiate the claim under the Policy.
In doing so, the Hon'ble Apex Court noted that "before a non-disclosure can be utilized as a ground to repudiate, it must pertain to a realm where it can be found that the non-disclosure was of a circumstance or fact which would have affected the decision of the insurer regarding whether or not to grant a cover". Examining the meaning of the expression 'proposal form' within the scheme of the Insurance Act 1938, the Court opined that the purpose of disclosure in a proposal form is to enable the insurer to decide whether to accept or decline to undertake a certain type of risk and, in the event that the risk is accepted, to determine the rates, terms and conditions on which such cover is to be granted. When viewed in this context, any information that would influence the decision of a prudent insurer in deciding as to whether to accept a risk or not ought to be presumed to be a material fact, the disclosure of which is warranted before a contract of insurance can be effectuated.
Therefore, in the Court's opinion, an inaccurate answer or any concealment of a material fact in the proposal form would render the policy voidable by the insurer since the same not only amounts to a contravention of the principle of good faith, being a sacrosanct principle of insurance law but more importantly because the presumption that the information sought for is material for the purpose of entering into a contract of insurance stands rebutted in this case.
This judgment stands to be yet another illustration of the significance of the principle of good faith that binds parties to a contract of insurance. It is also likely to be welcomed by all stakeholders within the Insurance industry as it crystallizes the disclosure requirements that Insureds have to abide by therefore increasing the level of transparency within the industry.
* SLP (C) No 14312 of 2015
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.