Uberrimae Fidei is a Latin phrase meaning “utmost good faith” and is an important aspect of

insurance contracts. The doctrine of uberrimae fidei is applicable on both the insurer as well
as the insured and states that all material facts should be disclosed to the insurance contact by
the contracting parties.

CASTELLAIN V. PRESTON AND OTHERS. (1883)

the owners of houses which were insured against fire contracted to sell the property and
reserved power under the contract to name the time for completion. The property was burned,
and the insurance company in ignorance of the contract paid the vendors for the damage
done. The vendors neither reinstated the premises nor handed the insurance money to the
purchasers, but they subsequently named a time for completion and the purchase was
eventually completed. The insurance company brought an action against the defendant
vendors to recover sums paid under the insurance and interest or in the alternative for a
declaration that the defendants held the money on trust for the company.

Chitty J gave judgment for the defendants and the plaintiff appealed.

Brett J, in disagreeing with the Judgment of Chitty J, who had tried the case in the court of
1St instance and concluded that the insurance co could not recover, noted that Chitty did not
consider well the applicating of the doctrine of subrogation. He said that the foundation of
every rule with regard to insurance law had to be considered, which is that: every contract of
marine or fire insurance is a contract of indemnity and of indemnity only, the meaning of
which is that the assured in case of a loss is to receive a full indemnity, but is never to receive
more. He went on to say that every rule of insurance law is adopted in order to carry out this
fundamental rule, and if any proposition is brought forward, the effect of which is opposed to
this fundamental rule, it will be found to be wrong.

LIC V. RAJA VASSIREDDY (SC 1984)

The mere receipt and retention of premiums until after the death of applicant does not give
rise to a contract, although the circumstances may be such that approval could be inferred
from retention of the premium. The mere execution of the policy is not an acceptance; an
acceptance, to be complete, must be communicated to the offer or, either directly, or by some
definite act, such as placing the contract in the mail. The test is not intention alone. When the
application so requires, the acceptance must be evidenced by the signature of one of the
company's executive officers.

Though in certain human relationships silence to a proposal might convey acceptance but in
the case of insurance proposal silence does not denote consent and no binding contract arises
until the person to whom an offer is made says or does something to signify his acceptance.
Mere delay in giving an answer cannot be construed as an acceptance, as, prima facie,
acceptance must be communicated to the offeror. The general rule is that the contract of
insurance will be concluded only when the party to whom an offer has been made accepts it
unconditionally and communicates his acceptance to the person making the offer. Whether
the final acceptance is that of the assured or insurers, however, depends simply on. the way in
which negotiations for an insurance have progressed.

YORKSHIRE INSURANCE CO. LTD. V NISBET SHIPPING CO. LTD

The assured, the owners of the ss. Blairnevis, were insured against loss of or damage to the
vessel by marine risks in valued policies of marine insurance in the common form of hull
policy of the Institute of London Underwriters for the sum of £72,000. On February 13, 1945,
the Blairnevis was damaged in a collision with H.M.C.S. Orkney and became an actual total
loss with no salvage value. On April 20, 1945, the insurer paid to the assured the £72,000 for
the total loss of the vessel. In September, 1946, the assured, with the approval of the insurer,
brought proceedings against the Canadian Government for damages for the loss of the
Blairnevis as a result of which the Canadian government ultimately paid to the assured in
Canada $336,039.52 Canadian dollars, the agreed actual value of the Blairnevis at the time of
the loss - £75,514 9s. 11d., converted into Canadian dollars at the rate of exchange current at
that time. Meanwhile, the £ had been devalued so that when the $336,039.52 paid to the
assured were transmitted to London they were converted in £s at the new rate of exchange
and in fact realised £126,971 14s. 11d., nearly £55,000 more than the insurer had paid for the
total loss. The assured accounted to the insurer for the sums received on the basis that it was
entitled to retain all moneys in excess of the £72,000 paid to it under the policies. On a claim
by the insurer based, inter alia, on section 79 (1) of the Marine Insurance Act, 1906 , 1 to
recover the full amount received by the assured:- Held:

(1) that (subject to the Act of 1906) a term was to be implied in marine or fire policies that
the assured should not recover from the insurer an amount greater than the loss which he had
sustained; but if the assured recovered from a third party a sum in excess of that loss the
insurer's rights were limited to recovering from the assured any sum paid by the insurer to the
assured.

(2) That the word "subrogated" in section 79 (1) of the Act of 1906 referred to such implied
terms; and the second part of the subsection meant that the insurer, as against the assured,
was entitled to the benefit of his rights and remedies against third parties to the extent of his
(the insurer's) rights under such implied terms.

(3) That, accordingly, the insurer could not recover under the doctrine of subrogation as
embodied in section 79 anything more than he had paid, and the plaintiff insurer was entitled
to be repaid £72,000 and no more.

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ANDAGRO UNITED SERVICES LTD. VS. UNITED INDIA INSURANCE CO.
LTD. AND ORS.
The imported goods were destroyed by a cyclone and thereby the complainant sought the
insurance claim from OP 2. The complainant meanwhile took claim for the damaged goods
from the marine insurer who considered the claim as “double insurance and paid 50 % of the
policy. The remaining balance of the loss was to be claimed from OP1. The Complainant had
earlier made the claim from OP2 and on insistence of OP 1 and 2 had given an undertaking
not to claim from marine insurer. The OP 1 had also not fully disclosed the terms of
insurance to the Complainant.

The dispute centred on the insurance claim. The complainant sought claim from OP1 and
OP2 which they refused to settle. Thereafter, the matter came to the Commission. The
Opposite Parties OP 1 and OP2 contended that the complainant was not a “consumer” and
hence the complaint was not complaint within the meaning of the Act. The opposite parties
also contended that the insurance policy was a fire policy and the contract was between the
OP 1 and OP2 and the complainant was a stranger to the contract and could not claim from
OP1. They also contended that though the goods were same but the subject matter of two
policies was different. They also relied on clause 4 of the policy that excluded their liability
in case of 2 insurance policies. OP 2 also contended that goods were destroyed by Act of god
and even if he was the bailee of the goods there was no deficiency of services.

The Commission headed by Presiding Officer Justice J.M Malik rejected the contentions of
the OP 1 and OP 2 and held that the Complainant was in fact a “consumer”. The commission
observed that OP 2 obtained the policy from OP1 for the complainant and for others whose
goods were stored in the warehouse and the complainant paid the premium for the insurance
cover to OP 2 clearly indicating that the Complainant was a consumer.

The Commission also observed that the doctrine of privity of contract stood established
between the Complainant and OP1 due to the agreement entered into between OP1 and OP 2
and thereby OP 1 is jointly and severally liable with OP 2 to the complainant. The
Commission also observed that receipts and letters issued by OP2 to Clearing and
Forwarding Agents declaring that Complainant goods insured with OP 1 were kept by it also
indicates existence of privity of contract between the complainant and the OP 1. The
Commission also observed that the suppression of relevant provisions of insurance policy, the
missing representation and the admitted non-payment of the claim thus constituted deficiency
in service on the part of OP1.

The commission also held that the "Doctrine of Contribution" is applicable to the case and
OP1 was liable to pay to complainant the balance of the claim. The commission observed that
the entire policy is required to be read holistically and the Opposite party cannot rely on the
provision that favours it and is detriment to the complainant and thereby ignore the other
provision. The Commission observed that clauses 11 and 3 of the insurance policy provides
for contribution and as well as rate able proportion of loss and provides that it shall cover risk

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of cyclone respectively and thereby the said clauses shall prevail over the clause 4 that
excludes opposite party liability.

The commission also observed that the complainant had acted in best interest of the OP to
have sought insurance from the marine insurer and it was aimed to reduce the burden on OP
1. The Commission observed that under insurance law, the assured has the right to persuade
both the insurers on the basis of equity because it has paid the premium to two insurers and
thereby the two insurers must share the burden equally. The Commission held that the
complainants are bound to claim in law, the rateable interest from both the policies.

The commission thus held in favour of the complainant and held that OP 1 was liable to pay
the remaining balance of the loss that is 50 % of the loss with interest from the date of filing
of complaint to the complainant.

SUICIDE CLAUSE

BERESFORD V. ROYAL INSURANCE CO.

The forfeiture rule was to be applied in a case involving suicide. An insured may not recover
under a policy of insurance in respect of loss intentionally caused by his own criminal or
tortious act, however clearly the wording of the policy may suggest otherwise, and his
personal representative is in no better position: ‘On ordinary principles of insurance law an
assured cannot by his own deliberate act cause the event upon which the insurance money is
payable. The insurers have not agreed to pay on that happening. The fire assured cannot
recover if he intentionally burns down his house, nor a marine assured if he scuttles his ship,
nor the life assured if he deliberately ends his own life. This is not the result of public policy,
but of the correct construction of the contract.’ and ‘But apart from these considerations the
absolute rule is that the courts will not recognise a benefit accruing to a criminal from his
crime.’ As to the position of a personal representative: ‘I cannot think the principle of public
policy to be so narrow as not to include the increase of the criminal’s estate amongst the
benefits which he is deprived of by his crime. His executor or administrator claims as his
representative, and, as his representative, falls under the same ban.’ The ban would not affect
an assignee for value before the event apparently giving rise to liability under the policy.

Decision/Outcome : The House of Lords held that on true construction of the contract the
insurance company had promised to pay the amount assured if Major Rowlandson
intentionally killed himself while sane. However, they then look at whether the contract was

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enforceable in law. It was established at that time that suicide was a crime in English law.
The court referred to cases such as Crippen’s Case [1911] P 108 in which it was held that the
estate of a man who murdered his wife could not benefit from his crime. Lord Atkin said (at
599):

“I think that the principle is that a man is not to be allowed to have recourse to a Court of
Justice to claim a benefit from his crime whether under a contract or a gift… to hold
otherwise would in some cases offer an inducement to crime or remove a restraint to crime”.
Therefore, their Lordships refused to allow the administratrix to claim the insurance on the
grounds of public policy even though the contract was lawful.

CANCELLATION

GENERAL ASSURANCE SOCIETY LTD. VS. CHANDUMULL JAIN & ANR.

The general principles for construing a contract of insurance was laid down by a Constitution
Bench of the Supreme Court in 'General Assurance Society Limited V. Chandmull Jain and
another' - AIR1966 SC 1644. In this case the Supreme Court held as - 'A contract of
insurance is a species of commercial transactions and there is a well established commercial
practice to send cover note even prior to the completion of a proper proposal for delivery.
Documents like the proposal, cover note and the policy are commercial documents and to
interpret them commercial habits and practice cannot be altogether be ignored…...In other
respects there is no difference between a contract of insurance and any other contract except
that in a contract of insurance there is a requirement of uberrima fides i.e., good faith on the
part of the assured and the contract is likely to be construed contra proferentem that is against
the company in case of ambiguity or doubt. A contract is formed when there is an unqualified
acceptance of the proposal. Acceptance may be expressed in writing or it may even be
implied if the insurer accepts the premium and retains it. In the case of assured, a positive act
on his part by which he recognizes or seeks to enforce the policy amounts to an affirmation of
it'. The Supreme Court further held that there are four essentials in a contract of insurance-

• The definition of the risk;

• The duration of the risk;

• The premium; and

• The amount of insurance.

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policy not only defines the risk and its duration but also lays down the special terms and
conditions under which the policy may be enforced on either side.

A cover note is a temporary and limited agreement. It may be self-contained or it may

incorporate by reference the terms and conditions of the future policy. When the cover note
incorporates the policy in this manner, it does not have to recite the term and conditions, but
merely to refer to a particular standard policy. If the proposal is for a standard policy and the
cover note refers to it, the assured is taken to have accepted the terms of that policy. The
reference to the policy and its terms and conditions may be expressed in the proposal or the
cover note or even in the letter of acceptance including the cover note. The incorporation of
the terms and conditions of the policy may also arise from a combination of references in two
or more documents passing between the parties. Documents like the proposal, cover note and
the policy are commercial documents and for interpreting them commercial habits and
practice cannot altogether be ignored. During the time the cover note operates, the relations
of the parties are governed by its terms and conditions, if any, but more usually by the terms
and conditions of the policy bargained for and to be issued. When this happens the terms of
the policy are incipient but after the period of temporary cover, the relations are governed
only by the terms and conditions of the policy unless insurance is declined in the meantime.
Delay in issuing the policy makes no difference. The relations even then are governed by the
future policy if the cover notes give sufficient indication that it would be so. In other respects
there is no difference between a contract of insurance and any other contract except that in a
contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the
assured and the contract is likely to be construed contra proferentem that is against the
company in case of ambiguity or doubt. A contract is formed when there is an unqualified
acceptance of the proposal. Acceptance may be expressed in writing or it may even be
implied if the insurer accepts the premium and retains it. In the case of the assured, a positive
act on his part by which he recognizes or seeks to enforce the policy amounts to an
affirmation of it.

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UTMOST GOOD FAITH

LIC V. SHAKUNTALA
Facts Of The Case: Jamanadas died of jaundice on 4-11-1986 who had an insurance policy
with appellants, one and half years after he died. This policy was taken on the grounds of his
personal statement that he had not suffered from any illness and had not consulted any
medical practitioner within last five years, but had once suffered from indigestion for few
days and had taken chooranam from an ayurvedic practitioner.

Arguments Raised: Learned Counsel for respondents as usually relied on Section 45 of the
Insurance Act and stated that insurer had right to repudiate a policy on the grounds that
statement made in proposal for insurance or any documents which leads to policy was
inaccurate or false.

Judgment: Court was of the view that, treating occasional headaches or a bout of indigestion
as a ‘material fact' which an insured was under an obligation to disclose would be extremely
unreasonable. No reasonable man would deem it material to tell an insurance company of all
the casual headaches he had in his life, and if he knew that it was an ordinary casual
headache, there would be no breach of his duty towards the insurance company in not
disclosing it.

The confidential report made by the medical officer of the insurance Company shows that the
appellant was in ‘first class life'. And the jaundice of which he died had nothing to do with
the undisclosed indigestion from which he suffered 18 months earlier. And the only
connection between them would be the advantage life insurance was seeking. Therefore non-
disclosure would not amount to an untrue statement and Life Insurance Company was held
not justified in repudiating the policy. And therefore his wife was entitled to the insurance
claim.

Comments: - This case puts forth the principle that the non-disclosure of ‘material facts' only
provides power to repudiate the contract by the company, but other ordinary facts which are
unconnected to the main contract entered into by the insured cannot be ignored. Here for the
same reason Company was restrained from taking such step, on the bases of facts which were
irrelevant to be disclosed (i.e. indigestion) by the insured to effect of the contract.

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SRINIVAS PILLAI V. LIC (1977)
Facts: Srinivas pillai and his wife Ranganayagi took out a joint life endowment
policyRs.25000/- Commencing on 31st dec, 1959 at pondicherry. They gave the usual
statements and joint declarations. In answer to the question in column No. 12(8) relating to
the date of last delivery. Ranganayagi stated that she had delivered a female child on 18th
May 1959, but in fact she delivered on 31 st Aug, 1959. There is a rule of LIC that not to issue
a policy to a female, when she is pregnant or within six months after delivery. After taking
the policy, the wife fell ill and was admitted in a hospital on 10 Jan 1960and died on 17 Jan
1960 the husband filed a case

LIC repudiated a claim on the ground that she delivered her last child within 6 months before
the policy and that she was also suffering from tuberculosis. LIC failed to prove that she had
TB, but the other ground was established that the insured had knowingly falsely stated the
date of her last delivery in order to obtain the policy, the court upheld the repudiation and
dismissed the claim.

The court observed that, “Contracts of insurance are based on the rocky foundation of utmost
good faith. Such good faith is not a matter of art but has to be really and sincerely appreciated
by the insured who proposes their lives for insurance with the corporation.”

RATAN LAL AND ANR V. METROPOLITAN INSURANCE COMPANY LTD

Facts Of The Case: Pyare Lal (insured) died on 19-4-1946, plaintiff in this case were his sons
(successors and heirs). On accord of his policy, it so happened that before the acceptance
could be supplemented with regular policy, the assured died on 19-4-1946. But the amount
which had been paid up by the deceased was first kept in suspense account and thereafter on
28-3-1946 was adjusted it first annual premium. Therefore it could be said that on the date of
adjustment of account, the policy was deemed to be a binding contract between the parties.

Arguments Raised: But the company contended that though deceased died after the
acceptance of policy but illness which was responsible for bringing about his death had
already set in since 23-3-1946, much within the time the policy was still under consideration
before the company. On this, plaintiff replied that the illness had set in for the first time on

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23-3-1946 and not anytime before that, and the intimation was made to the company about
the illness.

Judgment: Trial court held the company liable to pay the sum to the insured, but defendants
didn't find their way to make any payment to the plaintiffs and hence this appeal came before
the High Court. Court on the facts observed that: -

Principle of uberrima fidea would follow till the conclusion of the contract is made by the
company. And if breach occurs the contract would be voidable the instance of the party to
whom ubarrima fides is due. Great care must be taken in deciding the difference as to what
would be mere illness or what's ordinary simple disorder, and what would constitute material
change in health there's a great danger for one being take for another.

Court took a note of the case, Watson v. Mainwaring wherein it was held that disorder is not
one ‘tending to shorten life' simply from the circumstance that the assured dies from it.
Warranty of good health doesn't mean that man has not in him the seeds of some disorder.
Therefore, if in his honest judgment there was no illness or any change of health but only an
ordinary disorder, the mere non-communication of that event to the company cannot be a
ground for the insurer to avoid the policy. Therefore, the moment the proposal was accepted
by the company, the condition as to the remittance of the first installment by the assured and
the acceptance of the same by the company also automatically stood complied with, 26th
March, 1946.

He had already sent for the doctor on the previous evening, namely, on 27th March, 1946, but
on that day the complaint, if any, as stated by P.W. 2, was nothing more than exhaustion or
what we may call ordinary simple disorder otherwise had there been anything serious, the
doctor, D. N. Roy, should have undoubtedly prescribed some medicine to the patient. And
therefore the complaint was of an ordinary disorder character and not illness. If that is so then
there was no breach of warranty by Pyare Lal if he did not send any information of his illness
which began on the 28th March, 1946 and wherein the policy had already been accepted by
company. Plaintiffs were held entitled to interest at 6 per cent, per annum on the amount due
from the date of the institution of the suit until the date of realization.

Comments: -This case places a distinction between the fact of ordinary disorder and the
material change in health of the insured which could be made ground of repudiation by the
company and its important to make this distinction clear as it may lead to grave injustice to

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the insured. Ordinary disorder if doesn't lead to deterioration of health of the deceased then
would not amount to suppression of material fact.

ROHINI NANDAN V. OCEAN ACCIDENT AND GUARANTEE CORPORATION

It was held that the plaintiff is not guilty of giving false answer to anyone of the questions in
the proposal that the plaintiff was required to answer. In particular, he did not give false
answer to Q. 7(a). I find that the plaintiff never suffered any loss by fire, burglary, house-
breaking or larceny, 18. The next point to be considered is whether the plaintiff was under an
obligation to disclose the burglary of 1949 and failure to disclose the burglary amounts to
suppression of a material fact, so as to avoid the policy.

A contract of insurance is contract uberrima fides and there must be utmost good faith on the
part of the assured. This imposes a duty and an obligation on the assured to make a full
disclosure of all material facts which would affect the mind of the insurer whether to accept
the risk or not and on what terms. The duty is to disclose material facts only. A fact which is
the subject-matter of a question in the proposal which the assured is required to answer must
be considered to be a material fact, so that a false answer will vitiate the policy in terms of the
contract itself. But a fact may be a material fact, even though it is not the subjectmatter of a
question in the proposal, if the knowledge of that fact will affect the mind of an ordinary
insurer to accept the risk. If it is so, it as a material fact and non-disclosure or concealment of
such a material fact will avoid the policy, even though there is no fraud and the concealment
is innocent. The law is clear that a defence of concealment is availably to the insurer and, if
established, will avoid the policy. In order to establish its defence of concealment, the insurer
must prove:

(1) that the facts alleged to have been concealed by the assured were true;

(2) that they were material facts, and

(3) that they were within the special knowledge of the assured.

Burden of proving these three facts is on the defendant who sets up this defence. In the
instant case, it has been proved indeed admitted by the plaintiff himself, that in 1949 a
burglary was committed in the ground floor of the same premises. It has been further proved
that the plaintiff had knowledge of this burglary having been committed in 1949 when he

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submitted his proposal for insurance in June 1954. The only question to be considered is
whether this fact was a material fact which it was the plaintiff's duty to disclose.

IMPORTANT:

Whether a particular fact is material depends upon the circumstances of a particular case.
Evidence of materiality is not always necessary. Materiality of a particular fact may be
obvious from its very nature. The test to determine materiality is whether the fact has any
bearing on the risk undertaken by the insurer. If the fact has any bearing on the risk, it is a
material fact; if not it is immaterial. The short question I am called upon to answer in the
instant case therefore is whether the fact of burglary having been committed five years back
in the ground floor of the same premises has any bearing on the risk undertaken by the
insurer by insuring goods in the first floor of the same premises in 1954. Learned standing
counsel contended that it has a bearing on the risk because it indicates that the premises is
vulnerable, that the area is bad area in which burglary takes place and that the occupiers of
the premises are not careful persons. I am not impressed with this argument. I do not know
any house that is proof against burglary and it is absurd to say that a particular premises is
more vulnerable than others merely because a burglary has been committed in that place.
Again it does not follow that because the ground floor is vulnerable, each one of the upper
stories are equally vulnerable. I am equally unable to agree with the learned standing counsel
that a locality becomes a bad locality if one of the houses is burgled in that locality. It is also
absurd to contend that the occupier of the first floor is to be stigmatised as a careless person
when a burglary is committed in the ground floor of the building with which the occupier of
the first floor has no concern. The reasons given by the learned standing counsel appear to be
far fetched and fantastic. I fail to understand how the fact of burglary having been committed
in the ground floor of the premises some five years back, has any bearing on the risk of
insurance of goods in the first floor of the same premises five years after. Nor, do I consider
that this fact has any bearing on what is called "the moral hazard" in insurance. All cases of
moral hazard have reference to the person and not the place in which burglary takes place.
Not a single case has been cited in which it has been held that a previous burglary in a part of
the premises has a bearing on the risk undertaken by the insurer in effecting a burglary
insurance of goods situate in other part of the same building.

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SECTION 45

Under section 45 of the Insurance Act, 1938 in the case of life insurance a two years’ time
limit is imposed in bringing the validity of the policy into question by the insurer on the
ground of misstatements in answers to questions in the proposal form or in any report or
document leading to the issue of the policy. Section 45 says that after the expiry of two years
from the date on which it was effected no policy of life insurance 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 insurer cannot avoid the consequences of the
insurance contract by simply showing inaccuracy or falsity of the statement made in the
proposal form but has to prove under section 45 that the life insurance policy has been
obtained by means of fraudulent misrepresentation.

For avoiding the policy on the ground of fraudulent concealment under the provisions of
section 45, “it must be convincingly shown that the matter in question was knowingly
concealed.” The insurer has also to show:

(1) That such statement was on a material matter or suppressed facts which it was material to
disclose and,

(2) That it was fraudulently made by the policyholder and,

(3) 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.

INDISPUTABILITY OF POLICY
The doctrine of utmost good faith works as a great hardship for a long period on the plea of
miss-statement at the time of proposal. In such cases, it would be very difficult to prove or
disprove whether a particular statement made, at the time of policy was true. Therefore, to

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remove this hardship, certain sections in the concerned Act are provided. In India, Section 45
of the Insurance, Act 1938 deals with such dispute. It is called indisputable clause. No policy
of life insurance, after expiry of two years from the date on which it was effected, be called
into 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 policyholder
knew at the time of making it that the statement was false or that it suppressed facts which it
was material to disclose. Provided 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.

MATERIAL FACTS
Material facts are based on the legal principal of "utmost good faith," which requires a person
who is seeking insurance of any kind to disclose any and all information that could be
deemed relevant by an insurer. This information, known as material fact, may be any fact or
facts that an insurance underwriter could use to assess the level of risk associated with
insuring a particular individual. This degree of risk is what an insurer uses to determine your
coverage and your premium, or cost.

In the case of Satwant Kaur Sandhu vs New India Assurance Co. Ltd, the term “material fact”
was explained by the court to mean any fact that would influence the judgement of the insurer
in fixing the premium or determining if he would like to accept the risk or not.

UBERRIMA FIDES: DUTY OF BOTH THE PARTIES

Good faith is expected from the insured or assured as well as the insurer. It is the buyer’s
duty to disclose all facts related to the risk to be covered. Similarly, it is the insurer’s duty to
inform the insured of all the terms of the contract. However, it is generally the assured person
on whom there is a bigger duty to disclose. This is primarily because very often the insurer
has to depend upon what details the insured mentions in his form. If the insured gives wrong
details or details of goods which are actually not in existence, the insurer may end up paying
for the wrong claims in the future. The insurer faces a lot of problems trying to verify all such
details, even though the advent of technology has made the task comparatively easier

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nowadays. Wrong information given not only affects the insurer but also the other people
involved in the insurance pool whose premiums may be wrongly utilized to satisfy the
claims. It is therefore an implied condition or principle of insurance that the Assured be
required to make a full disclosure of all material particulars within his knowledge about the
risk. Further, considering the increase in new businesses in which insurance is being taken, it
becomes mandatory for the assured to inform the insurer if there are any alterations or
changes to the business which increases the risk during the validity of the policy and get his
permission. If no disclosure is made, the insurer has every right to avoid the contract.

NON-DISCLOSURE OF MATERIAL FACTS AS GROUND OF REPUDIATION

Cases wherein the insured suppresses material facts or provide false and untrue information
regarding the pre-existing disease, correct age, income and occupation and insurance policy.
In such cases, the insurer is within its rights to repudiate the claim, arising after the death of
the insured, on the ground that the insured did not disclose material facts at the time of
entering the contract. The life assured or proposer is under solemn obligation to make full,
complete, true and correct disclosure of the material facts which may be relevant for the
insurer to take into account while deciding whether the proposal should be accepted. If the
life assured or proposer failed to disclose the true and correct material facts to the insurer,
then the policy obtained by the life assured or proposer stands vitiated and the life assured or
any person claiming under the policy is not entitled for any benefits under the said policy.The
onus of proof is on the insurer to prove that the claim is repudiated on the ground of non-
disclosure or misstatement of material facts.In the absence ofdocumentary evidence, the
District Forum or State Commission will reject the repudiation of claim.

CASES

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LIFE INSURANCE CORPORATION VS ASHA GOEL
Brief facts of the case: Insurance policy was taken by the husband of the respondent and the
insured died with 1 and half year of taking of the policy and the claim was repudiated on the
ground of Non-disclosure and withholding information regarding the health of the Insured.

Writ petition was filed under Article 226 in High Court. Learned judge held that in view of
question of maintainability held that liabilities of the corporation under life insurance is
statutory liability and writ petition can lie under article 226. Corporation stated that the claim
was repudiated on the ground that deceased gave incorrect answers because he stated that his
health was good and he had no consulted a medical practitioner within last 5 years, and also
not remained absent from work on ground of health for 13 days few year back. Corporation
was not given the opportunity to lead the evidences by the single judge and there was no
enough record brought by corporation to establish conditions mentioned in the second part of
Sec. 45 of the Insurance act. 13 days leave could not be ground to draw conclusion that
deceased suffered from health ailment in 1976.

The Division bench held that the corporation should be allowed to lead evidence because it
would be useful for their contention that policy was obtained by fraud. Fresh trial started.

Issues in the case:

1. Whether the high court should entertain writ petition with disputes regarding facts and
evidences ?

The High Court should not entertain the matter regarding contractual liability. In the case of
SMT. KiranSinhaVs LIC of Patna High Court writ jurisdiction no. 1620 of 1981 ,that
Supreme Court passed an order that “High Court could not have directed payment of money
claimed under Insurance policies in question in petition under Art. 226 of constitution. The
only remedy available to the Respondent in this case was suit before a civil court. The
judgement of High court is thus set aside.

In the following case, the appeal to division bench was allowed on the ground that
corporation was not allowed to lead evidence. This was allowed by the Division Bench. So,
when corporation when starts presenting evidence will defeat the position that states that if it
becomes necessary to inquire into evidences then the proceeding should not be entertained
under Art. 226 of constitution and the matter should go to alternate forum which is civil suit

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and not writ petition under writ under High Court. The writ petition should be filed in such
cases where there is no dispute to the facts and no requirement to file evidences. Therefore
the matter should be entertained in civil suit and not in writ petition.

2. Whether the judgement of the division bench is right in cancelling the repudiating of the
claim?

The judgement of the division bench upholding the decision of single judge to pay the
claimed is supported because of the following points:

I. That the claim was repudiated on the ground Non-disclosure of medical history of the
ailment and the policy was repudiated after passing of the limitation period of 2 years. Where
Sec. 45 clearly states that claim cannot be brought in to questioning after period of 2 years
had expired from the date of issuance of the policy.

II. The defence taken under the second part of the policy cannot be supported because the
corporation has to prove that the deceased had made a false statement and such statement was
material in nature and was made fraudulently. The corporation submitted a claim form B-1
that showed that the deceased suffered from Myocardial infarction given by the patient to
Dr.Kowde.

III. The thing to note is that the claim form B-1 came into the possession of the LIC after the
claim had been repudiated. Which shows that there was a clear hurry in the minds of the
corporation to repudiate the claim. Another thing to note is that Dr.Kowde is still working in
the hospital and for unknown reasons no affidavit by doctor was filed in court

IV. The petitioner (widow) had annexed 2 documents. Firstly, medical attendant’s certificate
by Dr. P.S. Kulkarni which states that he had no heart ailment prior to the policy and
secondly, another claim form B-1 obtained by Irwin group of hospital that showed he
suffered from no heart ailment.

It is clear from the following grounds that there is no sufficient evidences to prove that he
suffered from heart ailment. So there is no question of repudiation on grounds of Non-
disclosure by fraudulent means.Taking all points in mind the repudiation of claim seems to be
done unfairly, unjustly and arbitrarily. The claim should be passed.

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2. MITHOOLAL NAYAK VS LIC
Facts in brief: Appellant (MithoolalNayak) took life insurance for sum of Rs 25000/- for life
of one Mahajan Deolal. After the death of Mahajan Deolal the claim was repudiated on the
ground of deliberate misstatement. Dr. Desai checked him and gave report that Mahajan
looked 55 as opposed to what he had claimed i.e. 45 years and suffered from Pneumonia.
Company suggested check up from 2 other doctors. He has stated his answer in negative to
the question when asked “whether he has consulted a medical practitioner for treatment in
last 5 years?”.

Respondent company claims that his answer was lie because Dr. P.N. Lakshman, Japalpur
stated he treated Mahajan suffering from diarrhoea and panting from exertion. On the other
hand Dr.Motilal, Brother of the appellant had stated in his report that Mahajan was fit and
healthy and suffered from no ailments.

After his death, certificate of Dr. Clarke, showed that Mahajan’sdeath was caused by Malaria
followed by Diarrhoea and secondary anaemia. Supreme court upheld the repudiation.

Issues in the case:

1. Whether the policy is void due to the suppression of material facts by Mahajan Deolal?

The policy is void and liable to be repudiated because the insured had given negative answers
to the question that he had never received treatment for any illness.

Dr.Lakshman had stated on record that patient was brought to him by Dr.Motilal Nayak
himself. In his report Dr.Motilal Nayak had stated that he does not remember the deceased to
have ever consulted the doctor. There is no valid reason why Dr.Motilal would forget that he
himself took insured to Dr.Lakshman few months ago.

Deceased not only did not disclose the information of getting treated by the doctor but he also
made false statement that he has not been treated by any doctor. This shows that there was
intention of supressing the material fact deliberately and policy passes to be repudiated.

2. Whether the appellant is entitled to a refund of money, paid to insurance company?

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Money was paid as premium because of the policy belonging to the company. Policy was
declared void because of suppression of facts. When the party to a contract breaches his
promise of the contract then the other party shall be discharged from the performance of his
part of the contract. The party guilty of fraud can not be entertained for the refund of money.

3. SATWANT KAUR SANDHU VS NEW INDIA ASSURANCE COMPANY

Facts in Brief: Pritam Singh was insured under Mediclaim Policy. He fell ill and was shifted
to Vijaya Heath Centre, Chennai. The claim was repudiated on the ground of non-disclosure
of previous ailment. The company furnished a certificate collected from Vijaya Heath Centre
stating deceased to be a known case of “chronic renal Failure” and “diabetes”.

District forum preferred the appeal on the ground that certificate was not supported by
evidences hence disregarded. District Forum ordered company to pay the claim. State forum
stated that the answers given by insured amounted to misrepresentation and suppression of
factsregarding his health. Held That there was no deficiency of service. NCDRC dismissed
the revision petition stating no changes in order of the State Commission. Matter went to
appeal to Supreme Court

Issues in the case:

1. Whether the mediclaim policy be repudiated on ground of misstatement and nondisclosure

of facts?

There is dispute that Section 45 places restrictions on right of insurer to call in question a life
Insurance policy on ground of misstatement and suppression of material facts. It will not be
applicable in the following case because this provision applies only to life insurance policies
and not to mediclaim policy. A mediclaim policy is a non life insurance policy. Nonetheless,
it is a contract of insurance falling under the “UBERRIMA FIDES” meaning a contract of
utmost good faith on part of the assured. Thus it needs emphasis that when an information is
asked for in a proposal form , an assured in under solemn obligation to make true and full
disclosure of the information on the subject which is within his knowledge. Of course the
obligation to disclose extends only to the facts that are known to the applicant and not to what
he ought to have known.

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2. Whether at the time of taking the Mediclaim policy, the policy holder suffering from
disease was material fact?

The term “Material fact” is not defined in the act and, therefore it has been understood and
explained by the courts in general terms to mean any fact that would influence the judgement
of insurer in fixing the premium or determining whether he would like to accept the risk. Any
fact that goes to the root of the contract of insurance and had a bearing on the risk involved
would be “Material”. It is stated in Pollock and Mulla’s Indian contract and specific relief
acts that “any fact the knowledge or ignorance of which would materially influence an insurer
in estimating the degree and character of risks in fixing the rate of premium is Material fact.
In the following case, it would be ignorant to say that the insured was not aware of his health
and the fact that he was suffering from diabetes and chronic renal failure, more so when he
was stated to be on regular haemodialysis. There is hardly any scope of doubt that the
questions asked in the proposal form were material facts the answer to which would have
influenced the insurer.

It is clear that wrong answer given about the health issues was clearcut suppression of
material facts and therefore the insurance company was justified to repudiate the claim.

EAST AND WEST LIFE INSURANCE CO. LTD V. KOLLA VENKIAH (1944)
In connection with reinstating an insurance policy which had lapsed, an application form
printed throughout in English was signed in Telugu by the insured person who could not read
or write English. In the declarations which were filled up in English by the agent of the
Insurance Company, it was stated that the insured had no sickness, ailment, or injury
whatever and that he had not been attended upon, nor prescribed for, by any physician during
the period covered by the declaration. It was proved that he had undergone a five weeks'
course of treatment for arsenic dermatitis as an inpatient in a hospital during that period.

Held: (i) The insured person must be held responsible for the untrue statements in the
application form as the duty of making himself acquainted with the contents of what he was
signing lay upon the insured person himself.

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(ii) The Company was not liable to pay the sum due on the life policy as the declarations of
the insured regarding his health were untrue and the complaint for which the treatment was
undergone could not be said to be of a trivial nature

MAJOR BAS CHOPRA V. NEW ZEALAND INSURANCE CO.

Rowe acquired the knowledge, in course of his duty and not in fraud of the interest of the
defendant company, which was to earn higher premium as a result of what he did. I,
therefore, do not make much of this branch of the argument of Mr. Majumder. Thus, I hold
that the plaintiff had misrepresented the purchase price of the car, in the proposal, but that
was done under circumstances in which Rowe had a part, as already discussed. Thus, the
defendant company is not entitled to repudiate liability, for reasons already stated.

where the assured insured his car giving higher value on the advice of an Officer of the
insurance, as it was held that insurer cannot plead misrepresentation by the insured as
knowledge of the Officer is imputed to the insurer.

RELIANCE LIFE INSURANCE V. REKHABEN NARESHBHAI RATHOD

n 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

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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.

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