From Denial to Triumph: An Account of a Policyholder’s Resilience in the Face of an Insurance Policy
A Division Bench of Hon’ble Supreme Court comprising of Justice B.V. Nagarathna and Justice Satish Chandra Sharma passed a judgment dated February 25,2025 in the matter of Mahaveer Sharma versus Exide Life Insurance Company Ltd. & Anr. SLP (Civil) No. 2136 of 2021 wherein the Bench held that “contract of insurance is ubberima fides” and held when the policyholder has already disclosed material facts, he is entitled to get all the benefits under the policy along with an interest of 9% per annum.
The present Appeal is arising out of Order dated 28.05.2019 passed by the National Consumer Disputes Redressal Commission, New Delhi in First Appeal No. 1963 of 2018 wherein it dismissed the Appeal preferred by the present Appellant against the Order dated 27.09.2018 passed by the State Consumer Disputes Redressal Commission, Jaipur, Rajasthan.
FACTS
The father of the Appellant Mr. Ramkaran Sharma had obtained a life insurance policy on 09.06.2014 from Respondent Exide Life Insurance Co. Ltd. He died by accident on 19.08.2015. The claim for payment of benefits under the policy was submitted by Appellant which got repudiated by letter dated 03.03.2016 on the ground of material suppression by the father while applying for insurance policy.
Meaning of material suppression
The insurance contract like any other contract is a contract of utmost faith and confidence. Section 13 of Indian Contract Act lays the concept of “free consent” that is when two parties agree on the same thing in the same sense. Section 14 of Indian Contract Act lays down that consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation etc.
Explanation clause of Section 2(d) of Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002 laid down–
(d) “Proposal form” means a form which is to be filled in by the proposer for insurance, for furnishing all material information required by the insurer in respect of a risk, in order to enable the insurer to decide whether to accept or decline, to undertake the risk, and in the event of acceptance of the risk, to determine the rates, terms and conditions of a cover to be granted.
Explanation— “Material” means and includes all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer.”
Duty to Disclose
The inherent duty of disclosure was a common law duty of good faith originally founded in equity. It exists on both sides. It is the responsibility of the insurance company to provide a clear disclosure of the policy’s terms and conditions, while the insured is obligated to reveal all pertinent facts related to their case. In this case, concealing that Appellant’s father has taken life insurance policies from other insurance companies too will lead to fraud (if it is done with intent to deceive) or misrepresentation (made innocently).
In this case, while filling the proposal form, the insured had made a substantial disclosure in as much as he had disclosed that he had obtained another policy from a private insurer-Aviva for an assured sum of Rs.40 lakh (forty lakhs) which was in force.
The Respondent-insurance company decided to issue a policy to the father of the Appellant herein even though they were aware that there was another policy for a higher sum assured obtained by the insured by Aviva.
ISSUES
Whether the Appellant’s father committed material suppression and is not entitled to get the benefits under the policy?
Decision by Supreme Court
The Supreme Court ordered – “The Respondent insurance company is directed to release all benefits under the policy in question along with an interest of 9% per annum from the date the amount became due till the date of its realization to the Appellant”. This is on the basis that in the proposal form, the Appellant’s father had mentioned that he already got life insurance company from Aviva company. Despite the fact, Exide Life Insurance Company issued policy to them and therefore they are liable to provide benefits of the policy.
Conclusion
The insurance contract is a contract of utmost faith and confidence (uberrima fides). It is a contract where both the parties have a duty to disclose. After they have exercised their duties, they are eligible to rights and benefits. In this case, the Supreme Court issued the benefits to the insurer based on the clause that the insured had disclosed the fact that he already had Life Insurance Policy from another company.
Trisha Saxena
Senior Legal Associate
The Indian Lawyer & Allied Services.
Editor’s comments:
Insurance companies always try to repudiate a claim when they have to pay. This has become a standard practice with all insurance companies resulting in severe criticism from different courts including the Apex Court. Undoubtedly, the insured has the responsibility of full disclosure when taking the policy. But despite this in many cases, the insurance company fails to fulfill its contractual obligations. While at the time of sale, the agents promise several incentives, the ground reality is that most of these incentives are a mis-sale. Hence it is advisable that people going for insurance policies must read the policy terms and conditions before they pay their hard-earned money. People should also be aware that all insurance policies carry a free look period which is not generally two weeks and if the insured realizes that he or she has not been given the correct policy they can always cancel the same and take a refund.
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