Life Insurance
kirtirani sole
(Querist) 04 April 2010
This query is : Resolved
Dear Sir/Madam
can anybody pls provide me judgment-
P.C.Chako & Anr.v. Chairman of LIC of India & ors. decided by S.C. on 20-11-2007.
Regards.
Parthasarathi Loganathan
(Expert) 04 April 2010
Copy of the said Judgement is given below:
CASE NO.:
Appeal (civil) 5322 of 2007
PETITIONER:
P.C. Chacko and another
RESPONDENT:
Chairman, Life Insurance Corporation of India and others
DATE OF JUDGMENT: 20/11/2007
BENCH:
S.B. SINHA & HARJIT SINGH BEDI
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) No. 23951 of 2005)
S.B SINHA, J.
1. Leave granted.
2. Application of Section 45 of the Insurance Act, 1938 is in question in
this appeal which arises out of a judgment and order dated 17th December,
2004 passed by a Division Bench of the High Court of Kerala at Ernakulam
in A.F.A. No. 18 of 2000 setting aside the judgment and order of a learned
Single Judge dated 23rd September, 2000 passed in Appeal Suit No.633 of
1993 confirming the judgment and decree passed by the Subordinate Judge
of Kozhikode in OS No. 240 of 1990 dated 27th February, 1993.
3. Plaintiffs in the suit are the appellants herein. They filed the said suit
inter alia for recovery of the amount of insurance on the death of one
Chackochan (hereinafter referred to as the insured). The insured took an
insurance policy on 21st February, 1987. He died on 6th July, 1987. On his
death, the appellants herein claimed the insured amount. On the premise
that the insured suppressed material facts, the policy had been repudiated by
the respondent on 10th February, 1989. Non-disclosure and mis-statement in
the proposal form to the various questions to which answers were given by
the insured is said to be the reason for the aforementioned repudiation of the
contract of insurance.
4. It now stands admitted that the insured had undergone an operation
for Adenoma Thyroid. The particulars furnished by him while filling up the
application form for obtaining the said policy were as under :-
(a) Did you ever have any operation, accident or
injury? The answer was No. (b) Have your remained
absent from place of your work on ground of health
during the last 5 years ? To which answer was No. (c)
What has been your state of health? The answer was
good.
The fact that the said answers were incorrect is not in dispute. The
suit filed by the appellants, however, was decreed.
5. On an appeal preferred by the respondents, on the premise that despite
such wrong answers, as the injured died on account of polyneuritis, a
learned Single Judge of the High Court opined that there was nothing to
indicate that if the injured had disclosed the factum of previous operation,
the appellant-Corporation might not have inclined to insure and insisted on a
higher premium and thus there was no material to show that the non-
disclosure was of a material fact justifying repudiation of the policy by the
Corporation.
6. On an intra court appeal, the Division Bench of the High Court,
however, by reason of the impugned judgment opined that the parties are
bound by the warranty clause contained in the agreement which is also clear
from the declaration signed by the insured and the non-disclosure related to
a material fact which was required to be answered correctly under question
No.22(a).
7. Mr. R. Sathish, learned counsel appearing on behalf of the appellants
would submit that a clear finding of fact having been arrived at by the trial
court that despite undergoing Adenoma Thyroid operation four years prior to
the date of proposal of policy, the cause of insureds death being
polyneuritis which had no connection with the operation and the judgment
of the trial court having been affirmed by the learned Single Judge, should
not have been interfered with by the Division Bench. Our attention was
further drawn to the fact that the medical officer had noted a black mole on
lower aspect of left side of neck and from Ext. A1 wherefrom it appeared
that there had been no past history suggestive of allergies, injuries,
operations, diseases like rheumatic fever, syphilis etc. and the deceased
having no other complaint due to operation, the impugned judgment cannot
be sustained.
8. Life Insurance policy, it was submitted is a requirement of social
security. In that view of the matter, a suppression could not have been led to
repudiation of policy, particularly when the doctor who examined the
insured was appointed by the respondent-Corporation itself. Our attention in
this behalf has been drawn to the decision of the Madras High Court in All
India General Insurance Co. Ltd. and another vs. S.P. Maheshwari : AIR
1960 Madras 484 for the proposition that there exists a distinction between a
representation and a warranty.
9. Mr. Patwalia, learned Senior Counsel, appearing on behalf of the
respondents, on the other hand, submitted that having regard to the
provisions contained in Section 45 of the Insurance Act and the policy
having been repudiated within a period of 2 years, the impugned judgment
should not be interfered with. It was submitted that undergoing of an
operation having a direct nexus with the health of the insured, suppression
thereof has rightly been considered with all seriousness by the Corporation.
It was argued that the operation underwent by the insured being a major one,
was a material fact which ought to have been disclosed. Not only the
insured had given wrong answers to the questions, his brother himself being
a Life Insurance Corporations agent and furthermore in view of the fact that
a declaration was given by the insured that no untrue averment was made
therein, the contract of insurance was null and void and all monies which
had been paid in respect thereof would stand forfeited to the Corporation.
Learned counsel for the Corporation has placed strong reliance on Mithoolal
Nayak vs. Life Insurance Corporation of India : 1962 Suppl (2) SCR 571.
10. The basic fact of the matter is not in dispute. The insured had
undergone an operation for Adenoma Thyroid. It was a major operation.
Although the said operation was undergone by him four years prior to the
date of the proposal made by him, he did not disclose thereabout prior to
obtaining the insurance policy. We may notice that he died within six
months from the date of taking of the policy i.e. on 6th July, 1987, policy
having taken on 21st February, 1987.
11. Section 45 of the Insurance Act reads as under :-
45. - Policy not to be called in question on ground of
mis-statement after two years, -
No policy of life insurance effected before the
commencement of this Act shall after the expiry of two
years from the date of commencement of this Act and no
policy of life insurance effected after the coming into
force of this Act shall after the expiry of two years from
the date on which it was effected, 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, 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
policy-holder 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, and no policy shall be deemed to be
called in question merely because the terms of the policy
are adjusted on subsequent proof that the age of the life
insured was incorrectly stated in the proposal.
12. Section 45 postulates repudiation of such policy within a period of
two years. By reason of the aforementioned provision, a period of limitation
of two years had, thus, been specified and on the expiry thereof the policy
was not capable of being called in question, inter alia on the ground that
certain facts have been suppressed which were material to disclose or that it
was fraudulently been made by the policy holder or that the policy holder
knew at the time of making it that the statement was false. Statute,
therefore, itself provides for the limitation for valid repudiation of an
insurance policy. It takes into account the social security aspect of the
matter
13. There are three conditions for application of second part of Section
45 of the Insurance Act which 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.
[See Mithoolal Nayak (supra]
14. The insureds brother was an agent of the Life Corporation of India.
It was he, who had asked the insured to take the insurance policy. He, being
an authorized agent of the Life Insurance Corporation, presumably knew the
effect of misstatement of facts. Misstatement by itself, however, was not
material for repudiation of the policy unless the same is material in nature.
15. The insured furthermore was aware of the consequence of making a
misstatement of fact. If a person makes a wrong statement with knowledge
of consequence therefor, he would ordinarily be estopped from pleading that
even if such a fact had been disclosed, it would not have made any material
change.
16. The purpose for taking a policy of insurance is not, in our opinion,
very material. It may serve the purpose of social security but then the same
should not be obtained with a fraudulent act by the insured. Proposal can be
repudiated if a fraudulent act is discovered. The proposer must show that
his intention was bona fide. It must appear from the face of the record. In a
case of this nature it was not necessary for the insurer to establish that the
suppression was fraudulently made by the policy holder or that he must have
been aware at the time of making the statement that the same was false or
that the fact was suppressed which was material to disclose. A deliberate
wrong answer which has a great bearing on the contract of insurance, if
discovered may lead to the police being vitiated in law.
17. It is no doubt true that there exists a distinction between a
representation and a warranty. A Division Bench of the Madras High
Court in S.P. Maheshwari (supra) upon taking into consideration the history
of insurance laws in United States of America, in England and in India
stated :-
(10) One great principle of insurance law is that a
contract of insurance is based upon utmost good faith
Uberrima fides; in fact it is the fundamental basis upon
which all contracts of insurance are made. In this respect
there is no difference between one contract of insurance
and another. Whether it be life or fire or marine the
understanding is that the contract is uberrima fides and
though there may be certain circumstances from the
peculiar nature of marine insurance which require to be
disclosed, and which do not apply to other contracts of
insurance, that is rather an illustration of the application
of the principle than a distinction in principle. From the
very fact that the contract involves a risk and that it
purports to shift the risk from one party to the other, each
one is required to be absolutely innocent of every
circumstance which goes to influence the judgment of the
other while entering into the transaction.
18. While the parties entered into a contract of insurance the same shall,
subject to statutory interdict, be governed by the ordinary law of contract.
The insurer may not rely upon the disclosures made by the insured. It may
gather information from other sources. The Madras High Court, although in
our opinion, has rightly issued a note of caution to construe a
representation and warranty as a general proposition which may operate
harshly against the policy holders, itself noticed :-
(12) The principles underlying the doctrine of disclosure
and the rule of good faith oblige the proposer to answer
every question put to him with complete honesty.
Honesty implies truthfulness. But it happens that no man
can do more than say what he believes to be the truth.
19. Whether in a given case the court should take judicial notice of
practice followed in such cases or not would depend upon the facts and
circumstances of each case. If it is found that the agent himself was
interested in getting the policy executed by the Life Insurance Corporation,
such common knowledge takes a back seat.
In S.P. Maheshwari (supra), it was stated :
(27) This brings us on finally to the topics of
nondisclosure or misrepresentation which are practically
the positive and negative aspects of the same thing. The
effect of misrepresentation on the contract is precisely
the same as that of non-disclosure; it affords the
aggrieved party a ground for avoiding the contract. There
are a number of dicta and one decision to the effect that
life insurance is an exception to the general rule that
innocent misrepresentation may afford grounds for
avoiding a policy and that the misrepresentation must be
fraudulent to have this effect upon a policy of life
insurance. But in order to give the insurer grounds for
avoidance both under non-disclosure as well as
misrepresentations, both must relate only to material
information.
The said decision, therefore, is of no assistance to the appellants
herein.
20. We are not unmindful of the fact that Life Insurance Corporation
being a State within the meaning of Article 12 of the Constitution of India,
its action must be fair, just and equitable but the same would not mean that it
shall be asked to make a charity of public money, although the contract of
insurance is found to be vitiated by reason of an act of the insured. This is
not a case where the contract of insurance or a clause thereof is
unreasonable, unfair or irrational which could make the court carried the
bargaining powers of the contracting parties. It is also not the case of the
appellants that in framing the aforesaid questionnaire in the
application/proposal form, the respondents had acted unjustifiably or the
conditions imposed are unconstitutional.
21. In Life Insurance Corpn. Of India & Ors. v. Asha Goel (Smt) & Anr.
[(2001) SCC 160], whereupon reliance has been placed by Mr. Sathish, it
was held :
The contracts of insurance including the contract of life
assurance are contracts uberrima fides and every fact of
material ( sic material fact) must be disclosed, otherwise,
there is good ground for rescission of the contract. The
duty to disclose material facts continues right up to the
conclusion of the contract and also implies any material
alteration in the character of the risk which may take
place between the proposal and its acceptance. If there
are any misstatements or suppression of material facts,
the policy can be called into question. For determination
of the question whether there has been suppression of any
material facts it may be necessary to also examine
whether the suppression relates to a fact which is in the
exclusive knowledge of the person intending to take the
policy and it could not be ascertained by reasonable
enquiry by a prudent person.
It has not been shown in this case that repudiation of the contract of
insurance was not done by the respondent with extreme care and caution or
was otherwise invalid in law.
The Division Bench of the High Court has taken all the aspects of the
matter in consideration and, in our opinion arrived at a just decision.
22. Strong reliance has been placed by the learned counsel for the
appellants on Allianz Und Stuttgarter Life Insurance Bank Ltd. v. Hemanta
Kumar Das [AIR 1938 CAL 641] wherein in regard to some purported
statements made by the proposor in regard to his age was not found to be
material as would appear from the following :
It is to be borne in mind that this was an insurance by a
man who admittedly was, at any rate, at the age of over
forty-five years. He himself stated that he was fifty four.
Therefore, the transaction came within the category of
those proposals which require at the outset the furnishing
by the proponents of proof of their age. Noot Behari
Das was required to furnish proof of his age. He
produced a horoscope. The horoscope was accepted by
the company as being sufficient. Therefore, we may take
that the company issued the policy upon the footing that
they were insuring the life of a man whose age was fifty
four. This is not a case where the proposer says that his
age was fifty four and the Company merely accepted that
statement at its face value and proceeded to issue a policy
on that footing and subsequently, either shortly
afterwards or a long time afterwards, admitted the age as
stated in the policy in accordance with the provisions of
Cl.9(2) thereof. This was a case where the whole
transaction from the very beginning proceeded upon the
basis that the company had satisfied themselves that the
proposer was of the age of fifty four and then issued the
policy accordingly. In my view therefore the admission
contained in the endorsement at page 3 of the policy is of
such a character that the defendants when the policy
matured could not be heard to say that the age of the
insured was anything different from what he himself had
stated it to be in February 1934. It is not necessary that
one should apply in terms of the principle of estoppel,
because that is merely a rule of evidence. In my view,
this matter goes far deeper than that. The question of the
age of the deceased was a definite and determining factor
in the transaction from the very outset.
23. It is not a case where the company had further enquired into the
matter in regard to the question as to whether the proposor was operated
upon or not.
24. In Ratan Lal & Anr. v. Metropolitan Insurance Co. Ltd. [AIR 1959
PAT 413], a distinction was made between as to what is material and what is
not material. In regard to the disclosure of facts in that case itself, it was
opined :
The well-settled law in the field of insurance is that
contracts of insurance including the contracts of life
assurance are contracts uberrima fides and every fact of
materiality must be disclosed otherwise there is good
ground for rescission. And this duty to disclose
continues up to the conclusion of the contract and covers
any material alteration in the character of the risk which
may take place between proposal and acceptance.
25. Ratio of the said decision, therefore, instead of assisting the case of
appellants, runs counter to his contention.
26. Keeping in view the facts and circumstances of the case, we are of the
opinion that no case has been made out for our interference with the
impugned judgment. The appeal fails and is accordingly dismissed. No
costs.
