Suppression of Facts & Repudiation of Insurance Claim - Lawwatch : Resources for Learners

Insurance is a special contract

Insurance is essentially a contract in which the insurer gives an assurance to pay the insured amount to the insured, in return of receipt of the premium paid, in the event of unexpected death of the insured.

The material facts required by the Insurer regarding taking a decision by the insurer are collected from the insured in the insurance Proposal Form which need to be filled by the proposer of insurance.

Repudiation of insurance claim due to suppression of facts

Suppression of details regarding the illness suffered by the insurance proposer/assured, the previous treatment administered to him including hospitalization, and so on, which are raised as specific queries in the proposal form of the insurance company are material facts, and in the event of any material suppression or furnishing of false information by the proposer/assured regarding the same, the Insurance Company would be entitled to repudiate the policy, says the High Court of Kerala in Life Insurance Corporation v Rosamma Varkey.

The proposal form in insurance plays a key role

The Proposal Forms play a significant part of the disclosure procedure and warrant accuracy of statements.

The Proposal Form means a form 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.

A proposer is under a duty to disclose to the insurer all material facts as are within his knowledge but the proposer is presumed to know all the facts and circumstances concerning the proposed insurance.

The SC in Reliance Life Insurance Co. Ltd. and Ors. v. Rekhaben Nareshbhai Rathod says that there is a clear presumption that any information sought for in the Proposal Form is material for the purpose of entering into a contract of insurance.

Suppression of facts is a violation of Insurance contract

Insurance Contract falls under the category of a special contract wherein some conditions can be included.

The contract of life insurance is a contract based on utmost good faith. Therefore, all material facts need to be disclosed at the time to taking insurance policy. The concealment of any material information or providing any false or incorrect information at the time of taking the policy is a violation of the insurance contract.

Any suppression, untruth, or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith on the part of the proposer and it will render the policy voidable by the insurer.

Material suppression will lead to repudiation of claim

The proposer of an insurance is under 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.

The term material facts refer to the relevant and important facts that can form the basis of taking a decision. In life insurance, material facts influence the insurer’s decision of insuring a risk and issuing a policy. Non-disclosure of material facts can lead to cancellation of the policy.

Concealment of any material fact such as pre-existing disease, correct age, income, and occupation will entitle the insurer to deprive the insured the benefits of claims under the contract. In such cases, the insurer is well within his rights to repudiate the claim, arising after the death of the insured, if the insured did not disclose material facts when entering the contract.

If the proposer suppresses material facts to the insurer, then the policy obtained by the proposer stands vitiated and the person claiming under the policy is not entitled for any benefits under the policy.

Terms and conditions of the policy are important

An insurance policy, being a special contract is to be construed strictly based on its terms and conditions which are binding on the parties.

Therefore, violation of any of its terms and conditions by the insured will lead to discharge of the insurer from his liability to approve the claim.

Claimant has no remedy to correct the insured’s suppression

The claimant may normally not responsible for non-disclosure of or wrong rendering of information by the insured. However, the claimant has no remedy to correct the omission made by insured at the time of entering the contract.

Therefore, at the time of entering the insurance contract, the policyholder should always keep in mind the following:

Proposal form should be correctly answered
All material facts should be disclosed
Terms and conditions must be examined and followed strictly

Further, in case of any discrepancy in the proposal form, premium amount or if the features of the issued policy are different from the one explained to him, then the policyholder shall bring it to the notice of the insurer and get the discrepancy rectified, within the Free Look Period of 15 days after the issue of the policy.

Otherwise, the policy will continue to remain with the discrepancy and the policyholder cannot ask for the cancellation of the policy subsequently.

Insurer should prove repudiation of a claim

In case of repudiation of insurance, the insurer will have to prove that the claim is repudiated on the ground of non-disclosure or mis-statement of material facts. Therefore, the insurer should always keep all documentary evidence in tact prior to repudiation of any claim, so as to convince the District Consumer Commission or State Consumer Commission when the matter is brought before it.

Insured should ensure disclosure of all facts in the proposal form

Insured should disclose all the material facts to the insurer at the time of taking the insurance. Otherwise, the insurer has no liability to settle the claim when it is raised before it.

SC Guidelines in this regard

In paragraph 52 of the judgement in Manmohan Nanda v united India Assurance Co Ltd & Another, the SC consolidated some principles in this regard based on a catena of judgements.

Those guidelines are as follows:

There is a duty or obligation of disclosure by the insured regarding any material fact at the time of making the proposal. What constitutes a material fact would depend upon the nature of the insurance policy to be taken, the risk to be covered, as well as the queries that are raised in the proposal form.
What may be a material fact in a case would also depend upon the health and medical condition of the proposer.
If specific queries are made in a proposal form, then it is expected that specific answers are given by the insured who is bound by the duty to disclose all material facts.
If any query or column in a proposal form is left blank then the insurance company must ask the insured to fill it up. If in spite of any column being left blank, the insurance company accepts the premium and issues a policy, it cannot at a later stage, when a claim is made under the policy, say that there was a suppression or nondisclosure of a material fact, and seek to repudiate the claim.
The insurance company has the right to seek details regarding medical condition, if any, of the proposer by getting the proposer examined by one of its empanelled doctors. If, on the consideration of the medical report, the insurance company is satisfied about the medical condition of the proposer and that there is no risk of preexisting illness, and on such satisfaction, it has issued the policy, it cannot thereafter, contend that there was a possible preexisting illness or sickness which has led to the claim being made by the insured and for that reason repudiate the claim.
The insurer must be able to assess the likely risks that may arise from the status of health and existing disease, if any, disclosed by the insured in the proposal form before issuing the insurance policy. Once the policy has been issued after assessing the medical condition of the insured, the insurer cannot repudiate the claim by citing an existing medical condition which was disclosed by the insured in the proposal form, which condition has led to a particular risk in respect of which the claim has been made by the insured.
In other words, a prudent insurer has to gauge the possible risk that the policy would have to cover and accordingly decide to either accept the proposal form and issue a policy or decline to do so. Such an exercise is dependent on the queries made in the proposal form and the answer to the said queries given by the proposer.

SC says any failure to disclosure will lead to repudiation

In Satwant Kaur Sandhu vs New India Assurance Company Ltd, by upholding the repudiation of liability by the insurance company, the SC held that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a material fact. If the proposer has knowledge of such fact, he is obliged to disclose it particularly while answering questions in the proposal form.

The SC added that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.

Insurer would fail if suppression of fact is not proved

In Reliance Life Insurance Co. Ltd. and Ors. v Rekhaben Nareshbhai Rathod case, the insured admitted the suppression of material facts about taking of policies from other firms, by the insured. So, the court had only to decide whether the fact about previous polices qualified to be a “material fact” that was suppressed.

But in Mahakali Sujatha v The Branch Manager, future Generali India Life Insurance company Ltd & Another, the insurer failed to prove before the court that the insured had suppressed the information about the previous policies while entering into the insurance contracts, as per Section 45 of the Insurance Act, 1938 and hence the SC declared that the repudiation of the policy was without any justification.

The Section 45 of the Insurance Act, 1938 stipulates restrictions upon the insurer calling into question a policy of life insurance after the expiry of two years from the date on which it was effected.

In conclusion

Contracts of insurance are governed by the principle of utmost good faith. The duty of mutual fair dealing requires all parties to a contract to be fair and open with each other to create and maintain trust between them.

In a contract of insurance, the insured can be expected to have information of which she/he has knowledge. This would castigate on the proposer a bounden or positive duty to disclose all material facts in the proposal form of the insurance.

Further reading

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