P.C. Chacko v. Chairman, Life Insurance Corporation Of India
Honourable Judges/Coram
S.B. Sinha, Harjit Singh Bedi
“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.”
Introduction
The nature of insurance contract is that it works on the principle of necessary ‘material disclosure.’ The term material disclosure differs from case to case however it can be understood as something very basic for existence of any contract i.e. certain facts which are prerequisite for forming the consensus ad idem and in case they are not disclosed or put in open would give either party excuse to rescind from the contract as these facts were necessarily in the mind of another party while making up and signing of the insurance contract.
Section 45 of the Insurance Act 1938 reads:
“ 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 calf two years from the date on which it was effected be called in question by an insurer on the ground that statement made in the proposal 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.”
The Insurance Act of 1938 is the principle act governing the operation of life insurance business in India. Enacted in 1938, the Insurance Act was enacted to regulate and promote the operation of Insurance business in India. Section 45 of the insurance Act states when a policy should not be called in question on ground of mis-statement after 2 years. This section has been interpreted overtime giving effect that the insurance policy cannot be called in question even after the insured had stated wrong facts before the insurance company for entering into insurance contract unless proven that the wrong facts stated by the insured before the court of law is proven by the insurer to be material facts or statements suppressed by the insured and the insured knew that he was bound to disclose those material facts.
The main ingredients of this section are (i) No policy of insurance could be called in question after two years of its commencement on ground of mis-statement (ii) Policy only to be called in question if proved by insurer that the facts mis-stated are material facts and are knowingly suppressed (iii) The burden of proof is on the insurer to prove that the suppressed fact is a material fact which was intentionally suppressed by the policy holder.
The Insurance Act of 1938 had been heavily taken from English Marine Insurance Act, 1906 and English precedents. In this case study the analysis of section 45 of the insurance Act 1938 would be made as it was at the time of this judgement and as it stands today.
FACTS OF THE CASE
The facts of this case are that the plaintiffs have filed the appeal to claim the amount of insurance on the death of the insured Chackochan. The company is denying the claim on the grounds of non disclosure of material facts. The company is denying the claim as the insured denied before the company that he had gone through a surgery on being explicitly asked by the insurance company. He also denied that he had earlier taken leave on account of his health within last five years. The answer to this question was also conveyed in negative. In reality the insured had gone through a normal surgery of Adenoma Thyroid. This was a common surgery and going through this was denied by the insured. The insured had also taken leave on account of this surgery and he denied this. Later the insured died of polyneuritis. The brother of the insured was an Agent of the insurance company i.e. Life Insurance Corporation of India and even the brother of the insured lied on facts. The matter reached court.
PROCEDURAL DEVELOPMENT
The repudiation of claim by the insurance company was contested by the nominees of the insured. The matter was first contested before Subordinate Judge, Kozhikode. He gave decision in favour of the insurance company. The judgement was appealed and contested before the single judge of the Ernakulum High court. The single judge bench of the Ernakulum High Court decided in favour of the appellants. The respondents decided to contest against the single judge bench judgement. The respondents appealed and the dual judge bench of the Ernakulum High Court gave decision in their favour. Therefore this appeal lies before the honourable Supreme Court.
ISSUES RAISED
The learned single judge gave his decision in favour of the appellant and had opined “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” The issues raised in the present court case was that whether a fact denied by the insured can be considered as intentional non disclosure of material fact if the cause of death of insured resulted from an altogether different fact then the one not disclosed and would not have affected the decision of the insurer in his course of action?
This led to question as to what constitutes material facts as per sec-45 of the Insurance Act, 1938. Does material facts means only those facts which are relevant for decision of insurer or insured while entering into insurance contract or their relevance extends to breach of trust? Can this breach of trust be discarded in cases where non disclosure does not amount is change in action? The decision on these issues were given by the court.
ARGUMENTS ADVANCED
The arguments given by the counsel for the appellants was that :
1. The cause of death of the insured was polyneuritis and not Adenoma Thyroid and therefore the Insurance company cannot rescind from the claim stating that the denial or suppression of fact was material fact as it was not directly linked with cause of death.
2. The operation of adenoma thyroid was so simple that except a black mole even the doctors of the insurance company were not able to find anything. “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.”
The side of the respondents was represented by leading advocate Mr. Patwalia. He argued that:
1. The operation taken by the insured was a major operation concerning his health and thus the insurance company was correct in seeking information regarding this operation. He said that as per sec-45 of the Insurance Act the information regarding operation of Adenoma thyroid undergone by the insured was a material fact which was suppressed by the insured.
2. Mr. Patwalia went on to state that the brother of the deceased is a Life insurance agent of the same company and the wrong answers given by the deceased in the proposal form even after his brother being a life Insurance agent establishes that the insured knowingly suppressed the material facts with regard to his operation. Thus the contract of insurance stood “null and void and all monies which had been paid in respect thereof would stand forfeited to the Corporation.”
JUDGEMENT DELIVERED
The Honourable Supreme Court in this case looked at the issue in question and gave decision in favour of the respondents citing judicial precedents and doing interpretation of Section 45 of the Insurance Act, 1938. The court in the present case stated that section-45 could be applied if the ingredients of second part of section -45 are fulfilled i.e. the facts suppressed must be material facts, the suppression is fraudulent and the insured had suppressed the facts knowing their nature and effect of non-disclosure. The honourable Supreme Court stated that the reason for its decision was that the insured brother was an authorised agent of Life Insurance Corporation of India and thus it cannot be disputed that the insured was fully aware of the effect of mis-statement and non-disclosure. The court stated that mis-statement itself is not material per-se for repudiation of policy unless the mis-statement is material in nature. As the insured was fully aware of the consequence of his mis-statement and non-disclosure therefore the principles of equity are not attracted in the present case:
“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.”
The court held that taking of Insurance policy is part of social security yet the concept of social security cannot be allowed to be a shield sheltering or nurturing fraudulent act of the insured. The court said that the insurance policy can be repudiated if the fraudulent act can be discovered. In the words of the court:
“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.”
Thus the court said that the policy can even be repudiated if wrong answer has been given in the questions asked in the proposal form even if the insured was not knowingly giving the wrong answers or was not aware of the consequences thereto. The court went further and deliberated upon the nature of Insurance contract and stated that the contract of insurance is contract of uberremafidie or contract of utmost good faith and thus the non-disclosure of the information amounts to breach of trust.
CASE LAWS DISCUSSED
The present case is remarkable in the respect that in this case the Supreme Court discussed primarily three cases over and above the cases referred by the conflicting parties. The conflicting parties presented two main cases before the court. The appellants put forward the case of All India General Insurance Co. Ltd. and another vs. S.P. Maheshwari in which it was stated that life insurance is part of social security and suppression of facts cannot be allowed as ground for repudiation of contract when the doctors of the insurance company had inspected the insured.
The respondents relied upon the leading case of Mithoolal Nayak vs. Life Insurance Corporation of India. In this case the court had stated that continuation of insurance policy for two years disallows the insurer to raise question on the legitimacy of the insurance policy except if conditions mentioned under part II of the policy are fulfilled i.e. the facts suppressed were material to the life insurance contract and were suppressed knowingly. In the present case the brother of the accused was a life insurance agent and was thus the insured was taken to have suppressed the facts knowingly thus provisions of sec-45 attract as mentioned in this case.
The Honourable Justices took into account the case of S.P.Maheshwari and stated that in this case the court mentioned mis-statement as being equivalent to non disclosure and it allows the aggrieved party to rescind from the contract. In the eyes of the court the present case talks about the provision in section-45 of the insurance act where the act safeguard the interest of the innocent consumers who may have mis-stated a material fact without knowing its consequences or were unaware of the consequences of mis-statement. The court stated that the present case is of no use to the appellants as they were fully aware of consequences of this act and thus the effect of non-disclosure as stated in this case would not be attracted in the present case.
The court further stated about the leading case of In Life Insurance Corpn. Of India & Ors. v. Asha Goel (Smt) & Anr wherein the court itself stated that:
“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.”
The court stated that the repudiation of insurance in the present matter was done in compliance of law and with great care and caution and thus it is right on part of the division bench to arrive at the present judgement.
The appellants relied on the judgement given in Allianz and Stuttgarter Life Insurance Bank Ltd. v. Hemanta Kumar Das. The court stated that this judgment cannot be attracted in the present case as it Hemant Kumar there was fault from the side of the insurance company while in the present case the company took proper care and caution and is repudiating the contract in safeguarding its rights. The court said that in Hemant Kumar the company had not enquired deeper into the age while in the present case the company has enquired about the surgery.
The court then discussed about Ratan Lal & Anr. v. Metropolitan Insurance Co. Ltd. and stated that in this case a distinction was made between facts which would constitute as material and facts which would not constitute as material. In the present case 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.”
Thus the court stated that the present case goes against the point of the appellants rather than supporting it.
Conclusion
The case has established itself as one of the leading cases regarding operation and understanding of Insurance law in this nation. The case of P.C. Chacko v. Chairman, Life Insurance Corporation would not hold good with the Insurance Amendment Act of 2015 in which the time period for raising question on the insurance policy has been raised to three years and as per Sec-45(4) the burden of proof has been shifted on the insurer to show that in case there was not mis-statement, the insurer would not have entered into the insurance contract. The case is decided keeping in mind the principles of Marine Insurance Act,1963 and especially the provisions for disclosure of material facts under the Act. The case envisages upon the rights and duties of parties regarding non-disclosure or mis-statement of material facts. It establishes the law of the land with a balanced approach towards public interest and individual interest. It also touches upon the right of individual against the state yet states the responsibilities of Life Insurance Corporation and the public money involved in this Company. The case answers the important questions raised therein and thus establishes that the principle of equity demands the insured to state the truth rather than misrepresenting the facts. It also establishes that knowledge is pre-imminent in deciding the grant of claim as per sec-45 of the Insurance Act, 1938.