Dear Friends,
As you are aware that contract of insurance is based on the doctrine of "Utmost Good Faith", which means a person applying for an insurance cover has to disclose and reveal all material information required by insurance company. Material Information means all those information on the basis of which underwriter access the risk profile of the person and decide to accept the risk and issue the insurance policy or decline the same.
In health insurance, material information relates to life, medical history, age, family members, medical history of family members, the society, place where insured lives and information of his other insurance policies if any with other insurers. In case of other insurance the nature of business, financial position of company, history of loss , insurance policy with other companies , the nature of office, premises, construction of building, the Board of directors etc.
An insurance company gather these information through proposal forms, financial statement of company , through prior insurance investigation, report of engineers , report of investigators etc. these information helps underwriters to access the risk and loss to be paid to the insured in case of damage or loss.
It is also duty of the insurer to declare all material facts related to insurance as well as terms and conditions of insurance with the insured or prospects.
DUTY TO DISCLOSE IN MEDICLAIM POLICY
A Mediclaim Policy is a non-life insurance policy meant to assure the policyholder in respect of certain expenses pertaining to injury, accidents or hospitalisation. Nonetheless , it is a contract of insurance falling in the category of contract "uberrimae fidei", meaning a contract of "Utmost Good Faith"on the part of the assured. Thus it needs, little emphasis that when an information on a specific aspect is asked for in the proposal form , an assured is under solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge.
It is not for the proposer to determine whether information sought for is material for the purpose of the policy or not. The obligation to disclose extends onl to facts which are known to the applicant and not t what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moement.
PLEASE NOTE THAT- the admittedly in response to the letter of insurance company seeking reply insured to question that he was suffering from AIDS prior to taking policy the insured submitted his reply to the office of insurance company. The perusal of this reply show that the insured instead of specifically denying that he had not been taking treatment for AIDS prior to applying for insurance , gave a vague reply that he had told about his ailment in detail to the agent without specifying the nature of the ailment. He further stated that the record of his treatment was also not furnished to the agent. This vague reply , amounts to implied admission that before obtaining the insurance policy the insured was suffering from AIDS ,which fact admittedly has been concealed in answering the questionnaire pertaining to personal history of the insured. Therefore it can be safely concluded that the insured had obtained the insurance policy by concealment of material fact and as such the insurance contract is not a valid contract.[LIC of India Vs. Brahma Singh 2015(4)CPR 62]
THE DEFINITIONS OF MATERIAL FACTS
Material facts have been statutorily defined on two occasions:
The Marine Insurance Act 1906, Section 18(2), provides: "Every circumstance is material which would influence the judgement of a prudent underwriter in fixing the premium or determining whether he will take the risk".
The Road Traffic Act 1934, Section 10(5), reads: "The expression 'material' means of such a nature as to influence the judgement of a prudent insurer in determining whether he will take the risk, and, if so, at what premium and on what conditions".
The similarity in the definitions can readily be seen and both can be traced to their parent, Lord Mansfield, in his judgement in Carter v. Boehm.65 The common factor is that the insurer or underwriter alone determines what is material.
From an underwriting point of view, material facts might be classified as first, tangible, and secondly, intangible, i.e. that group of facts which give the background to the moral character, the reputation for integrity... etc, of an insured.
Of the first group, there are innumerable cases. An omission to state that adjoining property had been damaged by fire, that the fire had been extinguished but it was feared it would break out again, should be considered as to constitute non-disclosure of a material fact.
Where a motor car is insured against fire, the structure and situation of the garage are material facts affecting the possibility of a fire breaking out and of its being extinguished. However, it may safely be said, any fact, which affects the material is considered as a material fact.
But these are not the only facts which an underwriter requires to know before he can assess the risk. It has many times been stated that what is insured is not property but the interest in property.
Thus, Jessel M R observed that: "The word 'property' as used in several of the conditions (in the policy) means not the actual chattel, but the interest of the assured therein".
Once this is accepted, the necessary corollary is that the insurance contract is a personal contract between the insurers and the insured for the payment of a sum of money. Its purpose is not to insure the safety of any particular object, but to insure the insured against loss arising out of his relationship with the subject matter of the insurance.
This issue of the personal nature of a contract brings into operation an assessment of what is known as moral hazard. Some underwriters regard moral hazard as being of greater importance than the physical hazard, and clearly there is ample scope for a wide variation of opinion. Thus, a history of previous fire or burglary losses, or a record of claims, will rightly put an underwriter on his guard. Further, the fact that a proposal for insurance was declined, or renewal refused, would be properly regarded as material. In the case of a loss of profits insurance, the fact that a proposer is trading at a loss is one which ought to be disclosed.
The Insurance Regulatory & Development Authority of India, by a Notification dated October 16, 2002 issued the Insurance Regulatory & Development Authority (Protection of Policyholders Interests) Regulations 2002.
The expression Proposal Form is defined in Regulation 2(d) thus:
2 (d) 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.
Explanation:
Material for the purpose of these regulations shall mean and include all important, essential and relevant information in the context of underwriting the risk to be covered by the insurer. Regulation 4, deals with Proposals for Insurance and is in the following terms:
Proposal for Insurance
1. Except in cases of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
2. Forms and documents used in the grant of cover may, depending upon the circumstances of each case, be made available in languages recognised under the Constitution of India.
3. In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the Act. Any proposal form seeking information for grant of life cover may prominently state therein the requirements of Section 45 of the Act.
4. Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and confirm it within a period of 15 days thereof with the proposer and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information on any matter material to the grant of a cover.
PLEASE NOTE THAT
1. Regulation 2 (d) specifically defines the expression Proposal Form as a Form which is filled by a Proposer for Insurance to furnish all material information required by the Insurer in respect of a risk. The purpose of the disclosure is to enable the Insurer to decide whether to accept or decline to undertake a risk. The disclosures are also intended to enable the Insurer, in the event that the risk is accepted, to determine the rates, terms and conditions on which a cover is to be granted.
2. The explanation defines the expression material to mean and include all important essential and relevant information for underwriting the risk to be covered by the Insurer. Regulation 4 (3) stipulates that while filling up the proposal, the Proposer is to be guided by the provisions of Section 45.
3. Where a Proposal Form is not used, the Insurer under Regulation 4 (4) is to record the information, confirming it within a stipulated period with the Proposer and ought to incorporate the information in the Cover Note or Policy.
4. In respect of information which is not so recorded, the onus of proof lies on the Insurer who claims that there was a suppression of material information or that the Insured provided misleading or false information on any matter that was material to the grant of the cover.
Branch Manager, Bajaj Allianz Insurance Company Ltd. & Ors. Vs Dalbir Kour, decided on October 09, 2020 observed that a Proposer who seeks to obtain a Policy of Life Insurance is duty bound to disclose all material facts having bearing upon the issue as to:
Whether the Insurer would consider it appropriate to assume the risk which is proposed?
FACTS OF CASE
1. Facts leading to filing of Consumer Claim On 05 August, 2014 a proposal for obtaining a Policy of Insurance was submitted to the appellants by Kulwant Singh. The Proposal Form indicated the name of the mother of the Proposer, who is the respondent to these proceedings as the nominee. The Proposal Form contained questions pertaining to the health and medical history of the Proposer and required a specific disclosure on Whether any ailment, hospitalization or treatment had been undergone by the Proposer?
2. Column 22 required a declaration of good health.
i) The proposer answered the queries in the- negative, indicating thereby that he had not undergone any medical treatment or hospitalization and was not suffering from any ailment or disease.
ii) The declaration under Item 22 (c) of the Proposal Form was in regard to: Whether any diseases or disorders of the respiratory system such as but not limited to blood in sputum, tuberculosis, asthma, infected respiratory disease or any respiratory system disease including frequent nose bleeding, fever and dyspnoea were involved?- This query was also responded to in the negative.
3. Acting on the basis of the proposal submitted by the proposer, a Policy of Insurance was issued by the appellants on August 12, 2014. Under the Policy, the life of the proposer was insured for a sum of Rs. 8. 50 lakhs payable on maturity with the death benefit of Rs. 17 lakhs.
4. On September 12, 2014, Kulwant Singh died, following which a Claim was lodged on the Insurer. The death occurred within a period of one month and seven days from the issuance of the Policy.
5. The Claim was the subject matter of an independent investigation, during the course of which, the hospital treatment records and medical certificate issued by Baba Budha Ji Charitable Hospital, Bir Sahib, Village Thatha (Tarntaran) were obtained.
6. The records revealed, according to the Insurer, that the deceased has been suffering from Hepatitis C.
7. The investigation reports indicate that proximate to the death, the deceased had been suffering from a stomach ailment and from vomiting of blood, as a result of which he had been availing of the treatment at the above hospital.
8. The Claim was repudiated on May 12, 2015 on account of the non- disclosure of material facts.
9. The Respondent instituted a Consumer Complaint before the District Consumer Disputes Redressal Forum, which allowed the Complaint and directed the appellants to pay the full death claim together with interest.
10. The first appeal was rejected by the State Consumer Disputes Redressal Commission and the revision before the National Consumer Disputes Redressal Commission has also been dismissed.
11. The NCDRC relied on the decision of Supreme Court in Sulbha Prakash Motegaonkar & Ors Vs Life Insurance Corporation of lndia (Civil Appeal No 8245/2015 decided on 5.10.2015).
According to the NCDRC, a disease has to be distinguished from a mere illness. It held that the death had occurred due to natural causes and there was no reasonable nexus between the cause of death and non-disclosure of disease. Consequently, while affirming the Judgment of the SCDRC, the NCDRC imposed costs of Rs. 2 lakhs on the appellants, of which, an amount of Rs. 1 lakh was to be paid to the Complainant and Rs. 1 lakh was to be deposited with the Consumer Legal Aid Account of the District Forum.
12. SUPREME COURT in the ultimate analysis held as under:
The medical records which have been obtained during the course of the investigation clearly indicate that the deceased was suffering from a serious pre-existing medical condition which was not disclosed to the insurer.
In fact, the deceased was hospitalized to undergo treatment for such condition in proximity to the date of his death, which was also not disclosed in spite of the specific queries relating to any ailment, hospitalization or treatment undergone by the proposer in Column 22 of the policy proposal form.
We are, therefore, of the view that the judgment of the NCDRC in the present case does not lay down the correct principle of law and would have to be set aside. We order accordingly.
In [United India Insurance Co. Ltd. Vs. M. K. J. Corporation, (1996) 6 SCC 428], Supreme Court of India held as under;
It is a fundamental principle of Insurance Law that utmost good faith must be observed by the contracting parties. Good faith forbids either party from concealing (non-disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary.
Just as the insured has a duty to disclose, similarly, it is the duty of the insurers and their agents to disclose all material facts within their Knowledge, since obligation of good faith applies to them equally with the assured.
The principles for repudiation of insurance claim were formulated by Supreme Court in [Life Insurance Corporation of India & Ors. Vs Asha Goel & Anr., (2001) 2 SCC 160]; it held as under;
"12 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 risk which may take place between the proposal and its acceptance.
If there is 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 principal laid down in Asha Goel has been reiterated in the Judgments in [P. C. Chacko Vs Chairman, Life Insurance Corporation of India, (2008) 1 SCC 321] and [Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316]. In [Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316], at the time of obtaining the Mediclaim Policy, the insured suffered from chronic diabetes and renal failure, but failed to disclose the details of these illnesses in the Policy Proposal Form.
Upholding the repudiation of liability by the Insurance Company, Supreme Court held
"25. The upshot of the entire discussion is 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. Needless to emphasise 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.
Recently Supreme Court in Reliance Life Insurance Company Limited Vs Rekhaben Nareshbai Rathod, (2019) 6 SCC 175] set aside the Judgement of the NCDRC, whereby the NCDRC had held that:
"30. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant's health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client.
Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth.
The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer. The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the parties to serve their interests better and understand the true extent of the contractual agreement.
31. The finding of a material misrepresentation or concealment in Insurance has a significant effect upon both the Insured and the Insurer in the event of a dispute. The fact it would influence the decision of a prudent Insurer in deciding as to 'Whether or not to accept a risk is a material fact?'.
As Supreme Court held in Satwant Kour Sandhu Vs New India Assurance Company Limited, (2009) 8 SCC 316- 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. Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms.
CONCEALMENT
In law of insurance is the suppression of a material fact, within the knowledge of one of the parties, which the other party has not means of knowing, or is not presumed to know. It means concealment is an act designed intentionally by one party of a contract from the other party to take undue advantage from the other party. An act of concealment is also defines as non disclosure of material facts by one party form other parties in a contract knowing that if material facts are known to all parties it may contract may affect the contract.
Concealment is define as-"where one party refuses or neglects to communicate to the other a material fact which if communicated would tend directly to prevent the other from entering into the contract or to induce or is presumed to be so to the party not disclosing, and is not known or presumed to be so to the others.
Concealment – has a reference to intention, that is , to knowledge or belief that the fact is material and should be disclosed and the terms is frequently confused with innocent non-disclosure. A failure on the part of the assured to state all the facts commonly called concealment [London Assurance Vs. Mansel(1879)11 Ch D 363]. In the strict sense of word , it implies the keeping back or suppression of something which it is duty of the assured to bring to the notice of the insurers.
Concealment is not merely an inadvertent omission to disclose it . Hence, where the failure to disclose is not due to design and the assured has jot intention to deal otherwise than frankly and fairly with the insurers, the term non-disclosure is more appropriate. There is not much difference between the concealment and non-disclosure for the purpose of avoiding a contract as regards matter which the insured is duty bound to disclose, but this difference gathers some importance when we have to consider the question of the retrun of premium.
DISCLOSURE
It means to make known, but when there is actual knowledge , such knowledge is equivalent to disclosure and in such a case the presumption would not operate.
Disclosure is the complete and full revealing of information relevant to a particular issue. In the context of insurance, it refers to each party's duty to accurately reveal pertinent information in an insurance contract. In other words, it means that neither the insurer nor the party seeking insurance should withhold critical information while making an insurance contract.
Key Points to Remember with the Duty of Disclosure
1. It is essential when applying for insurance that the information you are providing is accurate, as failure to comply could result in cancellation of the cover or no claims payments being made;
2. You are legally required to make a fair representation by disclosing all information and circumstances relevant to the risk you want coveringIt is important to read through documents provided at both renewal and when you are a new customer, thoroughly, to ensure that the information you have provided is accurate;
3. When renewing a policy, you will once again have to declare any changes to the risk or new material facts (your duty of disclosure) that have come about over the policy period. Again, failure to comply could result in cancellation of the cover or no claims payments being made, should something be uncovered that has not been declared.
In 1879, Jessel M R said that: "The first question to be decided is, what is the principle on which the court acts in setting aside contracts of assurance?
As regards the general principal I am not prepared to lay down the law as making any difference is a substance between one contract of assurance and another. Whether it is life, or fire or marine insurance, I take it good faith is required in all cases, and though there may be certain circumstances from the peculiar nature of marine insurance which requires to be disclosed and which do not apply to other contracts of insurance, that is rather, in my opinion, an illustration of the application of the principle than a distinction in principles".
Also in 1928, Scrutton L J observed that: "It has been for centuries in England the law in connection with insurance of all sorts, marine, fire, life, guarantee and every kind of policy, that as the underwriter knows nothing and the man comes to him to ask him to insure knows everything it is the duty of the assured, the man who desires to have a policy, to make a full disclosure to the underwriter without being asked of all the material circumstances, because the underwriter knows nothing and the assured knows everything. That is expressed by saying that it is a contract of the utmost good faith - uberrina fides".
As far as marine insurance is concerned, the Marine Insurance Act 1906, Section 17, provides that: "A contract of marine insurance is a contract based upon the utmost good faith and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party".
It is the duty of parties to help each other to come to a right conclusion and not to hold each other at arms length in defence of their conflicting interests.It is the duty of the assured not only to be honest and straightforward but also to make a full disclosure of all material facts. A failure to disclose, however, innocently, entitles the insurer to avoid this contract ab initio and, upon avoidance, it is deemed never to have existed.
CONCLUSION
from above discussion it is clear that a contract of insurance is based on doctrine of "Utmost Good Faith"it means all material facts are required to be disclosed by the insured as well as the insurance company. The forms used for gathering primary and material information from the proposer if "Proposal Form"as specified in PPHI Guidelines. Declarations made in the Proposal form will be incorporated in the policy document or contract of insurance. Non-disclosure or concealment of material facts from the insurance company may lead to repudiation of contract and claims. An insurer on the basis of disclosures and information in the proposal form access the risk and decide the premium or decide to issu the policy or not to the proposer.
DISCLAIMER: The above article is only for sharing information to the readers. In case of necessity do consult with insurance professionals.
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