CASE ANALYSIS

ON
Reliance Life Insurance Co Ltd v. Rekhaben Nareshnhai Rathod

M.ARUN PRAKASH(BA0160010)

Facts of the case:

The insurer petitioner in the case is Reliance Life Insurance Co Ltd and the insured
respondent is Rekhaben Nareshbhai Rathod. The deceased spouse of the respondent
had an existing policy of life insurance which he had taken on 10 July 2009. But the
respondent answered in negative in the item 17 of the proposal for the policy of life
insurance that he had submitted the proposal for. The question in which he had
answered in negative when the insurer had required a disclosure and which is
pertinent to this case was the details of other insurance covers held by him to which
the proposer had indicated NA or a not applicable response. The spouse of the
respondent died on 8 Feb 2010. The respondent then after fifteen months of the death
of her husband had submitted a claim for ten lakhs under the terms of the policy. The
appellant company repudiated the claim based on the information received from max
New York Life Insurance Co Ltd regarding the policy of life insurance. It stated that
suppression of material fact, omission to answer item no 17 under Insurance Act 1938
were held to be reasons to repudiate the claim. In pursuant to which the repondent had
issued a notice alleging deficiency in service and consequently approached the
District Consumer Dispute Redressal Forum which had dismised the complaint inter
alia. The case then took its course with the claim of the policy sustained by the State
Consumer Dispute Redressal Commission(SCDRC) and then upheld by the National
Consumer Dispute Redressal Commission(NCDRC).
This case in the Supreme Court was in challenge to that aforementioned decision of
the NCDRC.

The submissions for both the appellant and respondent revolved around the
following issues.

Nature of information:
That to omit to disclose the previously held policies donot influence the mind of the
prudent insurer as held in Sahara India Life Insurance Company Limited v Rayani
Ramanjaneyulu and had also been affirmed by the NCDRC. And that it is not required
of the insurer to establish that the “non-disclosure, suppression or falsity” of response
by the proposer is material because as held in Satwant Kaur Sandhu v New India
Assurance Co Ltd the insurer decides whether or not the information sought in the
proposal form is material. Decisions of the NCDRC had been reiterated which
rejected the argument that suppression of previous policies not material, whatever the
reason be especially before the expiry of two years from the effective date of the
policy.

Repudiation of the claim:

That the insurer can repudiate the claim under the policy as per the Sections 17 and 19
of the Contract Act 1872 as held by Mithoolal Nayak v LIC if and when the
information sought in the proposal “is not disclosed, is suppressed or if a false
answer” is provided by the proposer of the policy. 1 And that Section 45 of the
Insurance Act 1938 which in modification to the common law principle had provided
that such repudiation of claims could be done only within two years from the date
from which the policy had come to effect to escape the burden of proof to prove the
materiality of the informations sought in the proposal form. The section did not apply
to the repudiation of claims within two years as held in Sheoshankar Ratanlalji
Khamele v Life Insurance Corporation of India.

The Court also prefaced its judgement addressing the two issues mentioned
above which is articluted in the following.

Nature of the disclosure made by the insured and the grounds for repudiation:

The non-disclosure of the earlier policy of life insurance by the insured is evident
from the facts of the case. As per Section 45 the policy should not be called in
question without satisfying the conditions that the statement, as required by the
insurer is material in nature, and had been suppressed by the insured and that it is
fraudulently made and that the policy holder knew about the falsity of the statements
made. The restriction on the right to repudiate of the insurer as per this provision does
not apply to this case because the appellant had repudiated the claim within two years
from the effective date of the policy. The date from which the two year period be
decided is upheld as the date when the policy was effected and not from the date of
revival of the policy as held in Mithoolal Nayak v LIC.

The disclosures made by the insured is governed by doctrine of uberrima fidei. The
proposal form is a warranty that declares the truthfulness of the information.
According to the case Condogianis v Guardian Assurance Company Ltd the
information in the proposal form is one of express warranty and the untrue nature of
the information is independent of whether or not it “arose inadvertantly and without
any kind of fraud”, the warranty nevertheless withstands also that the materiality of
the untrue information donot have any effect. The scope of this case is that the
repudiation was done within two years and the question left unanswered in Mithoolal
is answered in this judgement. Regarding the question whether or not there had been a
suppression of any material facts, it should be determined that the suppression is of
facts exclusively in the knowledge of the person intending to get the policy and such
that a reasonable enquiry by a prudent person cannot ascertain those. This reasoning is
articulated from the Life Insurance Corpn of India v Asha Goel.

Material facts are ones bearing the risks of the insurance policy and if it influences the
insurer in “fixing the premium or determining whether he would like to accept the
risk”. In cases which is not governed by Section 45, this Court applies the
fundamental tenet of utmost good faith. In the Indian insurance law regime The
Insurance Regulatory and Development Authority of India had issued Insurance
Regulatory and Development Authority (Protection of Policyholders Interests)
Regulations 2002 which dealt with the issues pertaining to this case. The apex court
interprets the provision 2(d) which deals with the definition of the term “proposal
form”, explaining that “all important, essential and relevant information” essential to
ascertain the risk covered by the insurer shall be material. Finally, the argument of the
1
(2014) CPJ 582
respondent that the signatures of the assured on the form were taken without
explaining the details was not accepted by the Court because the insured adopts the
answers in the proposal form as his own by signing it whether or not he reads or
understands it.
So the contract of insurance is based on good faith between the insurer and the
insured for ascertaining the risk and evaluating the policy and any facts or information
that inhibits the insurer from performing it efficiently in the interests of the insurance
bussiness is material. Certain informations and facts are best known to the insured and
it is his duty to disclose those without suppressing them. The disclosures of the
insured under the contract is considered as an express warranty and the untrue nature
of it and its causes whether or not it is fradulent is immaterial. This is how a contract
of insurance be construed when it is interpreted .

Conclusion:

The Supreme Court while upholding the judegement of the DCRDF has articulated
clearly the common law principles of uberrima fidei in contract of insurance, duty of
the insurer and the insured based on good faith and the statutory provision under
Insurance Act, 1938. This case has answered the question of repudiation of claim
within the two year limit which was left unanswered in the previous judgements of the
Court. The conflict between the date of effect and the date of renewal in
determination of the two year time period for the applicability of Section 45 of the
Act was conclusively ascertained. This judgement has made clear the rights of both
the insurer and the insured when it involves repudiation of claim under the policy.
The Court has also provided defintions articulated from various sources to important
terms such as “material facts”, “suppression of material facts”, “materiality of
untruth” etc which all goes down as the basics principles in the law of insurance.