ORIENTAL INSURANCE COMPANY LIMITED

V.
MAHENDRA CONSTRUCTION
2019 SCC OnLine SC 541
(Before Dr. D.Y Chandrachud and Hemant Gupta, J.J)

Presented By:
Anjini Ganguly
Prathik H. Kumar
 PARTIES

APPELLANT (INSURANCE COMPANY) -

ORIENTAL INSURANCE COMPANY LTD.

RESPONDENT (INSURED) - MAHENDRA

CONSTRUCTION

INSURED ITEM – HYDRAULIC EXCAVATOR

MACHINE
PREVIOUS APPELLANT
INSURER: INSURER:

NEW INDIAN ORIENTAL

ASSURANCE INSURANCE
COMPANY FACTS COMPANY

NOVEMBER 2004 OCTOBER 2006

The machine was purchased by The machine was insured with
01 the Respondent and insured by 04 the Appellant Insurance
New India Assurance Company. Company.

APRIL 2005 OCTOBER 2006

The machine was set on fire and a claim The machine caught fire at the
02 was lodged. This claim was settled by 05 work site and a claim was
New India Assurance Company. lodged.

2005-2006 2008
The claim was repudiated on the
03 The machine was under repair
until 2006.
06 grounds that there had been a
non-disclosure of material facts.
 APPELLANT'S ARGUMENTS
Non-Disclosure of the previous claim as required in
the proposal form.

(i) The date of purchase of the vehicle by the proposer;

(ii) Whether the vehicle was new or second-hand at the time of purchase;
(iii) Whether the vehicle was in a good condition and, if not, full details;
PROPOSAL
(iv) The name and address of the previous insurer;
FORM
(v) The previous policy number, together with the period of insurance;
(vi) The type of cover; and
(vii) Claims lodged during the preceding three years.

The insured had merely annexed the previous policy document but
had not disclosed the previous claim. Therefore, the insurer was
deprived of the opportunity to assess the risk profile of the machine.
 RESPONDENT'S ARGUMENTS

The Administrative Officer had been “fully satisfied” with

the proposal form.

The Respondent relied on the AO, who had filled in the

proposal form by writing ‘enclosed’ next to each of the
elements.

An Administrative Officer
(AO) verifies risks based on
the proposal form,
underwrites the risk and
even authorizes claims.
 PROCEDURAL HISTORY
SCDRC
The SCDRC accepted the fact since the AO had been fully satisfied with
previous insurance cover and claim, the current claim had to be allowed.

NCDRC
(1) The Appellant could have returned the policy since the proposal form was incomplete.

(2) Exception to Section 19 of the Indian Contract Act,1872 was applied to state that a due
diligence could have been conducted:
"If such consent was caused by misrepresentation or by silence, fraudulent within the
meaning of section 17, the contract, nevertheless, is not voidable, if the party whose
consent was so caused had the means of discovering the truth with ordinary diligence."

(3)However, the NCDRC acknowledged that since the previous claim and settlement was
not expressly disclosed, they would deduct 25% of the claim.
 SUPREME COURT
MacGillivray on Insurance Law ; LIC v. Channabasamma
A contract of Insurance is based on the doctrine of uberrima fidei.
The assured is under a solemn obligation to make a full disclosure of all the material
facts that would be relevant to the insurer while deciding to accept the proposal.

In LIC v. Asha Goel

If there are any misstatement or suppression of material facts, the policy can
be called in question [and there is a good ground for recission of the contract].

In Satwant Kaur Sandhu v. New India Assurance Company Ltd

When an information on a specific information is asked for, an assured
is under a solemn obligation to make a true and full disclosure of the
information of the subject which is within his knowledge.
 SUPREME COURT

It was only in an affidavit in 2017 that the Respondent

disclosed that a previous settlement had been paid by
New India Assurance Company.
The Respondent had the duty to disclose it. The duty
cannot be on the insurer to engage in follow-up or due
diligence.
Even if the Administrative Officer said that he was fully
satisfied with the proposal form, it is evident that the
Respondent suppressed material information.

HELD:
"SUPPRESSION GOES TO THE VERY ROOT OF THE
CONTRACT OF INSURANCE AND THUS, THE
REPUDIATION OF THE POLICY IS VALID. "
CRITICAL
ANALYSIS
RELIANCE LIFE INSURANCE V. REKHABEN RATHOD,
2019

Inspite of the specific disclosures required in item 17 of the proposal form, the
proposer suppressed the fact that he had an existing policy of insurance and
answered that question in negative.

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.

Thus, it needs little emphasis that when an information on a specific aspect is

asked for in the proposal form, an assured is under a solemn obligation to make a
true and full disclosure of the information on the subject which is within his
knowledge.
 SECTION 3, INSURANCE ACT, 2015 (UK):
THE DUTY OF FAIR PRESENTATION
(1)Before a contract of insurance is entered into, the insured must make to the insurer a fair
presentation of the risk.

(2)The duty imposed by subsection (1) is referred to in this Act as “the duty of fair
presentation”.

(3) A fair presentation of the risk is one—

(a)which makes the disclosure required by subsection (4),

(4)The disclosure required is as follows, except as provided in subsection (5)—

(a)disclosure of every material circumstance which the insured knows or ought to know, or
(b)failing that, disclosure which gives the insurer sufficient information to put a prudent
insurer on notice that it needs to make further enquiries for the purpose of revealing those
material circumstances.
FAIR PRESENTATION AND DUE DILIGENCE

Mahendra Construction had revealed that they

had a previous policy and had annexed the policy
document. However, they did not disclose if there
were any past claims.

It can be argued that the initial disclosure gave

some information to the AO which would make
the insurer cross question.
 FAIR PRESENTATION AND DUE DILIGENCE
The NCDRC also made reference to General Regulation 27 of the
Indian Motor Tariff Rules, which states that the insurer has the duty to
verify the genuineness of the information from the previous insurer.

Even if not a motor insurance, the NCDRC has relied on GR 27 and Section 19 of The
Contract Act, 1872, to hold that the insurer could have conducted a due diligence.
[Oriental Insurance Company v. Mahendra Construction 2018 SCC OnLine NCDRC 383;
United India Insurance Co. Ltd. v Jindal Poly Buttons 2017 SCC OnLine NCDRC 1089]

Similar reasoning by the NCDRC:

Since admittedly the previous insurance policy had been annexed to the proposal
submitted by the complainant, the appellant, on exercise of due diligence, could
easily have verified from New India Assurance Co. Ltd. that the complainant had
submitted a claim with it under the previous policy which it had taken from the said
insurer.
THANK
YOU