Suppression of facts by insured renders policy void

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In a recent judgment in the Reliance Life Insurance Ltd v Rekhaben Nareshbhai Rathod case, the Supreme Court dealt extensively with the disclosure obligations of the insured and held that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered a breach of the duty of good faith and will render the policy voidable by the insurer.

In the case, the insurance company (the appellant) issued a life insurance policy to the husband of the respondent in 2009 based on the disclosures contained in the proposal form. After the death of the policyholder in 2010, the respondent, the nominee under the policy, submitted a claim of 1 million (US$14300) in 2011 along with medical certificates stating that the deceased suffered a sudden chest pain prior to his death.

During the investigation, in response to the appellant’s email, Max New York Life Insurance informed it that the deceased had been insured with them for a sum of 1.1 million and that the claim had been settled. Thus, the appellant, Reliance Life Insurance, repudiated the claim of the respondent on grounds of misrepresentation and omitting the answer to the question relating to the details of life insurance policies held by the person.

When the repudiation was challenged, the question before the district consumer forum was whether the life insurer was correct in repudiating the contract on the grounds that the insured suppressed material information that he had obtained life insurance just two months prior to obtaining insurance from the appellant. The district consumer forum dismissed the complaint on grounds of non-disclosure. However, the appeal filed by the nominee was allowed by the state commission and affirmed by the national commission in 2015 on the basis that “the omission of the insured to disclose a previous policy of insurance would not influence the mind of a prudent insurer”.

The Supreme Court referred to a number of earlier Indian and UK decisions in coming to its decision and held that proposal forms are a significant part of the disclosure procedure and warrant the accuracy of statements. Utmost care must be exercised in completing the proposal form. In a proposal form, the applicant declares that the information provided is true. The court was unimpressed with the respondent’s submission that the insured had been unaware of the contents of the proposal form or the assignment of the response to a third party, holding that “the proposer duly appended his signature to the proposal form and the grant of the insurance cover was on the basis of the statements contained in the proposal form”.

The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at [email protected]. Readers should not act on the basis of this information without seeking professional legal advice.