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Synopsis

The Supreme Court on February 25, 2025, said an insurance is a contract uberrima fides (utmost good faith) and it is the duty of the applicant to disclose all facts which may weigh with a prudent insurer in assuming the risk proposed.

A bench of Justices B V Nagarathna and Satish Chandra Sharma said the facts are considered material to the contract of insurance, and its non-disclosure may result in the repudiation of the claim. However, the materiality of a certain fact is to be determined on a case-to-case basis.

The apex court allowed an appeal filed by Mahaveer Sharma against the National Consumer Disputes Redressal Commission's order of 2019 and Rajasthan State Commission's order of 2018 and quashed the order on repudiation of Sharma's claims on account of suppression of material facts.

The bench held the repudiation of the policy as improper as the insured had disclosed the details of the policy for the higher sum assured, even though he had failed to provide details of another policy for an insignificant amount.

According to the facts of the case, the father of the appellant, Ramkaran Sharma had obtained an insurance policy from the respondent – Exide Life Insurance Co Ltd on June 09, 2014, and unfortunately, he died in an accident on August 19, 2015.

The appellant being the son of late Ramkaran Sharma submitted a claim for payment of benefits under the policy; however, the said claim was repudiated by a letter on March 03, 2016.

The claim was repudiated on the ground that there was material suppression by the father of the appellant while applying for the insurance policy and respondents had relied upon the terms and conditions of Exide Life My Term Insurance Plan in rejecting the claim.

The appellant being aggrieved by the repudiation of the claim submitted a complaint before the State Commission and the claim was dismissed by the order of September 27, 2018, on the grounds that while submitting the proposal, the deceased insurer had disclosed only one policy taken by him from Aviva Life Insurance whereas he had concealed other insurance policies which he had taken from the Life Insurance Corporation of India and were in force at the time the insurance cover was sought.

The appellant being aggrieved by the order of the State Commission preferred an appeal before the National Commission which also dismissed his plea.

The Supreme Court examined whether there was any material suppression of fact on the part of the appellant’s father while obtaining an insurance policy or not.

It pointed out that a perusal of material on record reflected that the insured had supplied a copy of the extant policy issued by Aviva assuring a sum of Rs 40 Lakhs to the respondent-insurer at the time of filing the proposal form.

In the case at hand, the bench found the insured had made a substantial disclosure since he had disclosed that he had obtained another policy.

However, there was only a partial disclosure. But the other policies were of inconsequential sum assured amounting to Rs 2,30,000 in aggregate whereas the policy disclosed was issued by Aviva was for Rs 40 lakhs, the bench noted.

In the complaint, it was averred that the sum assured by Aviva was erroneously mentioned as Rs 4 Lakhs when it actually was Rs 40 lakhs whereas in the instant case, the sum assured was Rs 25 lakhs. A copy of the said policy was also submitted to the insurer along with the proposal form, the bench noted.

It opined the present case stood on a footing of a substantial disclosure which would be sufficient for a prudent insurer to determine the risk assumed.

"We are of the considered view that such a failure would not influence the decision of a prudent insurer to issue the policy proposed. The policy in question is not a Mediclaim policy; it is a life insurance cover and the death of the deceased has taken place on account of an accident. Accordingly, failure to mention about other policies does not amount to a material fact in relation to the policy availed and consequently, the claim could not have been repudiated by the respondent company," the bench said.

It found that in the facts of this case, the respondent-insurer decided to issue a policy to the father of the appellant even though it was aware that there was another policy for a higher sum assured which was taken by the insured from Aviva.

Thus, the court held the insurer was also aware of the fact that the insured had the capability and capacity to pay the premium for the policy obtained from Aviva and was confident that the insured had the capacity to pay the premium in respect of the policy which was issued to the insured by the respondent-insurer for a sum lesser assured being Rs 25 lakh only.

"Consequently, we find that the repudiation of the policy, in the facts and circumstances of the present case, was improper. Therefore, the appellant herein is entitled to the benefit of the policy which was issued by the respondent herein," the bench said.

Court directed the respondent insurance company to release all benefits under the policy in question along with an interest of 9% per annum from the date the amount became due till the date of its realization to the appellant.

Case Title: Mahaveer Sharma Vs Exide Life Insurance Company Limited & Anr