Insurance Contracts Are Special Contracts Based On Principle Of Full Disclosure: NCDRC

Brief Facts of the Case

The complainant's uncle took three insurance policies from Life Corporation India/ insurer, of which the complainant was the nominee. After the uncle's death, claims were filed for all three policies. The insurance company paid the claims for the first and second policies but rejected the claim for the third policy, citing the insured's failure to disclose the second policy in the proposal form for the third policy. Consequently, the complainant filed a complaint with the District Forum. The District Forum dismissed the complaint, and the complainant appealed to the State Commission. The State Commission dismissed the complaint, following which the complainant approached the National Commission with a revision petition.

Contentions of the Insurer

The insurer argued that the third policy was rightfully repudiated due to the non-disclosure of the second policy, which was material information. The insurer asserted that had they been informed about the second policy, a thorough investigation would have been conducted before issuing the third policy. The insurer maintained that the policy was invalid due to the false information provided and pointed out that both the District Forum and the State Commission dismissed the complainant's case, supporting the decision to repudiate the policy.

Observations by the Commission

The Commission observed that, in this case, there were concurrent findings by both lower forums. The non-disclosure of details about the second policy in the proposal form for the third policy was not disputed. The Supreme Court in the Reliance Life Insurance vs. Rekha Ben Nareshbhai Rathod case observed that the failure of the insured to disclose a previously obtained policy entitled the insurer to repudiate the claim. Furthermore, in Manmohan Nanda vs. United India Assurance Company Limited and Another, the Supreme Court held that insurance contracts are special contracts based on the principle of full disclosure. The proposer must disclose all material facts about the risk involved, embodying the maxim “uberrima fides” (utmost good faith). The Commission emphasized that the materiality of a particular fact is a question of fact, dependent on whether the proposer knew or should have known the importance of the information. In this case, the non-disclosure of the second policy in the proposal form for the third policy was a material fact. If the insured had disclosed both policies correctly, it could have influenced the insurer's decision to issue the third policy.

Consequently, the commission dismissed the revision petition.

Case Title: Narendra Vs. Life Corporation of India

Case Number: R.P. No. 183/2022