Insurance Contracts Are Based On Principle Of 'Utmost Good Faith', Insured Under Obligation To Disclose All Material Facts In Proposal Form: NCDRC

The bench held that insurance contracts are based on the principle of ubberima fidei, or 'utmost good faith'. This puts an obligation on the policyholder to disclose all material facts known to him at the time of availing the policy.

Brief Facts:

The Complainant's late husband had availed two policies from Aviva Life Insurance Co. (“Insurance Company”) for Rs. 2,07,297/- and Rs. 75,00,000/- respectively. The Complainant was made a nominee for both policies. One day, the husband died in his sleep and was declared dead by Chandulal Chandrakar Hospital. An FIR was registered in the local police station. The postmortem did not indicate any specific cause of death. However, the police referred the examination to the State Forensic Test Laboratory, Raipur. The laboratory determined that there was a presence of alcohol in the deceased's bloodstream.

Subsequently, the Complainant filed a claim with the Insurance Company. It was repudiated based on the findings of the surveyor company which stated that the claim was filed within 2 years of the commencement of the policies. Further, the deceased husband failed to disclose that he had a history of criminal charges concerning murder and had received surgical treatment earlier for bone fracture or alcohol. As per the Insurance Company, this willful suppression of facts violated the principle of 'ubberima fidei', meaning utmost good faith.

Feeling aggrieved, the Complainant filed a consumer complaint in the State Consumer Disputes Redressal Commission, Chhattisgarh (“State Commission”). The State Commission dismissed the complaint. Thereafter, the Complainant filed a first appeal before the National Consumer Disputes Redressal Commission (“NCDRC”).

Contentions of the Complainant:

The Complainant/Appellant argued that the postmortem and the report of the Forensic Science Laboratory did not conclusively establish the cause of death or any presence of poison, thus disputing the grounds for repudiation of the claim. She contested the State Commission's acceptance of the Insurance Company's argument regarding the criminal case against her husband, asserting it was unrelated to the cause of death.

Observations by the NCDRC:

The NCDRC referred to PC Chacko & Anr. vs Chairman, LIC of India & Ors. [C.A. No. 5322 of 2007], where the Supreme Court held that an insurance contract is a contract of utmost good faith. Similar findings were reached in the case of Satwant Kaur Sandhu vs New India Assurance Co. Ltd. [C.A. No. 2776 of 2002].

The NCDRC further observed that it was established that the deceased husband was facing criminal charges for murder. He was also a known alcoholic and had been previously hospitalized for a leg fracture. However, he failed to disclose these facts in the proposal form. The Complainant did not even deny the aforementioned facts. Her primary contention was that the reasons for repudiation were unrelated to the cause of death.

The NCDRC rejected her contentions and held that the deceased husband was under an obligation to disclose all material facts in the proposal form. The NCDRC deemed it immaterial whether the cause of death was related or not related to the facts not disclosed.

Conclusively, the NCDRC upheld the State Commission's decision and dismissed the appeal. It affirmed that the Insurance Company was justified in repudiating the claim due to the deceased husband's non-disclosure of material facts, as required by the insurance contract.

Case Title: Shalini Srivastava vs Aviva Life Insurance Co. Ltd. and Anr.

Case No.: First Appeal No. 1295 of 2014

Advocate for the Appellant: Mr Azim H Laskar and Mr Bikas Kargupta

Advocate for the Respondents: Mr Joydip Bhattacharya