P.C. CHACKO AND ANR. v. CHAIRMAN, LIFE INSURANCE CORPORATION OF INDIA AND ORS

Citation: [2007] 12 S.C.R. 352

Court: Supreme Court of India

Bench: S.B. SINHA, H.S. BEDI

Case summary

P.C. CHACKO AND ANR. v. CHAIRMAN, LIFE INSURANCE CORPORATION OF INDIA AND ORS.pdf

Judgment text

- P. C. CHACKO AND ANR. v. CHAIRMAN, LIFE INSURANCE CORPORATION OF INDIA AND ORS. NOVEMBER 20, 2007 [S. B. SINHA A~D HARJIT SINGH BEDI, JJ. ] Insurance Act, 1938: s. 45-Life Insurance policy-Non-disclosure and mis-statement in proposal form-Repudiation ofpolicy within two years-Legality of-HELD: A deliberate wrong answer which has a great bearing on contract of insurance, if discovered, may lead to the policy being ... vitiated in law-On facts, it has not been shown that repudiation of contract ofinsurance was not done by insurer with extreme care and caution or was otherwise invalid in law. One 'C' took an insurance policy on 21. 2. 1987. He died on - 6. 7. 1987. The claim ofhis nominees, the appellants, was not acceded to by the respondent-Corporation for non-disclosureand mis-statement in the proposal form. The insured had undergone an operation for Adenoma Thyroid. But in the proposal form in answer to the question as to whether he ever had any operation he replied 'No'.

Therefore, , . the insurer repudiated the policy on 10. 2. 1989. However, the suit filed by the appellants for recovery of the insured amount was decreed by the trialcourt and the singleJudge ofthe High Courtdeclined to interfere. But the Division Bench of the High Court allowed the appeal of the insurer holding that the non-disclosure related to a material fact which was required to be answered correctly. Aggrieved, the plaintiffs filed the instant appeal. ' . Dismissing the appeal, the Court HELD: 1. 1. An insurance policy should not be obtained with a CORPORATION OF INDIA fraudulent act bythe insured. Proposal can be repudiated ifa fraudulent act is discovered. The proposer must show that his intention was bona fide. It must appear from the face of the record. A deliberate wrong answer which has a great bearing on the contract of insurance, if discovered may lead to the policy beingvitiated in law.

Ifa person makes a wrong statement with knowledge ofconsequence thereof, he would ordinarily be estopped from pleading that even ifsuch a fact had been disclosed, it would not have made any material change. [Para 15and16] (359-A-C; 358-G-H] 1. 2. In the instantcase, the basic fact ofthe matter is not in dispute. The insured had undergone an operation for Adenoma Thyroid. Itwas a major operation. Although the said operation was undergone by him four years prior to the date of the proposal made by him, he did not disclose thereabout priorto obtainingthe insurance policy. Hediedwithin six months from the date oftaking ofthe policy. In a case ofthis nature it was not necessary for the insurer to establish that the suppression was fraudulently made by the policy holder or that he must have been aware at the time ofmaking the statement that the same was false or that the fact was suppressed which was material to disclose. [Para 10 and16] (357-B-C; 359-B-C] Mithoolal Nayak v.

Life Insurance Corporation ofIndia, (1962] Suppl. 2SCR 571 and Life Insurance Corpn. ofIndia & Ors. v. Asha Goel __,,, (Smt) & Anr. , [2001] SCC 160, relied on. All India General Insurance Co. Ltd. andAnr. v. S. P. Maheshwari, AIR (1960) Madras 484, held inapplicable. Allianz UndStuttgarter Life Insurance BankLtd. v. Hemanta Kumar Das AIR (1938) CAL 641, cited. Ratan Lal & Anr. v. Metropolitan Insurance Co. Ltd AIR (1959) -l PAT 413, referred to. 1. 3. Section 45 ofthe Insurance Act, 1938 postulates repudiation ofthe policy within a period oftwo years. The Statute, therefore, itself provides for the limitation for valid repudiation ofan insurance policy. . - It takes into account the social security aspect ofthe matter. It has not been shown in the instant case that repudiation of the contract of insurancewas notdone by the respondentwith extreme careand caution orwas otherwise invalid in law. [Para 12 and21) [358-A-C; 361-G) 1. 4.

Life Insurance Corporation being a Statewithin the meaning ofArticle 12ofthe Constitutionoflndia, its action must be fair, just and equitable. This is nota casewhere the contract ofinsurance or a clause thereofis unreasonable, unfair or irrational. It is also not the case of the appellants that in framing the questionnaire in the application/ proposalform, the respondents had acted unjustifiablyortheconditions imposed are unconstitutional. No case has been made out for interferencewith the impugnedjudgment [Para 20 and26] [360-H; 361-A-B; 363-D) CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5322 of 2007. From the final Judgment and Order dated 17. 12. 2004 ofthe High Court ofKerala at Emakulam in AF. A. No. 18 of2000. R. Sathish for the Appellants. Paramjit Singh Patwalia, S. Rajappa for the Respondents. The Judgment ofthe Court was delivered by S. B. SINHA, J. 1. Leave granted. ' - 2.

Application ofSection 45 ofthe Insurance Act, 1938 is in question in this appeal which arises out of a judgment and order dated 17th December, 2004 passed by a Division Bench ofthe High Court ofKerala at Emakulam in AF. A. No. 18 of2000 setting aside the judgment and order of a learned Single Judge dated 23rd September, 2000 passed in Appeal Suit No. 633 of 1993 confirming the judgment and decree passed t-by the Subordinate Judge ofKozhikode in OS No. 240of1990 dated 27thFebruary, 1993. 3. Plaintiffs in the suit are the appellants herein. They filed the said suit inter alia for recovery ofthe amount of insurance on the death of one Chackochan (hereinafter referred to as 'the insured'). The insured took an insurance policy on 21st February, 1987. He died on 6th July, 1987. On his death, the appellants herein claimed the insured amount. On the premise that the insured suppressed material facts, the policy had been repudiated by the respondent on 10th February, 1989.

Nondisclosure and mis-statement in the proposal form to the various questions to which answers were given by the insured is said to be the reason for the aforementioned repudiation ofthe contract ofinsurance. 4. It now stands admitted that the insured had undergone an operation for Adenoma Thyroid. The particulars furnished by him while filling up the application form for obtaining the said policy were as under:- "(a) Did you ever have any operation, accident or injury? The answer was "No". (b) Have your remained absent from place of your work on ground ofhealth during the last 5 years? To which answer was "No". (c) What has been your state of health? The answer was "good". The fact that the said answers were incorrect is not in dispute. The suit filed by the appellants, however, was decreed. 5.

On an appeal preferred by the respondents, on the premise that despite such wrong answers, as the injured died on account of "polyneuritis", a learned Single Judge ofthe High Court opined that there was nothing to indicate that if the injured had disclosed the factum of ,. __,1,,' previous operation, the appellant-Corporation might not have inclined to insure and insisted on a higher premium and thus there was no material to show that the non-disclosure was ofamaterial fact justifying repudiation ofthe policy by the Corporation. 6. On an intra court appeal, the Division Bench ofthe High Court, however, by reason ofthe impugned judgment opined that the parties are bound by the warranty clause contained in the agreement which is also . clear from the declaration signed by the insured and the non-disclosure related to a material fact which was required to be answered correctly under question No. 22(a). 7. Mr. R.

Sathish, learned counsel appearing on behalf cf the appellants would submit that a clear finding of fact having been arrived at by the trial court that despite undergoing Adenoma Thyroid operation four years prior to the date ofproposal ofpolicy, the cause of insured's death being "polyneuritis" which had no connection with the operation and the judgment of the trial court having been affirmed by the learned Single Judge, should not have been interfered with by the Division Bench. Our attention was further drawn to the fact that the medical officer had noted a black mole on lowei aspect of left side of neck and from Ext. Al wherefrom it appeared that there had been no past history suggestive of allergies, injuries, operations, diseases like rheumatic fever, syphilis etc. and the deceased having no other complaint due to operation, the impugned judgment cannot be sustained. 8. Life Insurance policy, it was submitted is a requirement of social security.

In that view ofthe matter, a suppression could not have been led to repudiation ofpolicy, particularly when the doctor who examined the insured was appointed by the respondent-Corporation itself. Our attention in this behalfhas been dra'-'11 to the decision ofthe Madras High Court in All India General Insurance Co. Ltd. and Anr. v. S. P. Maheshwari : AIR (1960) Madras 484 for the proposition that there exists a distinction between a 'representation' and a 'warranty'. 9. Mr. Patwalia, learned Senior Counsel, appearing on behalfofthe respondents, on the other hand, submitted that having regard to the provisions contained in Section 45 of the Insurance Act and the policy • · having been repudiated within a period of2 years, the impugnedjudgment should not be interfered with. It was submitted that undergoing of an operation having a direct nexus with the health ofthe insured, suppression thereofhas rightly been considered with all seriousness by the Corporation.

It was argued that the operation underwent by the insured being a major one, was a material fact which ought to have been disclosed. Not only the insured had given wrong answers to the questions, his brother himself a. · being a Life Insurance Corporation's agent and furthermore in view of the fact that a declaration was given by the insured that no untrue averment was made therein, the contract of insurance was null and void and all ' monies which had been paid in respect thereofwould stand forfeited to the Corporation. Learned counsel for the Corporation has placed strong reliance on Mithoolal Nayak v. Life Insurance Corporation ofIndia : [1962] Suppl 2 SCR 571. 10. The basic fact of the matter is not in dispute. The insured had -, undergone an operation for Adenoma Thyroid. It was a major operation. Although the said operation was undergone by him four years prior to the date ofthe proposal made by him, he did not disclose thereabout prior to obtaining the insurance policy.

We may notice that he died within six months from the date oftaking ofthe policy i. e. on 6th July, 1987, policy having taken on 21st February, 1987. 11. Section 45 ofthe Insurance Act reads as under:- "45.

- Policy not to be called in question on ground of misstatement after two years, - No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement ofthis Act and no policy oflife insurance effected after the coming into force ofthis Act shall after the expiry oftwo years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend ofthe insured, or in any other document leading to the issue ofthe policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy-holder and that the policy-holder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose : -) Provided that nothing in this section shall prevent the insurer from calling for proof ofage at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms ofthe policy are adjusted on subsequent proofthat the age ofthe life insured was incorrectly stated in the proposal.

" 12. Section 45 postulates repudiation of such policy within a period oftwo years. By reason of the aforementioned provision, a period of limitation oftwo years had, thus, been specified and on the expiry thereof the policy was not capable of being called in question, inter alia on the ground that certain facts have been suppressed which were material to disclose or that it was fraudulently been made by the policy holder or ,. that the policy holder knew at the time ofmaking it that the statement was false. Statute, therefore, itselfprovides for the limitation for valid repudiation ofan insurance policy. It takes into account the social security aspect ofthe matter 13.

There are three conditions for application of second part of Section 45 of the Insurance Act which are:- "(a) the statement must be on a material matter or must suppress facts which it was material to disclose; ,, (b) the suppression must be fraudulently made by the policy-holder: and (c) the policy-holder must have known at the time ofmaking the statement that it was false or that it suppressed facts which it was material to disclose. " [See Mithoolal Nayak (supra] 14. The insured's brother was an agent ofthe Life Corporation of India. It was he, who had asked the insured to take the insurance policy. He, being an authorized agent of the Life Insurance Corporation, presumably knew the effect ofmisstatement of facts. Misstatement by itself, however, was not material for repudiation ofthe policy unless the same is material in nature. 15. The insured furthermore was aware of the consequence of making a misstatement offact.

Ifa person makes a wrong statement with 1-· knowledge ofconsequence therefor, he would ordinarily be estopped from pleading that even if such a fact had been disclosed, it would not have made any material change. 16. The purpose for taking apolicy ofinsurance is not, in our opinion, very material. It may serve the purpose ofsocial security but then the same should not be obtained with a fraudulent act by the insured. Proposal can be repudiated ifa fraudulent act is discovered. The proposer must show that his intention was bonafide. It must appear from the face ofthe record. In a case of this nature it was not necessary for the insurer to establish _, that the suppression was fraudulently made by the policy holder or that he must have been aware at the time ofmaking the statement that the same was false or that the fact was suppressed which was material to disclose.

A deliberate wrong answer which has a great bearing on the contract ofinsurance, ifdiscovered may lead to the police being vitiated in law. 17. It is no doubt true that there exists a distinction between 'representation' and a 'warranty'. A Division Bench ofthe Madras High Court in S. P. Maheshwari (supra) upon taking into consideration the ,, history ofinsurance laws in United States ofAmerica, in England and in India stated :- "(! 0) One great principle of insurance law is that a contract of insurance is based upon utmost good faith Uberrima tides; in fact it is the fundamental basis upon which all contracts ofinsurance are made. In this respect there is no difference between one contract of insurance and another.

Whether it be life or fire or marine the understanding is that the contract is uberrima tides and though there may be certain circumstances from the peculiar nature > ~ ofmarine insurance which require to be disclosed, and which do not apply to other contracts ofinsurance, that is rather an illustration ofthe application ofthe principle than a distinction in principle. From the very fact that the contract involves a risk and that it purports to shift the risk from one party to the other, each one is required to be absolutely innocent of every circumstance which goes to influence the judgment ofthe other while entering into the -j transaction. " 18. While the parties entered into a contract ofinsurance the same shall, subject to statutory interdict, be governed by the ordinary law of contract. The insurer may not rely upon the disclosures made by the insured. It may gather information from other sources.

The Madras High Court, although in our opinion, has rightly issued a note of caution to construe a 'representation' and 'warranty' as a general proposition which may operate harshly against the policy holders, itself noticed :- "(12) The principles underlying the doctrine ofdisclosure and the rule of good faith oblige the proposer to answer every question put to him with complete honesty. Honesty implies truthfulness. But it happens that no man can do more than say what he believes to be the truth. " 19. Whether in a given case the court should take judicial notice of practice followed in such cases or not would depend upon the facts and circumstances of each case. If it is found that the agent himself was interested in getting the policy executed by the Life Insurance Corporation, .. such common knowledge takes a back seat. In S. P.

Maheshwari (supra), it was stated : "(27) This brings us on finally to the topics of nondisclosure or misrepresentation which are practically the positive and negative aspects of the same thing. The effect ofmisrepresentation on the contract is precisely the same as that ofnon-disclosure; it affords the aggrieved party a ground for avoiding the contract. There are a number ofdicta and one decision to the effect that life insurance is an exception to the general rule that innocent misrepresentation > • may afford grounds for avoiding a policy an_d that the misrepresentation must be fraudulent to have this effect upon a policy of life insurance. But in order to give the insurer grounds for avoidance both under non-disclosure as well as misrepresentations, both must relate only to material information. " The said decision, therefore, is of no assistance to the appellants herein. 20.

We are not unmindful ofthe fact that Life Insurance Corporation being a State within the meaning ofArticle 12 ofthe Constitution oflndia, its action must be fair, just and equitable but the same would not mean that it shall be asked to make a charity ofpublic money, although the contract of insurance is found to be vitiated by reason ofan act ofthe insured. This is not a case where the contract of insurance or a clause thereof is unreasonable, unfair or irrational which could make the court carried the bargaining powers ofthe contracting parties. It is also not the case ofthe appellants that in framing the aforesaid questionnaire in the application/proposal form, the respondents had acted unjustifiably or the conditions imposed are unconstitutional. 21. In Life Insurance Corpn. ofIndia & Ors. v. Asha Goel (Smt) & Anr. , [2001] SCC 160, whereupon reliance has been placed by Mr.

Sathish, it was held : "The contracts ofinsurance including the contract oflife assurance are contracts uberrima tides and every fact ofmaterial (sic material fact) must be disclosed, otherwise, there is good ground for rescission of the contract. The duty to disclose material facts continues right up to the conclusion ofthe contract and also implies any material alteration in the character ofthe risk which may take place between the proposal and its acceptance. Ifthere are any misstatements or suppression ofmaterial facts, the policy can be called into question. For determination ofthe question whether there has been suppression of any material facts it may be necessary to also examine whether the suppression relates to afact which is in the exclusive knowledge ofthe person intending to take the policy . ' and it could not be ascertained by reasonable enquiry by a prudent person.

" It has not been shown in this case that repudiation of the contract of insurance was not done by the respondent with extreme care and caution or was otherwise invalid in law. The Division Bench of the High Court has taken all the aspects of -) the matter in consideration and, in our opinion arrived at a just decision. 22. Strong reliance has been placed by the learned counsel for the appellants on Allianz Und Stuttgarter Life Insurance Bank Ltd v. ~ ,- Hemanta Kumar Das, AIR (1938) CAL 641 wherein in regard to some purported statements made by the proposor in regard to his age was not found to be material as would appear from the following : "It is to be borne in mind that this was an insurance by a man who admittedly was, at any rate, at the age of over forty-five years. He himselfstated that he was fifty four. Therefore, the transaction ,. came within the category ofthose proposals which require at the outset the furnishing by the "proponents" ofproofoftheir age.

Noot Behari Das was required to furnish proofofhis age. He produced a horoscope. The horoscope was accepted by the company as being sufficient. Therefore, we may take that the company issued the policy upon the footing that they were insuring the life ofa man whose age was fifty four. This is not a case where the proposer says that his age was fifty four and the Company merely accepted that statement at its face value and proceeded to issue a policy on that footing and subsequently, either shortly afterwards or a long time afterwards, admitted the age as stated in the policy in accordance with the provisions ofCl. 9(2) thereof This was a case r where the whole transaction from the very beginning proceeded upon the basis that the company had satisfied themselves that the proposer was ofthe age of fifty four and then issued the policy accordingly.

In my view therefore the admission contained in the endorsement at page 3 ofthe policy is of such a character that the defendants when tl1e policy matured could not be heard to say that the age ofthe insured was anything different from what he himself had stated it to be in February 1934. It is not necessary that one should apply in terms oftile principle of estoppel, because tllat is merely a rule ofevidence. In my view, this matter goes far deeper than that. The question oftile age ofthe deceased was a definite and determining factor in the transaction from tile very outset. " 23. It is not a case where the company had further enquired into f-·the matter in regard to the question as to whether the proposor was operated upon or not. 24. In Ratan Lal & Anr. v. Metropolitan Insurance Co. Ltd. , AIR -. _, (1959) PAT 413, a distinction was made between as to what is material and what is not material.

In regard to the disclosure offacts in that case itself, it was opined: "The well-settled law in the fieid of insurance is that contracts of insurance including the contracts of life assurance are contracts uberrima tides and every fact of materiality must be disclosed otherwise there is good ground for rescission. And this duty to disclose continues up to the conclusion ofthe contract and covers any material alteration in the character ofthe risk which may take . place between proposal and acceptance. " 25. Ratio ofthe said decision, therefore, instead ofassisting the case ofappellants, runs counter to his contention. 26. Keeping in view the facts and circumstances of the case, we are of the opinion that no case has been made out for our interference with the impugnedjudgment. The appeal fails and is accordingly dismissed. No costs. RP. Appeal dismissed.