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Analysis on Reliance Life Insurance v/s Rekhaben Nareshbhai Rathod (2019)

The Doctrine of Uberrima fidesis is the primary doctrine that governs insurance contracts. The Latin phrase 'Uberrima fidesis' means "utmost good faith". The parties to an insurance contract must behave in good faith and provide a complete statement of all important facts set out in the insurance policy. Because insurance functions as a risk transference on a separate basis and it is always important to have a higher degree of good faith in the insurance contract.

It is the responsibility of the insured to disclose any significant information about which they are aware. In the case of life insurance, some particular questions are suggested as issues that impact everyone. However, there may be conditions affecting specific people that are unknown to the insurer, and which, if known, would very certainly have prompted further investigation. The issue of which information is relevant to the contract is a complex one.

The party who is entering into the contract shall have the good faith of the other. And according to the Doctrine, if the proposer hides and misrepresents the material facts, then the contract is said to have been violated. The concealment and the misrepresentation of the material facts are said to be void. Furthermore, the insurer's innocent misstatement or misrepresentations are inadmissible for up to two years at the insurer's discretion.

The Section 45 of the Insurance Act of 1938, in the event of life insurance, a two-year time limit is imposed in bringing the issue of policy legality on the basis of misstatements in replies to questions that were untrue or incorrect. The insurer has no right in showing that the insurance policy obtained is of an innocent manner and for proving under the provision one has to prove the statement made by the insurer.

Facts of the case
On July 10, 2009, the insured purchased a life insurance policy from Max New York Life Insurance Company for a maximum of Rs. 11 lakhs. On September 16, 2009, the insured submitted a request for a new life insurance policy with Reliance Life Insurance for a sum of Rs. 10 lakhs. The fact of the previous insurance being taken has been suppressed by the insured while the questions being asked by the Reliance Life Insurance regarding whether any policy has already been taken.

There were also specific queries about the information from other insurance plans, to which the response by the insurer was 'not applicable.' The following were the terms of the declaration provided by the Insured with the proposal form:
"I understand and agree that the statements in this proposal form shall be the basis of the contract between me and Reliance Life Insurance Company Limited ("the Company") and that if any statements made by me are untrue or inaccurate or if any of the matter material to this proposal is not disclosed by me then the Company may cancel the contract and all the premiums paid, will be forfeited."

The Respondent's spouse died in the year 2010 and the policy has been claimed by the Respondent. The information regarding the previous policy in Max New York Insurance has been disclosed to Reliance Life Insurance company. Further, the claim of the respondent was rejected on the basis of suppression of facts.

Then the complaint has been filed by the Respondent's spouse in the District Consumer Redressal Commission and the same has been rejected on the grounds of non-disclosure. The State and National Commission has allowed the appeal and stated that the disclosure of previous insurance policy will not affect the mind of the prudent insurer. The appeal was filed by the Appellant against the judgment of the State and National Consumer Redressal Commission.

Analysis:
District Consumer Redressal Forum- The Complaint has been dismissed on the ground that there was non-disclosure of the material facts by the Complainant and the same has been rightly entitled against the policy claim under the policy. Further, it is against the doctrine of Uberrima fidesis where it is considered the basic and important principle dealing with insurance contracts.

State Consumer Redressal Forum:

The Insured's wife filed an appeal against the rejection of the complaint in the District Consumer Redressal Forum. The appeal was heard by the State Consumer Redressal forum and the same has been allowed. In the judgment of the State Consumer Redressal forum, it was stated that "the omission of the insured to disclose a previous policy of insurance would not influence the mind of a prudent insurer". In this case, the insured might not have the intention to non-disclosed the material facts and have thought the prudent insurer would not be affected because of the same.

National Consumer Redressal Forum:

The Judgement of the State Consumer Redressal Forum has been upheld and affirmed by the National Consumer Redressal Forum.

Supreme Court:
The Apex Court Considered various things while providing the judgements and they being:
  • Disclosure of the insured in the policy proposal form: "there was evidently a non-disclosure if the earlier cover for life insurance held by the Insured".
  • The insured's omission to disclose significant information in the policy's proposal form, according to the Court, invalidates the claim under the policy.
  • The Court has overseen the fundamental principle formulated by the MacGillivray which is Doctrine of uberrima fidei as there shall be complete good faith by the insured. And stated that the assured must disclose all the material facts to the insurer and breach of the same shall be avoided.

The respondent was allowed to withdraw half of the decretal sum, according to the apex court. In order to achieve the goals of justice, the supreme court have ordered that the sum withdrawn by the respondent not be retrieved under Article 142 of the Constitution.

Arguments by the Counsels in the Supreme Court:

  • Argument and Contentions of the Appelent Counsel

    1. The respondent has suppressed the material fact of not providing and furnishing the required details and it's the mere duty of the insured to look into the same.
    2. The said claim was initiated by the appellant within two years which is under Section 45 of the act and it does not repudiate the ground of misstatement after two years. Here the Judgment of State and National Consumer Redressal Forum is contrary to the provision.
    3. And it is stated that the insurer is entitled to reject the claim under Sections 17 and 19 of the Contract Act, 1872 which is fraud and voidability of a contract without free consent.
       
  • Arguments and Contention of the Respondent Counsel:

    1. That the agent has taken the blank proposal from the insured while taking his signature. Further, the nondisclosure of the previous policy shall not be the ground for rejection of the claim as the proposal form was a blank proposal.
    2. There is no prohibition on holding any number of life insurance policies from different insurers.

Relevance of the judgments contended in the following judgment:

  • VK Srinivasa Setty V. Messers Premier Life and General Insurance Co Ltd
    In this case, it was established that a person who signs a proposal that contains a false statement cannot typically avoid the consequences of his actions by claiming that he signed the proposal without reading or comprehending it. This is mere because while filling the proposal form the agent is assumed to have the authority of the insurer and the untruth and the inaccuracy of the writing by the agent does not affect the policy and knowledge of the insurer shall always be there.
     
  • Satwant Kaur Sandhu v New India Assurance Co Ltd
    In this case, it was determined that the proposer's non-disclosure, concealment, or falsification of answer is significant. This is due to the fact that the insurer, not the proposer, is responsible for determining whether the information requested in the proposal form is significant or not.
In terms of the insurer, he shall ascertain all the necessary consequences to the insured. And this shall serve as justice to both the insured and insurer.

Benefits of the judgment:
It can be classified that the judgment representing that mere favoring of the fact that non disclosure of material facts has been done, but there is a possibility that the insured might not have enough knowledge of the policy as he might be illiterate and not able to understand things. The fact of suppression of the facts shall be considered when the policy been called to question but intention of the insured shall be overseen by the courts. The Judgemnet pertaing to Fifty percent decretal amount to the Respondent shall be considered valid as no parties been suffered and it have mitigated the loss of both.

Conclusion:
The sole purpose of life insurance is to protect the family's financial future during the event of the uncertain death of the policyholder. It is necessary that all the material facts which are required by the insurer be provided and it shall be limited to the policy only. The insurer has the burden of proof that no life insurance policy would have been issued if the insurer had been aware of the situation.

Furthermore, before signing a proposal, one should carefully study the terms and conditions. There is a legal assumption that after you sign it, you have read all of the questions and answers included within. Hence upon the analysis, it can be said that the court shall not only consider the mere facts but also consider all the relevant facts in terms of illiteracy of the person signing and misappropriation by the agent.

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