There are three conditions for application of second part of section 45 of the Insurance Act, namely, (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 of making the statement that it was false or that it suppressed facts which it was material to disclose;
The matter titled as P.C. Chacko & Anr. vs. Chairman, Life Insurance Corporation of India, decided by Supreme Court on 20.11.2007 (AIR 2008 SC 424) dealt with the issue of application of Section 45 of the Insurance Act, 1938 (Act). In the present matter insurance claim was repudiated on the ground of suppression of material facts by insured at the time of taking the insurance policy. The Insurers’ stand for repudiation of claim was non-disclosure and misstatement by insured in the proposal form to the various questions.
The insured in the instant case 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 of the proposal made by him, he did not disclose thereabout prior to obtaining the insurance policy.
The Court observed that section 45 postulates repudiation of such policy within a period of two years. There are three conditions for application of second part of section 45 of the Insurance Act, namely, (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 of making the statement that it was false or that it suppressed facts which it was material to disclose;
It was observed that the purpose for taking a policy of insurance is not very material. It may serve the purpose of social security but then the same should not be obtained with a fraudulent act by the insured. Proposal can be repudiated if a fraudulent act is discovered. The proposer must show that his intention was bona fide. It must appear from the face of the record.
In a case of such nature it is 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 of making 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 of insurance, if discovered may lead to the policy being vitiated in law.
While the parties entered into a contract of insurance 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.
Life Insurance Corporation being a State within the meaning of Article 12 of the Constitution of India, its action must be fair, just and equitable but the same would not mean that it shall be asked to make a charity of public money, although the contract of insurance is found to be vitiated by reason of an act of the 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 of the contracting parties.
Contracts of insurance including the contracts of life assurance are contracts uberrima fides (utmost good faith) and each and every fact of materiality must be disclosed otherwise making a good ground for rescission of contract.