The Supreme Court by its judgment has absolved insurance companies of the burden to follow up an inadequate disclosure of material facts by the Insured. The Court held that it is not the duty of the insurer to conduct a line of enquiry with previous insurers with regard to the nature and settlement of prior claims, if any.
The Apex Court was hearing an appeal by Oriental Insurance Company (“Insurer”) from a decision of the National Consumer Dispute Redressal Commission (“NCDRC”) which had partly allowed Mahendra Construction’s (“Insured”) appeal against the decision of State Consumer District Redressal Commission (“SDRC”).
The Insured had purchased a hydraulic excavator machine in 2004, which was insured with New India Assurance Company Limited (“previous Insurer”) from 15 November 2004 to 14 November 2005. The excavator caught fire on 12 April 2005, for which a claim was lodged and settled by the previous Insurer. The excavator was under repair till 10 October 2006, post which it was insured with the Insurer from 11 October 2006 to 10 October 2007. The excavator again caught fire on 15 October 2006 and a claim was lodged with the Insurer. The Insurer repudiated the claim on 25 November 2008 on the ground that all material facts which were required to be disclosed by the Insured for the Insurer to assess the risk profile of the good insured had not been disclosed.
A complaint was instituted before the SDRC which allowed the claim of the Insured. The NCDRC in appeal concurred with the findings of the SDRC and held that as the previous insurance policy was attached with the proposal form, the Insurer could have made himself aware of any prior claims by undertaking an ordinary due diligence and/or conducting an enquiry with the previous Insurer.
The Apex Court dismissing the findings of both the SDRC and NCDRC held that the law of insurance is governed by the principle of utmost good faith, which imposes a duty of complete disclosure on the Insured with regard to material facts.
