Case Title: Isnar Aqua Farms vs United India Insurance Co. Ltd | 2023 LiveLaw (SC) 615 | 2023 INSC 680

Summary

The Supreme Court ruled that insurance companies must treat their insured in a sincere and equitable manner, as good faith is a prerequisite for an insurance contract. The court observed that the insured is obligated to disclose all material facts within their knowledge, and both parties are obligated to do so. The insurance company disregarded the death certificate provided by State Fisheries Department officials in Visakhapatnam on May 1, 1995, as it was granted by impartial and independent organizations. The court stated that insurance companies are not allowed to disregard or neglect to act upon a certificate or document they have requested from independent and impartial authorities. The court ordered the insurance company to reimburse the appellant ₹45,18,263.20 within six weeks, plus basic interest of 10%.

About the case

Aside from caring for and catering to its own profits, the Supreme Court stated that an insurance company is obligated to treat the insured in a sincere and equitable manner. The bench composed of Justices AS Bopanna and Sanjay Kumar noted that since the imperative of good faith applies equally to both, it is the responsibility of the insurance company to disclose all material facts within their knowledge. The complainant in this instance had obtained insurance coverage from an insurance company in relation to the cultivation of prawns on an area of 100 acres. An epidemic of the bacterial pathogen ‘White Spot Disease’ occurred extensively along the eastern coast of Andhra Pradesh, resulting in the widespread demise of crustaceans. 

On the basis that the complainant had violated the policy conditions by failing to maintain records in a proper and accurate manner, the insurance company rejected the appellant’s entire claim after he invoked the policy. The NCDRC determined his total loss to be 30,69,486.80 in resolving his complaint. The complainant filed a petition with the Apex Court in discontentment with this order. The court initially observed that uberrima fides, or good faith, is a prerequisite for an insurance contract. “Good faith is the required condition; it is the contracting parties’ duty to disclose all material facts within the scope of the agreement; and good faith prohibits either party from withholding information that it knows. Furthermore, the insured is obligated to disclose, and the insurance company is likewise obligated to do so.” Not only at the commencement of the insurance contract, but also for the duration of its existence and beyond, this obligation and duty would be shared by both parties. The bench observed that the insurance company disregarded the Death Certificate supplied by State Fisheries Department officials in Visakhapatnam on May 1, 1995.

“The insurance company was unable to disregard and sweep under the rug the matter simply because its contents were unfavorable.” Furthermore, the insurance company may have placed such an emphasis on this in its standards because the certification was granted by impartial and independent organizations of considerable renown. Except in limited circumstances, insurance companies are not permitted to disregard or neglect to act upon a certificate or document they have requested from independent and impartial authorities simply because they dislike it or believe it will be to their detriment. The court stated, “Once an insurance company has agreed to indemnify an insured against potential loss in specified circumstances, it is expected to fulfill its obligation in a sincere and equitable manner, rather than solely prioritizing its own financial gain.” Upon granting the appeal, the court ordered the insurance company to reimburse the appellant ₹45,18,263.20 within six weeks, plus basic interest of 10% from the date of the complaint to the date of realization. 

Uberrima fides, which translates to “good faith,” is the standard in insurance contracts. – Subject to just exceptions, an insurance company may not disregard or fail to act upon a certificate or document that it has requested from independent and impartial authorities simply because it is opposed to it or it would be to its detriment. In addition to prioritizing and catering to its own financial gain, an insurance company that has agreed to indemnify an insured against potential loss in specified circumstances must fulfill this commitment in a sincere and equitable manner. 

A fundamental tenet of insurance law dictates that the contracting parties must act in the utmost good faith; that good faith prohibits either party from withholding information that it knows; and that the insured is obligated to disclose all material facts within its control; since the obligation of good faith applies equally to both the insurance company and the insured, the insurance company is also obligated to disclose such information. Both parties would bear this obligation and responsibility not only at the commencement of the insurance contract, but also for the duration of its existence and beyond. 

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