Case Title: Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod
Summary
The Supreme Court has ruled that an insurer can reject a claim if the insured fails to disclose the insurance policy obtained in the proposition form. Justices Dhananjaya Y. Chandrachud and Hemant Gupta ruled that the insurer must void the policy for any suppression, untruth, or inaccuracy in the statement on the proposal form. This act would constitute a breach of the insurer’s duty of good faith. In the case of Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod, the insurer rejected the claim on the basis of “suppression of material fact.” The proposer’s failure to respond to a question regarding the specifics of the life insurance policies was cited as the glaring omission.
The court noted that the insurer’s ability to revoke a life insurance policy is limited under Section 45 of the Insurance Act. The court argued that in order for a non-disclosure to qualify as a ground to repudiate, it must concern a domain in which it can be established that the non-disclosure pertained to a circumstance or fact that could have influenced the insurer’s determination on whether to extend coverage. The court also reaffirmed that any information requested in the proposal form is presumed to be material in order to consummate an insurance contract. The court affirmed the District Commission’s dismissal of the complaint, noting that the insurer’s evaluation of the risk was significantly impacted by the revelation of the prior coverage.
About the case
According to the Supreme Court, if the insured fails to disclose the insurance policy that was previously obtained in the proposition form, the insurer has the right to reject the claim under the policy. A tribunal consisting of Justices Dhananjaya Y. Chandrachud and Hemant Gupta ruled that the insurer shall void the policy for any suppression, untruth, or inaccuracy in the statement on the proposal form. Such an act would constitute a breach of the insurer’s duty of good faith. The insurer in this particular instance (Reliance Life Insurance Co Ltd vs. Rekhaben Nareshbhai Rathod) rejected the claim on the basis of “suppression of material fact.” It cited the life insured’s failure to respond to a question regarding the specifics of the life insurance policies as the glaring omission.
The proposer responded negatively to the inquiry regarding his current coverage for critical illness, catastrophe benefit, or life insurance. It was discovered that he had a Max New York Life Insurance Co., Ltd. policy. The complaint lodged in this regard was denied by the District Forum on the basis that the proposer failed to disclose on the proposal form that the insured had previously held a policy. However, the complaint was upheld by the State Commission (SCDRC). The National Commission (NCDRC) subsequently affirmed the State Commission’s decision. In the appeal lodged by the insurer, the bench noted that the insured’s prior life insurance coverage had been manifestly concealed. It was further observed that the repudiation occurred within a timeframe of two years starting from the inception of the insurance coverage in the current instance. After two years have passed since the policy was executed, the insurer’s ability to revoke a life insurance policy is limited under Section 45 of the Insurance Act.
The onus is placed on the insurer to prove the falsehood or omission of a material statement or the omission of material facts beyond a period of two years. Nevertheless, it was argued that in order to warrant repudiation, a non-disclosure or suppression of a material fact must have occurred within a two-year timeframe. This argument was reaffirmed in front of the Apex Court, and it was argued that in order for a non-disclosure to qualify as a ground to repudiate, it must concern a domain in which it is possible to establish that the non-disclosure pertained to a circumstance or fact that could have influenced the insurer’s determination on whether to extend coverage. “Materiality of a fact also depends on the surrounding circumstances and the nature of the information sought by the insurer,” the bench stated, citing several prior decisions. It provides coverage for the omission of critical information that the insurer needs to ascertain two primary things: firstly, whether to accept the risk of insurance and secondly, under what conditions to do so. The insurer possesses a greater capacity to ascertain the boundaries of risk-taking due to its daily engagement in the implementation of assessments.
Any fact that would influence the decision of a prudent insurer regarding whether or not to accept the risk is considered material in an insurance contract. In the event that the proposer possesses such knowledge, it is incumbent upon them to explicitly disclose it, especially when responding to inquiries on the proposal form. Because there is a presumption that the information requested in the proposal form is material for the purpose of engaging into an insurance contract, the insurer may reject an answer that is inaccurate. Additionally, the court noted that the Proposal forms constitute a substantial component of the disclosure process and ensure the veracity of statements. Furthermore, the court reaffirmed that any information requested in the proposal form is presumed to be material in order to consummate an insurance contract. It stated, “The proposal form must be completed with the utmost care.” The applicant certifies in a proposal form that he or she guarantees the truth.
The insurer shall void the policy for breach of the duty of good faith if the statement in the proposal form contains any suppression, untruth, or inaccuracy, in accordance with the contractual obligation imposed. A system of adequate disclosure facilitates a consensus between insurance policy purchasers and vendors, thereby reducing the disparity caused by information asymmetries. This facilitates the parties in better representing their respective interests and comprehending the actual scope of the contractual agreement.” The bench affirmed the District Commission’s dismissal of the complaint, noting the following: “In the current instance, the insurer had requested details pertaining to prior insurance policies that the insured had acquired. In accordance with the duty of full disclosure, no material or pertinent information concerning the insurer should be withheld or concealed. The insurer was obligated to make a decision regarding whether or not it would have issued a life insurance policy in light of the prior insurance policy, after thoroughly examining all pertinent facts and circumstances. The insurer’s evaluation of the risk was significantly impacted by the revelation of the prior coverage. Before assuming the risk, this information may enable the insurer to inquire as to why the insured has obtained two distinct life insurance policies within a relatively brief period of time. This information is adequate to compel the insurer to investigate.
