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Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3359 OF 2019 (Arising out of SLP(C) No.3381 of 2019)

Oriental Insurance Company Limited                                Appellant

Versus

Mahendra Construction               Respondent

J U D G M E N T  

Dr Dhananjaya Y Chandrachud, J

1 Leave granted.

2 This appeal arises from a decision rendered by the National Consumer Disputes

Redressal Commission1 on 19 September 2018.  The NCDRC partly allowed the appeal

filed  by  the  insurer  against  a  decision  of  the  State  Consumer  Disputes  Redressal

Commission2 dated 3 April 2017, directing the insurer to pay seventy-five percent of the

amount awarded by the SCDRC. The SCDRC had allowed an insurance claim in the

amount of Rs 23.84 lakhs, together with interest at the rate of 7% per annum from the

date of the institution of the complaint.   

3 The respondent, Mahendra Construction, was the original complainant before the

1 “NCDRC” 2 “SCDRC”

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SCDRC.  The respondent purchased a hydraulic excavator machine in 2004-05.  The

excavator was insured with New India Assurance Company Limited from 15 November

2004 to 14 November 2005.  A claim was lodged under the insurance policy on 12 April

2005 on the ground that the excavator had been set on fire by Naxalites.  The claim

was settled by the earlier insurer.  According to the respondent, the machine was under

repair until 10 October 2006.   

4 On  10  October  2006,  the  excavator  was  insured  with  the  appellant  from 11

October 2006 to 10 October 2007.  A premium of Rs 43,847 was paid to the appellant

for an insurance cover of Rs 32 lakhs.  Five days after the issuance of the insurance

cover, the excavator is alleged to have caught fire at a work site on 15 October 2006.

The insurer deputed a surveyor for a spot survey on 17 October 2006 and a report was

submitted on 26 October 2006.  It appears that other surveyors were also appointed.  

 5 On 25 November 2008, the insurance claim was repudiated on the ground that all

material facts which were required to be disclosed through the proposal form to enable

the insurer to assess the risk profile had not been disclosed.  More specifically, it was

stated that under paragraph 25(g) of the printed proposal form, the details of claims

lodged during the preceding three years were required to be disclosed but were not

furnished and, in consequence, the insurer was deprived of the opportunity to assess

the risk profile of the vehicle at the time of accepting the proposal for insurance.  This

led to the institution of a complaint before the SCDRC.   

6 The claim was allowed by the SCDRC in the amount of Rs 23.84 lakhs, together

with  interest.   The  SCDRC  accepted  the  contention  of  the  insured  that  the

Administrative  Officer  who  had  prepared  the  pre-insurance  report  had  been  “fully

satisfied” about the previous insurance cover and claim and with reference to paragraph

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25(g) of the proposal form, the insurance policy with New India Assurance Company

Limited had been “enclosed”.   

7 In appeal, the NCDRC held that since the previous insurance policy was annexed

to the proposal, the appellant could have known of the claims lodged with the previous

insurer  on  making  an  enquiry.   Alternatively,  it  was  held  that  if  there  was  a  non-

disclosure of information under paragraph 25(g), the appellant could have returned the

proposal. The NCDRC held that the insurer could have discovered the true state of

facts with the exercise of ordinary diligence and was, hence, not justified in repudiating

the claim.

8 Learned counsel appearing on behalf of the appellant has drawn the attention of

the Court to the disclosure which was required to be made in paragraph 25(g) of the

proposal for insurance.  Paragraph 25 requires a disclosure of:  

(i) The date of purchase of the vehicle by the proposer;

(ii) Whether the vehicle was new or second-hand at the time of purchase;

(iii) Whether the vehicle was in a good condition and, if not, full details;

(iv) The name and address of the previous insurer;

(v) The previous policy number, together with the period of insurance;

(vi) The type of cover; and

(vii) Claims lodged during the preceding three years.

9 The proposal form which was filled up in order to obtain the policy of insurance

merely  records the date of  purchase of the vehicle as 2004.   As against  the other

queries, there is a handwritten endorsement, namely, “enclosed”.

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10 The NCDRC entered a finding that since the previous insurance policy had been

enclosed with the proposal form, the insurer could, upon further enquiry, have learnt of

the status of the claims under the earlier policy.  The NCDRC considered the exception

to Section 19 of the Indian Contract Act, 1872 and held that the insurer could have

easily verified the claims submitted by the insured under the previous policy. It was thus

held that the insurer cannot deny the benefit of insurance on account of the information

not having been disclosed in the proposal form. However, the NCDRC noted that the

insured had not expressly disclosed the previous claim and in consequence, deducted

twenty-five of the amount payable under the contract of insurance.

11 In our view, this line of reasoning of the NCDRC is flawed.  Insurance is governed

by the principle of utmost good faith, which imposes a duty of disclosure on the insured

with regard to material facts. In  MacGillivray on Insurance Law3 the rule concerning

duty of disclosure is stated in the following terms:  

“[Subject  to  certain  qualifications  considered  below],  the assured must disclose to the insurer all facts material to an insurer’s appraisal of the risk which are known or deemed to be known by the assured but neither known or deemed to be known by  the  insurer.  Breach  of  this  duty  by  the  assured entitles the insurer to avoid the contract of insurance so long as he can show that the non-disclosure induced the making of the contract on the relevant terms…”  

Elaborating  on the  principle,  in Life  Insurance Corporation  of  India  v Smt.  G M

Channabasamma4, this Court has held:

“7...It  is well  settled that a contract of insurance is contract uberrima fides and there must be complete good faith on the part  of  the assured.   The assured is  thus under  a solemn obligation to make full disclosure of material facts which may be relevant for the insurer to take into account while deciding whether  the  proposal  should  be  accepted  or  not.   While

3 Twelfth Edition, Sweet and Maxwell (2012) 4 (1991) 1 SCC 357

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making  a  disclosure  of  the  relevant  facts,  the  duty  of  the insured to state them correctly cannot be diluted…”

In LIC of India v Asha Goel5, a two-judge Bench of this Court held thus:

“12…The contracts of insurance including the contract of life assurance  are  contracts  uberrima  fides  and  every  fact  of material (sic material fact) must be disclosed, otherwise, there is  good  ground  for  rescission  of  the  contract.  The  duty  to disclose material facts continues right up to the conclusion of the contract  and also implies any material  alteration in  the character  of  the  risk  which  may  take  place  between  the proposal and its acceptance. If there are any misstatements or suppression of material facts, the policy can be called into question. For determination of the question whether there has  been  suppression  of  any  material  facts  it  may  be necessary  to  also  examine  whether  the  suppression relates to a fact which is in the exclusive knowledge of the person intending to take the policy and it could not be ascertained by reasonable enquiry by a prudent person.”                                                                  (Emphasis supplied)

In Satwant Kaur Sandhu v New India Assurance Co. Ltd6, a two-judge Bench of this

Court held that under a contract of insurance, the insured is under a “solemn obligation”

to make a true and full disclosure of information asked for in the proposal form:

“18…Nonetheless, it  is a contract of insurance falling in the category  of  contract uberrimae fidei,  meaning  a  contract  of utmost good faith on the part of the assured. Thus, it needs little  emphasis  that  when  an  information  on  a  specific aspect is asked for in the proposal form, an assured is under  a  solemn  obligation  to  make  a  true  and  full disclosure  of  the  information  on  the  subject  which  is within his knowledge. It is not for the proposer to determine whether the information sought for is material for the purpose of  the  policy  or  not.  Of  course,  the  obligation  to  disclose extends only to facts which are known to the applicant and not to what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion  of  the  materiality  of  that  knowledge  is  of  no moment…”

    (Emphasis supplied)

5 (2001) 2 SCC 160 6 (2009) 8 SCC 316

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It  was further  held  there  is  a  clear  presumption  that  any information sought  in  the

proposal form is a “material fact”:

    “25. The upshot of the entire discussion is that in a contract of insurance,  any  fact  which  would  influence  the  mind  of  a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such  fact,  he  is  obliged  to  disclose  it  particularly  while answering  questions  in  the  proposal  form.  Needless  to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability  because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.”

Information regarding insurance claims lodged by the respondent for his excavator in

the preceding three years was a  material  fact.  The burden of  establishing that  the

insured made a false representation and suppressed material facts lies on the insurer.

The insurer has placed on the record the best possible evidence in support of the plea

that  there  was  a  misrepresentation  and  a  suppression  of  material  facts.  The  mere

disclosure of a previous insurance policy did not discharge the obligation which was

cast on the respondent, as the proposer, to make a full, true and complete disclosure of

the claims which were lodged under the previous policy in the preceding three years.

The  proposal  form  contained  a  specific  question  regarding  claims  lodged  in  the

preceding three years. The respondent was under a bounden duty to disclose that the

excavator was previously insured with another insurer and that a claim for damage to

the excavator on 12 April 2005 had been settled.  It was only in the affidavit of evidence

dated  6  January  2017,  that  the  respondent  disclosed  that  New  India  Assurance

Company Limited had paid an amount of Rs 36.66 lakhs by cheque on 23 September

2005.  This material fact was suppressed from the proposal form.  

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12 The  burden  cannot  be  cast  upon  the  insurer  to  follow up  on  an  inadequate

disclosure by conducting a line of enquiry with the previous insurer in regard to the

nature of the claims, if any, that were made under the earlier insurance policy.  On the

contrary, it was the plain duty of the respondent while making the proposal to make a

clear and specific disclosure.  The insurance policy with New India Assurance Company

Limited  was  for  the  period  from  15  November  2004  to  14  November  2005.   The

excavator  remained uninsured from 15 November 2005 until  10 October 2006.  The

case of the respondent was that  during that period, it  was under repair.   This fact,

together with the receipt of the earlier insurance claim, was material to the decision of

the insurer on whether to accept the proposal for insurance.  The disclosures which

were required in paragraph 25(g) of the proposal form were material to assess the risk

profile of the vehicle at the time of accepting the proposal for insurance.

13 The SCDRC proceeded on the hypothesis that the insurer had not denied the

averment of the respondent in the complaint that the Administrative Officer was ‘fully

satisfied’ of the previous insurance cover and claim, as is evident from the use of the

expression  “enclosed”  in  paragraph  25(g).   The  averment  in  paragraph  8  of  the

complaint was specifically denied by the insurer.  But, that apart, it is evident on a bare

reading  of  the  proposal  form  that  material  information  which  was  required  to  be

disclosed was suppressed by the insured.  The proposal form contains a declaration of

the  insured  that  the  statements  which  are  made are  true  to  the  knowledge  of  the

proposer and the declaration forms the basis of the contract with the insurer.   

14 In  the  circumstances,  the  decision  of  the  SCDRC  to  allow  the  claim  was

erroneous and the NCDRC equally erred in affirming the decision.

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15 Learned counsel appearing on behalf of the insured urged that the respondent

relied on the Administrative Officer who filled in the requisite details in the proposal

form.  The fact of the matter is that the respondent was under an obligation to make a

full disclosure of the status of the previous insurance policy, together with the material

facts relevant to the claim which had been lodged with New India Assurance Company

Limited.  The fact that such a claim was lodged and had been settled at Rs 36.66 lakhs

was suppressed.  This suppression goes to the very root of the contract of insurance

which would validate the grounds on which the claim was repudiated by the insurer.

16 We accordingly allow the appeal and set aside the impugned judgment and order

of the NCDRC dated 19 September 2018.  The complaint filed by the respondent shall

stand dismissed.  However, in the facts and circumstances of the case, there shall be

no order as to costs.

……..……………………………............................J.    [DR DHANANJAYA Y CHANDRACHUD]

……………………………………............................J.    [HEMANT GUPTA]

NEW DELHI APRIL 01, 2019