Life Insurance Corporation Of India vs Leelamma

C.S.Sudha, J.

This appeal under Order XLI Rule 1 C.P.C. has been filed by the defendants in O.S.No.76/2000 on the file of the Subordinate Judge's Court, Thodupuzha, aggrieved by the judgment and decree dated 31/05/2003 by which the insurance claim of the plaintiffs has been decreed. The respondents herein are the plaintiffs in the appeal. The parties will be referred to as described in the suit.

The suit is one for recovery of death claim under two insurance policies on the life assured of late Cheriyan Mathew, the husband of the first plaintiff and the father of plaintiffs 2 and 3, the legal representatives of the assured. Late Cheriyan Mathew had subscribed to two insurance policies during his lifetime. As per the first policy bearing no.390152940, the sum assured was ₹50,000/- and the date of maturity was 28/02/2009. The second policy bearing no.390260828, for the assured sum of ₹1,00,000/- was to mature on 31/07/2000. The first premium on the aforesaid policies was paid on 25/03/1994 and 25/08/1995 respectively. The initial payments of premium were made regularly. However, policy no.2 lapsed w.e.f. January 1998 and policy no.1 lapsed from February 1998 due to nonpayment of premium. Thereafter, as per a proposal made by the assured to the Insurance Corporation for revival of the lapsed policies, the policies were revived w.e.f.10/11/1998 after complying with all the requirements and formalities prescribed to the satisfaction of the Insurance Corporation. The assured thereafter, paid the prescribed premium for revival and had been paying the subsequent premiums as per schedule. The assured passed away on 08/04/1999 due to lung cancer, which was detected only in March 1999. The liability of the Insurance Corporation under a policy of life insurance is a statutory liability and hence on the death of the assured during the currency of a viable policy, his nominee or legal representatives are entitled to get the death claim under the policy. After the death of the assured, the first plaintiff preferred separate claims before the Insurance Corporation. However, by letter dated 29/09/1999, the Insurance Corporation has taken a stand that the plaintiffs are entitled to get only the paid-up value of ₹17,000/- for policy no.1 and issued an advance receipt for ₹4000/-, after deducting the bonus paid in February 1999. As regards the second policy, the Insurance Corporation contended that no amount was due to the plaintiffs. Representations given by the plaintiffs to the second defendant were not considered and so a lawyer notice was sent to the defendants claiming the insurance amount. The defendants have issued a reply raising untenable conditions and hence the suit for realizing an amount of ₹2,45,870/- from the defendants and their assets towards the death claim with interest @12% per annum till payment from the defendants and their assets.

The defendants filed written statement denying the liability stated in the plaint. Late Cheriyan Mathew did take two policies as referred to in the plaint. After issuance of the policy for ₹50,000/- which commenced on 28/02/1994, the assured committed default in the payment of premium from 28/02/1998 onwards. The second policy for ₹1,00,000/-, which commenced on 10/07/1995 lapsed on 10/01/1998, as the assured committed default in the payment of premium. Thus, the two policies lapsed. Cheriyan Mathew did revive the policies on 10/11/1998. However, the allegation that all the requirements, undertakings and formalities prescribed by the Insurance Corporation had been complied with by the insured, for the revival is false and incorrect. Even prior to the proposal and issuance of the policies, the assured was a chronic diabetic patient. He had been suffering from diabetes mellitus for ten years before his death in the year 1999. At the time of revival of the policies on 10/11/1998, the assured was undergoing treatment for diabetes. He was initially treated with drugs and at the time of revival of the policies, he had been on insulin treatment for two years before his death. He had also been treated for pulmonary tuberculosis for seven years prior to his death and the said treatment continued for a period of one year. He was further treated as an inpatient in Holy Family Hospital, Muthalakodam, Thodupuzha for diabetes for the period from 18/06/1997 to 02/07/1997 and thereafter from 04/11/1997 to 10/11/1997. The assured was suffering from the aforesaid ailments and was undergoing treatment even before the proposals for insuring his life had been made. At the time of revival of the policies, the assured was a chronic diabetic patient undergoing treatment. The assured had suppressed the aforesaid material facts and had deliberately given false information in the proposal forms regarding his health condition. It is seen from the medical records that the assured was treated in the Medical College Hospital, Kottayam for lung cancer. This fact was also not intimated to the Insurance Corporation. The assured thereafter, died due to lung cancer. As the assured had made false and untrue statements which he knew to be false at the time of taking the policy and thereafter at the time of revival, the Insurance Corporation has no liability to pay the insurance amount as the contracts are null and void. Hence the Insurance Corporation is entitled to forfeit the whole amount paid by the assured. However, the Insurance Corporation did pay an amount of Rs.4,500/- which was a concession made to the plaintiffs on the special facts and circumstances of the case. As the policies of insurance were issued based on the false statements made by the assured, the contract is void and hence unenforceable. Therefore, the plaintiffs are not entitled to the plaint amount as claimed by them, contended the defendants.

On completion of the pleadings, necessary issues were framed by the trial court. No oral or documentary evidence was adduced by the plaintiffs. DW1 and DW2 were examined. Exts.B1 to B4 and X1 were marked on behalf of the defendants. The trial court, on appreciation of the oral and documentary evidence and after hearing both sides by the impugned judgment decreed the suit. Aggrieved, the defendants/Insurance Corporation has come up in appeal.

The point that arises for consideration in this appeal is whether there is any infirmity in the findings of the court below calling for an interference by this Court.

Heard both sides.

It was argued by the learned counsel for the defendants/Insurance Corporation that the trial court went wrong in holding that Section 45 of Insurance Act, 1938 (the Act) works as a statutory injunction against the insurance company from calling in question the policies after the expiry of 2 years from the date on which the policies were originally effected. In fact, as per Section 45, the policies can be questioned even after the expiry of the period of two years, if the insurer is able to show that information regarding material aspects had been suppressed or false statements were fraudulently made by the assured, which statements the assured knew at the time of making them to be false. Here, false information was given by the assured when the policies were revived by Exts.B3 & B4. The answers given to the questions contained in Exts.B3 and B4 forms for revival relate to material facts and when wrong statements are made in the proposals, the same can be construed as withholding material facts from the insurer. It was also pointed out that even assuming for argument’s sake that revival of the policies relate back to the date of the original policies, then also the Insurance Corporation is entitled to repudiate the policy, as there has been suppression of material facts by the assured even at the time of taking the original policies. As false and incorrect statements have been made in Exts.B3 and B4, the Insurance Corporation was perfectly justified in repudiating the contract, goes the argument.

7.1. Per contra, it was submitted by the learned counsel for the plaintiffs/respondents, that there is no infirmity in the findings of the trial court; that cogent reasons have been given for the conclusions arrived at and hence no ground is made out for interference by this Court.

As held in Mithoolal Nayak v. Life Insurance Corporation of India, 1962 KHC 520 : AIR 1962 SC 814, the operating part of unamended Section 45 states that no policy of life insurance effected after the coming into force of the Act shall, after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false ; the second part of the Section is in the nature of proviso which creates an exception. Thus, the insurer cannot avoid a policy of insurance on mere inaccuracy of a statement at the time of taking of the policy after two years of the policy. After two years, a policy can be avoided only if the second part of S.45 applies. The three conditions for the application of the second part of S. 45 are : (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 was material to disclose. Hence as rightly pointed out by the learned counsel for the Insurance Corporation, the trial court did go wrong in holding that Section 45 completely bars the insurance company from questioning the correctness of the statements made by the insured after the expiry of 2 years from the date on which the policies were originally effected.

In the case on hand, admittedly, two policies were taken by late Cheriyan Mathew, that is, one for ₹50,000/- and the other for an amount of ₹1,00,000/-. The first premium on the policies was paid on 25/03/1994 and 25/08/1995 respectively. The first policy lapsed in January 1998 and the second one in February 1998. Both the policies were admittedly revived with effect from 10/11/1998 vide Exts.B3 and B4. The policies were repudiated by the defendant in the year 1999. Obviously, two years had expired from the date on which the policies were effected and hence S.45 of the Act is clearly applicable. An argument is also seen advanced in the appeal memorandum that the revival of the policies in the year 1998 constituted in law a new contract between the parties and if two years were to be counted from 1998, then the period of two years had not expired from the date of the revival. As held in Mithoolal Nayak (supra), whether the revival of a lapsed policy constitutes a new contract or not for other purposes, it is clear from the wording of the operative part of S.45 that the period of two years for the purpose of the Section has to be calculated from the date on which the policy was originally effected. This can only mean the date on which the policies were effected in this case, that is, in the years 1994 and 1995 respectively. When the Insurance Corporation repudiated the claim in the year 1999, a period of two years had already expired and so they could have repudiated the contract only if the Section is attracted. Therefore, let us examine whether the second part of the Section 45 is attracted in the case on hand.

The learned counsel for the Insurance Corporation pointed out that at the time of taking the policies as well as when it was revived in the year 1999, the assured was suffering from several serious ailments which were concealed by him in the proposal forms. False statements were given on material facts in the proposal as well as revival forms. These statements were made falsely by the assured with the full knowledge that they were false and hence the Insurance Corporation was perfectly justified in repudiating the contract. Relying on the decision of this Court dated 31/07/2003 in A.S.No.90/1993 (N.J.Thomas v. Life Insurance Corporation), it was pointed out that even when the policies are revived, the assured is bound to give true statements and if false statements are given, the policies are liable to be rescinded.

I refer to Exts.B3 and B4 by which the policies were revived. Question no. (2) in Exts.B3 and B4 reads thus -

“2. Since the date of your proposal for the above mentioned Policy.

(a) Have you ever suffered from any illness/disease requiring treatment for a week or more?

(b) Did you ever have any operation, accident or injury?

(c) Have you had an Electrocardiogram, X-ray or screening, Blood, Urine or Stool examination?”

In both the forms the answer to the aforesaid question is in the negative. Referring to Ext.X1 and the deposition of DW1 it was pointed out that this answer given by the assured is incorrect/false, as evidence has come on record that the assured had been under treatment for diabetes and that he was hospitalized during the relevant period. Therefore, the argument is that as material facts have been suppressed, the policies are liable to be repudiated.

In the written statement the specific contention of the Insurance Corporation is that even prior to the proposal and issuance of the policies, the assured was a chronic diabetic patient and that he had been suffering from diabetes mellitus for about 10 years before his death in the year 1999. At the time of revival of the policies, he was undergoing treatment for diabetes. He had initially been treated with drugs and at the time of revival, he was on insulin treatment, which treatment continued for about two years before his death. The Insurance Corporation also contended that the assured had been treated for pulmonary tuberculosis for seven years prior to his death and that the said treatment was carried on for a period of one year. Though such contentions have been taken, no evidence has been let in to substantiate the same. Therefore, the case of the Insurance Corporation that the assured even before the issuance of the policies in the year 1994 and 1995 had serious ailments, will have to fail.

The Insurance Corporation further contends that the assured was treated as an inpatient in Holy Family Hospital, Muthalakodam, Thodupuzha for diabetes from 18/06/1997 to 02/07/1997 and from 04/11/1997 to 10/11/1997. To establish the same, they rely on the testimony of DW1 and Ext.X1, the records relating to the treatment of the assured. Ext.X1 does show that the assured was hospitalized for treatment of diabetes for the aforesaid period. This is apparently after the policies were issued and before the policies had lapsed and were thereafter revived in the year 1998. Hence the answer given to question no. (2) in Exts.B3 and B4 in the negative by the assured is apparently wrong or an incorrect statement.

Now the question is are the policies liable to be repudiated or rescinded for all or any wrong or incorrect statement(s) made in the proposal or revival form. As held in Mithoolal Nayak (Supra), mere giving of wrong statement(s) or incorrect statement(s) or suppression of facts is not sufficient to attract the second part of Section 45 of the Act. What is required is that such false statements or suppression of facts should be fraudulently made by the assured. The term 'fraudulently' connotes deliberate and intentional falsehood or suppression, and some strong material is required before finding that the assured played a fraud on the Insurance Corporation. The term 'material fact' is not defined in the Act. It has been understood and explained by the courts in general terms to mean any fact which would influence the judgment of a prudent insurer in fixing the premium or determining whether he would like to accept the risk. Any fact which goes to the root of the contract of Insurance and has a bearing on the risk involved would be 'material' (Satwant Kaur Sandhu v. New India Assurance Company Ltd., (2009) 8 SCC 316). Therefore, the question is whether the answer given to question no. (2) in Exts.B3 and B4 pertains to a material fact and whether the same amounts to a suppression of a material fact justifying a repudiation of the policies.

As stated earlier, absolutely no evidence has come on record to substantiate the contention of the Insurance Corporation that the assured was suffering from any serious ailments or ailments for that matter even before the taking of the policies. Admittedly, the assured died of lung cancer in the year 1999, which is much after the policies were taken in the year 1994 and 1995. As rightly held by the learned trial Judge, no material has come on record to show that the cause of death of the assured, i.e., lung cancer, was the proximate fall-out of diabetic related issues, for which he had undergone treatment in Holy Family Hospital, as evidenced by Ext.X1.

It is true that in N.J.Thomas (Supra) it has been held that the assured is bound to give correct information relating to material facts in the revival forms also and if any false answer(s) are given, the policy is liable to be repudiated. In N.J.Thomas (Supra), the assured was suffering from peptic disease. In the proforma regarding personal statement of the health of the insured, there was a specific question as to whether the insured had suffered from or was suffering from peptic ulcer or any other disease of the stomach, liver, or spleen. The insured answered the same in the negative. When the assured had stated that there had been no adverse change in her health and answered in the negative the question as to whether she was suffering from peptic ulcer or any disease of the stomach, liver or spleen when as a matter of fact she had peptic disease and was hospitalized for the same, it was held to be a case where the assured had suppressed material information from the Corporation on the basis of which she had obtained revival of the policy. The answer given by the assured in the said case was relating to a material fact and as it was a wrong answer given, the Insurance Corporation was held justified in rescinding the contract.

Same is the case in Sarojam v. LIC of India, 1985 KHC 191. In the said case, overwhelming evidence was brought on record to show that the assured had been suffering from serious heart ailments even at the time of taking the initial policy. Specific questions were there in the proposal form regarding this aspect to which the assured had not given correct answers. It was in the said circumstance it was held by this Court that there had been suppression of material facts and that false answers had been given regarding material aspects based on which the Insurance company had been persuaded to issue the policies. That does not appear to be the case as far as the case at hand is concerned.

As stated earlier there is no evidence on record to show that the assured was suffering from lung cancer or from any serious ailment(s) at the time of taking the policies in the year 1994 and 1995. It is true that the answers given to question no. (2) in Exts.B3 and B4 are incorrect as the assured did suffer from diabetes requiring treatment for a week or more. The specific case of the Insurance Corporation that the assured was a chronic diabetic is not even supported by their witness, namely DW1 through whom Ext.X1 medical records have been brought in evidence and proved. DW1 deposed that diabetes is a disease which can be brought under control by treatment. The patient had been admitted in the hospital as the sugar level in his blood had gone down. To a question whether the assured was a chronic diabetic patient, DW1 replied that the patient had been admitted as he was a diabetic patient. (രകത ൽ പഞസ രയ ട level വളടര ത ഴ    പപ യത ന ല ണ  ക ത  ച ക ൽസ ചത .  പര ഗ  chronic ആയ ട ള പപപ!ഹ പര ഗ  ആയ ര പ   ? പപപ!ഹ പര ഗ യ യ  അഡ റ  ടചയ % (ത ണ . See page 2 of his deposition). In the cross-examination DW1 deposed that the patient had come to him with complaints of pain on  both legs. To a question as to whether it was he who had diagnosed the patient to be a diabetic, he replied that the patient was a known diabetic patient. DW1 also  deposed that he does not know for how long the patient had been suffering from the said disease. Therefore, the case of the Insurance Corporation that the assured was a chronic diabetic patient has not been substantiated. The answer given in Ext.B3 and B4 cannot be said to have gone to the root of the contract of insurance or  had a bearing on the risk involved.

Further, nothing has been brought on record to show the conditions that had to be complied with by the assured before the policies were revived. In N.J.Thomas (Supra) the assured had also to give medical evidence relating to his state of health at the time of revival of the policy. The Insurance Corporation does not have a case that there was such a clause in the present case also. The answer given to question no. (2) does not appear to be relating to a material fact or suppression of a material fact. That being the position, a mere wrong or incorrect statement in the proposal or revival form cannot have the effect of repudiating the contract. In such circumstances, I find that there has been no suppression of any material fact by the assured attracting the second part of Section 45 of the Act. Therefore, I agree with the conclusion of the learned trial Judge that the policies were wrongly repudiated by the Insurance Corporation, though for different reasons.

In the result, the appeal is found to be without any merits and hence the same is dismissed.

Interlocutory applications, if any pending, shall stand closed.