LIFE INSURANCE CORPORATION OF INDIA vs Munni Bano

THIS appeal under Section 15 of the Consumer Protection Act, 1986 (hereinafter referred to as ''the Act of 1986'') has been filed by the appellant against the order dated 23.4.2004 passed by the learned District Forum, Sikar in Case No. 30/2004 by which the complaint filed by the complainant -respondent under Section 12 of the Act of 1986 was allowed and the appellant was directed to pay to the complainant -respondent a sum of Rs. 50,000 along with benefits payable under Policy No. 191389286 as well as interest thereupon @ 12% p.a. from the date of repudiation of claim i.e., 7.10.2003 and the complainant -respondent was also awarded a sum of Rs. 3,000 towards compensation and litigation expenses.

THE necessary facts giving rise to this appeal are as follows: On 13.1.2004, the complainant -respondent filed a complaint under Section 12 of the Act of 1986 before the District Forum, Sikar stating inter alia that her husband Mehboob Khan (hereinafter referred to as ''the deceased'') had submitted a proposal No. 217 dated 17.4.1997 with the Branch Office of the appellant at Sikar for obtaining a 20 years money back policy with profits and accident benefits for a sum of Rs. 50,000. It was further stated in the complaint that deceased was examined by the doctor and after verifying the declaration form submitted by the deceased, the appellant issued on 12.6.1997 a policy bearing No. 191389286 in favour of the deceased for a sum of Rs. 50,000 and that policy had come into force with effect from 15.4.1997 and date of its maturity was 15.4.2017. It was further stated in the complaint that the complainant being wife of deceased was nominee. It was further stated in the complaint that since in the month of April, 1999 deceased was in foreign country, therefore, premium of the policy was not paid by him in time and the policy was lapsed, but as soon as deceased came to India, policy was got revived by him from the appellant on 31.8.2000 and before revival of policy, deceased was got medically examined by doctor. It was further stated in the complaint that on 7.5.2002, deceased had again gone to foreign country, where he died on 17.6.2002 on account of heart attack. It was further stated in the complaint that thereafter, claim was preferred by the complainant being nominee of deceased before the appellant, but that claim was repudiated by the appellant through letter dated 13.3.2003 stating that the policy of the deceased was revived on 31.8.2000 on the strength of personal statement regarding health made by deceased on 31.8.2000 and in that statement, deceased had stated that he was not suffering from any heart or blood pressure disease, but on investigation, it was found that the deceased was suffering from disease known as ''Ischemic Heart Disease (IHD) old ASMI, dilated Cardiomyopathy with poor LV function - Congestive Heart Failure (CHF), for which, he took treatment in Tongia Heart and General Hospital at Jaipur and that fact was not disclosed by deceased while making declaration on 31.8.2000 seeking revival of policy and since deceased suppressed material facts at the time of seeking revival of policy and gave false information about health, therefore, policy stood vitiated and claim of the complainant was repudiated on ground of suppression of material facts. Thereafter, the present complaint was filed by the complainant.

A reply was filed by the appellant admitting some facts mentioned in the complaint. It was submitted by the appellant that at the time of seeking revival of policy, deceased gave statement on 31.8.2000 stating that he was not suffering from any heart disease and on the basis of that statement, policy was revived on 31.8.2000. It was further submitted by the appellant that, thereafter, deceased again failed to pay the premium of the policy in the month of October, 2000 and consequently, policy again lapsed for non -payment of premium of policy and thereafter, deceased again sought revival of policy in the month of January, 2001 and for that, he gave fresh declaration on 17.1.2002 in which he had stated that he was not suffering from any heart disease and on the basis of that declaration, policy was revived on 17.1.2002. The further case of the appellant was that during investigation, the appellant came to know that deceased was admitted in Tongia Heart & General Hospital at Jaipur on 4.8.2000 and he was discharged on 6.8.2000. The record of Tongia Heart & General Hospital reveals that deceased was suffering from the disease known as Ischemic Heart Disease (IHD), old ASMI, dilated Cardiomyopathy with poor LV Function -Congestive Heart Failure (CHF). The deceased was also stated to be a smoker. The deceased also underwent CAG while admitted in Tongia Heart & General Hospital. The further case of the appellant was that in the declaration forms, which were submitted by the deceased on 31.8.2000 and 17.1.2002 when the policy was revived by appellant, he had suppressed material facts regarding his health especially about heart disease for which he had got treatment in the Tongia Heart & General Hospital at Jaipur and thus, revival of the policy on 31.8.2000 and 17.1.2002 was vitiated and thus, policy should be treated as void. Hence, claim of the complainant was rightly repudiated by the appellant through letter dated 13.3.2003 and the present complaint deserves to be dismissed. After hearing both the parties, the learned District Forum, Sikar through impugned order dated 23.4.2004 allowed the complaint of the complainant -respondent in the manner as indicated above holding inter alia that even in the cases of revival of policy, the effective date for the purpose of counting of two years would be the original date of commencement of the policy i.e., 12.6.1997 in the present case and, therefore, if any subsequent declarations were made by deceased, they would have no effect. Aggrieved from the said order dated 23.4.2004 passed by the learned District Forum, Sikar, this appeal has been filed by the appellant. In this appeal, the main submissions of the learned Counsel appearing for the appellant are: (i) That it is evident from the materials available on record that deceased was admitted in Tongia Heart and General Hospital at Jaipur on 4.8.2000 and he was discharged on 6.8.2000 and the treatment given to the deceased at Tongia Heart and General Hospital reveals that deceased was heart patient as he was suffering from the disease known as Ischemic Heart Disease (IHD), old ASMI, dilated Cardiomyopathy with poor LV Function -Congestive Heart Failure (CHF). However, the above facts were not disclosed by the deceased while making declarations on 31.8.2000 and 17.1.2002. Thus, deceased had deliberately and knowingly sup -pressed material facts about health at the time of seeking revival of policy on 31.8.2000 and 17.1.2002 and, therefore, policy stood vitiated and it should be treated as void as there was breach of principle of good faith on the part of deceased. Hence, claim was rightly repudiated by the appellant and the learned District Forum has committed serious error in awarding claim amount to the complainant -respondent.

(ii) That as per Section 45 of the Insurance Act, the appellant was not precluded and rather was within its right to call in question the policy on the ground of mis -statement in the personal statements of good health dated 31.8.2000 and 17.1.2002.

Therefore, no illegality has been committed by the appellant in repudiating the claim of the complainant. Thus, it was submitted by the appellant the impugned order of the learned District Forum cannot be sustained as it suffers from basic infirmity and illegality.

ON the other hand, the learned Counsel appearing for the respondent -complainant has supported the impugned order and it was submitted by him that no illegality has been committed by the learned District Forum in awarding claim amount to the complainant and the impugned order was perfect in law. He has placed reliance on the decision of the Honble High Court in Santosh Kumar Gupta and Another v. L.I.C. of India, 2001 ACJ 1834.

WE have heard the learned Counsel appearing for the appellant and the learned Counsel appearing for the respondent and gone through the entire materials available on record. Before proceeding further, it may be stated here that there is no dispute on the point that policy in question was issued in favour of the deceased by the appellant on 12.6.1997.

THERE is also no dispute on the point that because of non -payment of premium of policy, the policy had lapsed in the month of April, 1999.

THERE is also no dispute on the point that after that, deceased gave declaration on 31.8.2000 seeking revival of the policy and in that statement, he had stated that he was not suffering from any disease and on the basis of that declaration, policy was revived on 31.8.2000. There is also no dispute on the point that, thereafter, deceased further made default in making payment of premium of policy in the month of Jan. 2001 and, thereafter, deceased again sought revival of policy and he gave fresh declaration on 17.1.2002, in which he had stated that he was not suffering from any disease and on the basis of that fresh declaration, policy was revived on 17.1.2002.

FROM the record and materials, which have been submitted by the appellant, the following facts have been established: (i) That deceased was admitted in Tongia Heart and General Hospital at Jaipur on 4.8.2000 and he was discharged from that hospital on 6.8.2000.

(ii) That deceased was suffering from the disease known as Ischemic Heart Disease (IHD), old ASMI, dilated Cardiomyopathy with poor LV Function -Congestive Heart Failure (CHF).

Ischaemia : An inadequate flow of blood to a part of the body, caused by construction or blockage of the blood vessels supplying it. Ischaemia of heart muscle produces angina pectoris. Ischaemia of the calf muscles of the legs on exercise (causing intermittent claudication, i.e., a cramping pain) or at rest (producing rest pain) is common in elderly subjects with atherosclerosis of the vessels at or distal to the point where the aorta divides into the iliac arteries. Ischaemia means deficiency of blood supply due to obstruction of the circulation to a part. Cardiomyopathy Cardiomyopathy means disease of the myocardium, due to primary disease of the heart muscle.

(iii) That deceased was heart patient.

THERE is also no dispute on the point that the above facts were not disclosed by the deceased at the time of making declarations on 31.8.2000 and 17.1.2002 seeking revival of policy. There is also no dispute on the point that claim of the complainant was repudiated by the appellant on the ground of suppression of material facts about health and heart disease.

THE learned District Forum has observed that since the policy was issued in favour of the deceased on 12.6.1997, therefore, repudiation of claim by the appellant through letter dated 13.3.2003 after passing of two years on the grounds of two declarations could not be justified as after two years, the policy should be treated as in force from every point of view.

THUS , the question for consideration is whether in the facts and circumstances just narrated above, the findings recorded by the learned Districts Forum could be sustained or not. It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non -disclosure of the facts which the parties known. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose all materials facts in their knowledge since obligation of good faith applies to both equally and in this respect, the decision of the Honble Supreme Court in M/s. Modern Insulators Ltd. v. Oriental Insurance Company, I (2000) CPJ 1 (SC)=AIR 2000 SC 1014, may be referred to.

THE onus probandi, in cases of fraudulent suppression of material facts rests heavily on party alleging fraud namely the insurer. Furthermore, mere concealment of some facts will not amount to concealment of material facts.

APART from this, Section 45 of the Insurance Act is the fundamental provision governing the repudiation of a claim on the ground of suppression. For convenience of reference, Section 45 is extracted as follows: ''No policy of life insurance effected before the commencement of the Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this 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 proposal for insurance or in any report of a medical officer or referee or friend or the insured on in any other document leading to issue of the policy was inaccurate or false unless the insurer shows that such statement (was on material matter or suppressed facts which it was material to disclose and that, it was fraudulently made) by the policy holder and that the policy holder knew at the time of making it that the statement was false (or that it suppressed facts which it was material to disclose):

Provided nothing in this section shall prevent the insurer from calling for proof of age of any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the termof the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal.''

Thus, information given by insured in proposal form regarding state of health and age is the basis of contract of insurance. Contracts of insurance are of utmost good faith. Accordingly, where the insured takes out a policy by suppressing the material fact that he suffered from cancer, the contract is vitiated and no claim is admissible under the policy. However, in terms of Section 45 of the Insurance Act, repudiation of such claim after two years of the date of effecting insurance, is prohibited. But, for that, it must be proved by insurer that at the time of making contract, the insured had knowingly or deliberately made false statement or suppressed material facts, which were within his knowledge.

SUPPRESSION of fact must be a conscious operation of the giver of the answer which he knowingly did not disclose.

IN the above back -ground, we may notice that the following three conditions for the applicability of the second part of Section 45 of the Insurance Act are: (i) The statement must be on a material matter or must suppress facts which it was material to disclose; (ii) The suppression must be fraudulently made by the policy holder; and (iii) The policy holder must have known at the time of making the statement that it was false or that it suppressed facts which it was material to disclose.

In this respect, the latest judgment of the National Commission in National Insurance Co. Ltd. v. Bipul Kunda, II (2005) CPJ 12 (NC)=2005 CTJ 377 (CP) (NCDRC), may be referred to where it was held that for repudiating a claim of an insured, it is for the insurer to show that a statement on a fact, which was material for the policy, had been suppressed by the insured and that statement was fraudulently made by him/her with the knowledge of the falsity of that statement.

IT may be stated here that Section 45 of Insurance Act has no application to the case of repudiation by the insurer within two years of the policy coming into force. Distinction between renewal and revival

A distinction has to be drawn between the cases of renewal and revival of the policy. The word ''renewal'' means renewal of the existing terms and conditions of a thing or in other words, extension upon the same terms as the old contract. The renewal of the policy means that the policy is renewed within the stipulated period and in such case, it was in force and it had not lapsed on any of the grounds and further, in cases of renewal of the policy, no further declaration can be sought.

BUT the cases of revival stand on different footing. The case of revival arises only when a policy had lapsed or expired due to many reasons, one of the reasons may be that premium was not paid in time. The question is whether revival should be treated as fresh contract or not.

IN our considered opinion, after expiry of a policy, if the party chooses to revive the contract of policy, revival is clearly in law a fresh contract and thus, for example, the duty of fresh disclosure (declaration) arises again, meaning thereby in cases of revival, a fresh declaration again is must and that is why, in the present case, on both occasions when the revival of policy was sought, deceased gave fresh declarations on 31.8.2000 and 17.1.2002. If the policy is called in question by the insurer within two years of its being effected, it is enough if the insurer is in a position to show that the 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 and it was not necessary to prove that the statement was fraudulently made.

BUT , if the policy is called in question after passing of two years of its being effected, the insurer has a harder risk as the insured will get the protection of Section 45. The insurer must then be in a position to prove that: (i) the statement or concealment was of a material matter and that (ii) it was fraudulently made by the policy holder.

IN the present case, if the date of commencement of the policy, as alleged by the learned Counsel for the respondent, is treated as 12.6.1997 meaning thereby two years have elapsed, even then the policy can be repudiated by the Insurance Company by proving or establishing the following facts: (a) That policy holder concealed or suppressed material facts. (b) That such suppression or concealment was fraudulently made by the policy holder. (c) That policy holder was aware at the time of making the statement that it was false or that it suppressed facts which it was material to disclose. In other words, policy holder knowingly and deliberately gave incorrect information in the personal statement.

In the present case, the appellant by producing cogent and reliable material and evidence has proved and established the following facts: (a) That at the time of making declaration on 31.8.2000 and 17.1.2002 seeking revival of policy, the deceased was aware of the fact that he was suffering from heart disease, for the treatment of which, he was admitted in Tongia Heart and General Hospital, Jaipur on 4.8.2000 and discharged on 6.8.2000, but he deliberately or knowingly did not disclose these facts in the declarations dated 31.8.2000 and 17.1.2002.

(b) That by concealing or suppression the above facts, he obtained revival of policy fraudulently.

(c) That deceased knowingly gave incorrect information on the personal health in the personal statements dated 31.8.2000 and 17.1.2002 seeking revival of policy.

(d) That deceased had knowingly or deliberately made false statement or suppressed material facts, which were within his knowledge.

THUS , on the above grounds of concealment or suppression of material facts by the deceased while making declarations about health on 31.8.2000 and 17.1.2002 seeking revival of policy, if the policy was repudiated by the appellant, in our considered opinion, no illegality has been committed by it and the appellant -Insurance Company was within its right to repudiate the policy.

APART from this, the policy was first revived on 31.8.2000 and thus, a fresh contract came into existence on 31.8.2000 and deceased had died on 17.6.2002. From this point of view also, deceased had died within two years of revival of policy and, therefore, policy can also be called in question on the point that statement was fraudulently made. Hence, from this point of view also, the action of the appellant in rejecting the claim of the complainant through letter dated 13.3.2003 is justified. Thus, from both point of view, reasoning and findings given by the learned District Forum while decreeing the claim of the complainant could not be sustained.

SO far as the law laid down in the case of Santosh Kumar Gupta (supra) is concerned, even that authority would not come to help to the respondent because in para 20 of that judgment, it has been clearly observed by the Honble High Court that Section 45 of the Insurance Act confers on the insurer a right to repudiate its obligation only on proof and by establishing three necessary conditions expressly stated in it and adumbrated by the Apex Court in Mithoolal Nayak v. L.I.C., AIR 1962 SC 814, especially when in the present case, the appellant had established three conditions and circumstances expressly stated in second part of Section 45 of the Insurance Act, which are necessary to justify the repudiation of the claim by the appellant. Therefore, the above authority would not be helpful to the respondent.

IN LIC of India and Another v. Naveen Dhingra, I (2004) CPJ 88 (NC), the Honble National Commission has held that if deceased knowingly gave incorrect information on personal health in personal statement in revival of lapsed policy form, the Insurance Company was right in repudiating the claim. In the present case, as already stated above, deceased knowingly or deliberately gave incorrect information on personal health in personal statements dated 31.8.2000 and 17.1.2002 seeking revival of lapsed policy and, therefore, in such circumstances, repudiation of claim by the appellant -Insurance Company was justified. For the reasons stated above, the findings and reasoning given by the learned District Forum while decreeing the claim of complainant -respondent through impugned order dated 23.4.2004 cannot be sustained and liable to be quashed and set aside as they suffer from basic infirmity and illegality and this appeal deserves to be allowed. Accordingly, this appeal filed by the appellant is allowed and the impugned order dated 23.4.2004 passed by the learned District Forum, Sikar is quashed and set aside and the complaint filed by the complainant -respondent is rejected, but no order as to costs.