REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2776 OF 2002

SATWANT KAUR SANDHU — APPELLANT (S)

VERSUS

NEW INDIA ASSURANCE COMPANY  LTD.

— RESPONDENT (S)

J U D G M E N T

D.K. JAIN, J.:

1. This appeal, by special leave, is directed against the judgment  

and order dated 8th December, 2000 passed by the National  

Consumer  Disputes  Redressal  Commission,  (“the  National  

Commission”  for  short)  in  Revision Petition  No.322 of  1999  

whereby the Commission has affirmed the order passed by the  

State Consumer Disputes Redressal Commission, New Delhi  

(for  short  “the  State  Commission”),  rejecting  appellant  –  

complainant’s  claim  against  the  respondent  –  Insurance

Company for compensation on account of deficiency in service  

for not processing her claim under a mediclaim policy.

2. Succinctly put,  the material  facts  giving rise to  the present  

appeal are as follows:

On 7th May, 1990 appellant’s husband, late Shri Pritpal Singh  

Sandhu,  48  years  old  and  an  advocate  by  profession,  after  

completing necessary formalities insured himself under a mediclaim  

policy provided by the respondent.  The policy was for a period from  

7th May, 1990 to 6th May, 1991.   The annual premium of Rs.1500/-  

was  also  paid  by  him.   On  11th September,  1990,  Pritpal  Singh  

suddenly fell ill and was admitted in Dayanand Medical College and  

Hospital,  Ludhiana.   On  7th December,  1990  he  was  shifted  to  

Madras Institute of Nephrology also known as, Vijaya Health Centre,  

Chennai where his condition deteriorated, ultimately leading to his  

death  on  26th December,  1990.   The  appellant  informed  the  

respondent about the death of her husband on 17th January, 1991.  

On  29th April,  1991  she  filed  a  claim  for  Rs.23,217.80  for  

reimbursement of the expenses incurred on hospitalization.  

3. The respondent – Insurance Company made inquiries from  

Madras  Institute  of  Nephrology (Vijaya  Health  Centre)  and  

obtained a certificate dated 6th May, 1992, (Annex.P-6) stating  

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that  the  deceased  was  a  known  case  of  “Chronic  Renal  

Failure/Diabetic Nephropathy”; was on regular haemodialysis  

at his place and after admission on 7th December, 1990 with  

severe breathlessness developed sudden cardiac arrest  on  

26th December,  1990 leading  to  his  death.   The certificate  

also stated that the insured was a known diabetic for the last  

16 years.   Thereupon, the respondent vide letter dated 30th  

August, 1993 informed the appellant that her claim had been  

repudiated.  Being aggrieved, the appellant filed Consumer  

Complaint Case No. 48 of 1996 before the Consumer Dispute  

Redressal  Forum No.IV  at  Bunkar  Vihar  Nand Nagri,  New  

Delhi  (“District  Forum”  for  short)  with  the  prayer  that  the  

Insurance  Company  should  be  directed  to  pay  the  claim  

amount  of  Rs.23,217.80  along  with  interest  @  24%  per  

annum  and  compensation  for  agony  as  also  the  litigation  

expenses.

4. Before the District Forum, the stand of the respondent was  

that the claim preferred by the appellant had been repudiated  

on the basis of the report supplied by Vijaya Health Centre,  

Chennai where appellant’s husband had died.  In the written  

statement filed by the respondent before the District Forum, it  

was  stated  that  while  filling  up  the  proposal form,  against  

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queries No.10 and 11, the insured had stated that he was in  

sound  health  and  had  not  undergone  any  treatment  or  

operation in the last 12 months, whereas the medical report  

revealed  that  he  was  a  known  case  of  “Chronic  Renal  

Failure/Diabetic Nephropathy”  being diabetic for the last 16  

years.  It was also added that the opinion of two independent  

doctors was obtained to affirm that  the claim could not  be  

honoured  as  material  facts  relating  to  the  health  of  the  

insured were concealed at the time of taking out the policy.   

5. The  District  Forum  vide  its  order  dated  20th May,  1997,  

refuted the opinion of the independent doctors on the ground  

that  they had never personally  treated the deceased.  The  

Forum noted that report of Vijaya Hospital was not supported  

by any circumstantial evidence and was, therefore, unreliable.  

The policy was repudiated on 30th August, 1993 i.e. almost 2  

years  and  8  months  after  the  death  of  the  deceased.  

Preferring to rely on the letter written by the elder brother of  

the deceased, Col. Gurcharanjit Singh on 21st June, 1993 to  

the  Asstt.  Manager,  New India  Assurance  Co.  stating  that  

deceased became unwell some time in September/October,  

1990 and thereafter his condition deteriorated fast resulting  

ultimately in his death, the District Forum concluded that the  

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Insurance  Company  was  guilty  of  deficiency  in  service  

because  repudiation  was  not  based  on  full  material  

information and that there was inordinate delay in deciding  

the claim under the policy.   The District  Forum accordingly  

directed  the  respondent  to  pay  the  claimed  amount  with  

interest at 12% per annum from 1st April, 1991 i.e., 3 months  

after the death of the insured till the date of actual payment.  

The respondent was also required to pay Rs.1000/- as cost of  

litigation.

6. Aggrieved,  the  respondent  -  Insurance  Company  preferred  

appeal before the State Commission.  The State Commission  

vide its order dated 31st December, 1998, allowed the appeal  

and set aside the order of the District  Forum. The relevant  

part of the order reads as under:  

“Death of the insured occurred within seven months of  taking  the  mediclaim  policy  and  Section  45  of  the  Insurance Act is not even remotely attracted. We are of  the considered view that repudiation of the claim was on  a  consideration  of  the  aforesaid  record  of  the  Madras  Institute of Nephrology and, therefore answer to col. 10 of  the  proposal  form amounted to  mis-representation and  suppression of material facts regarding health made by  the policy holder.  No case of deficiency in service has  been established.”

7. Being aggrieved by the order of  the State Commission,  the  

appellant  filed  Revision  Petition  before  the  National  

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Commission.  As noted earlier, the National Commission has  

dismissed the Revision Petition, by a short order, which  reads  

thus:   

“It is a case of concurrent finding of fact recorded both by  the District Forum and the State Commission. We do not  find any reason to interfere with the order passed by the  State Commission. The Revision Petition is dismissed.”

8. Mr. D.S. Lambat, learned counsel appearing for the appellant  

contended that the National Commission has grossly erred in  

upholding  the  State  Commission’s  order  on  the  premise  of  

“concurrent finding of fact” by the Fora below when both the  

Forums had arrived at different findings regarding suppression  

of material facts about the state of health of the insured.  It  

was, thus, urged that the National Commission misled itself in  

passing  an  order  which  did  not  bear  consonance  with  the  

factual  position  on  record.  Learned  counsel  also  submitted  

that the State Commission had erred in relying on inadmissible  

and unproved contents of a document viz. certificate dated 6th  

May,  1992,  to  reverse  a  logical  and  cogent  finding  by  the  

District  Forum.   Lastly,  it  was  contended  that  the  National  

Commission acted illegally in dismissing appellant’s Revision  

Petition without assigning any reason and appreciating the fact  

that  the  claim  was  repudiated  after  30  months,  which,  

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according to the counsel, by itself amounted to deficiency of  

service by the respondent.  

9. Per Contra, learned counsel for the respondent submitted that  

the repudiation of claim was fully justified because at the time  

of submission of the proposal form, the respondent had made  

a false declaration that he was possessing sound health and  

had not  undergone any treatment  in  the  last  12  years  and  

taking the facts disclosed as correct the policy was issued.  It  

was urged that a mediclaim policy is issued solely on the basis  

of  the  facts  disclosed  and  the  representation  made  by  an  

insured in  the proposal  form filled in  and submitted by him  

without  subjecting the insured to any medical  tests.   It  was  

also pointed out that the proposal form contains a declaration  

to the effect that if after the insurance is effected, it is found  

that  the  statement,  answers  or  particulars  stated  in  the  

proposal form and its questionnaire are incorrect or untrue in  

any  respect,  the  insurance  company  shall  incur  no  liability  

under this insurance.  It was, thus, asserted that the insured  

having suppressed the fact that he was suffering from Diabetic  

Nephropathy/Chronic Renal Failure, which fact was within his  

knowledge,  the  respondent  was  justified  in  repudiating  the  

claim.

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10. The core question for consideration is whether the fact that at  

the time of taking out the mediclaim policy, the policy holder  

was suffering from chronic Diabetes and Renal failure was a  

material fact and, therefore, on account of non-disclosure of  

this  fact  in  the  proposal  form,  the  respondent  –  Insurance  

Company was justified in law in repudiating the claim of the  

appellant?  

11. Having bestowed our anxious consideration to the matter, we  

are of the opinion that in the light of the material on record,  

answer to the question posed has to be in the affirmative.

12. There is no dispute that Section 45 of the Insurance Act, 1938  

(for short “the Act”), which places restrictions on the right of  

the insurer to call  in question a life insurance policy on the  

ground  of  mis-statement  after  a  particular  period,  has  no  

application on facts at hand, inasmuch as the said provision  

applies only in a case of life insurance policy.  The present  

case relates to a mediclaim policy,  which is entirely different  

from a life insurance policy.  A mediclaim policy is  a  non-life  

insurance policy meant to assure the policy holder in respect  

of  certain  expenses  pertaining  to  injury,  accidents  or  

hospitalizations.   Nonetheless,  it  is  a  contract  of  insurance  

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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, 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. (See: Joel Vs. Law Union &  

Crown Ins. Co.1)

13. In United India Insurance Co. Ltd. Vs. M.K.J. Corporation2,  

this Court has observed that it  is a fundamental principle of  

insurance  law  that  utmost  faith  must  be  observed  by  the  

contracting parties.  Good faith forbids either party from non-

disclosure of the facts which the party privately knows, to draw  

the other into a bargain, from his ignorance of that fact and his  

1 [1908] 2 K.B. 863 2 (1996) 6 SCC 428

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believing the contrary. (Also see: Modern Insulators Ltd. Vs.  

Oriental Insurance Co. Ltd.3).

14. MacGillivray  on  Insurance  Law  (Tenth  Edition)  has  

summarised the assured’s duty to disclose as under:

“…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 nor 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.”

15. Over  three  centuries  ago,  in  Carter  Vs.  Boehm4,  Lord  

Mansfield  had  succinctly  summarised  the  principles  

necessitating  a  duty  of  disclosure  by  the  assured,  in  the  

following words:-

“Insurance is a contract of speculation.  The special  facts  upon  which  the  contingent  chance  is  to  be  computed lie most commonly in the knowledge of  the  assured  only;  the  underwriter  trusts  to  his  representation, and proceeds upon confidence that  he  does  not  keep  back  any  circumstance  in  his  knowledge to mislead the underwriter into a belief  that the circumstance does not exist.  The keeping  back such circumstance is  a fraud,  and therefore  the policy is void.  Although the suppression should  happen  through  mistake,  without  any  fraudulent  intention,  yet  still  the underwriter  is  deceived and  the policy is void; because the  risqué  run is really  different from the risqué understood and intended to  be  run  at  the  time  of  the  agreement…The policy  

3 (2000) 2 SCC 734 4 (1766) 3 Burr. 1905

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would be equally void against the underwriter if he  concealed…Good  faith  forbids  either  party,  by  concealing  what  he  privately  knows,  to  draw  the  other into a bargain from his ignorance of the fact,  and his believing the contrary.”

16. Having  said  so,  as  noted  above,  the  next  question  for  

consideration would be as to whether factum of the said illness  

was a “material” fact for the purpose of a mediclaim policy and  

its non-disclosure was tantamount to suppression of material  

facts enabling the Insurance Company to repudiate its liability  

under the policy?  

17. The  term  “material  fact”  is  not  defined  in  the  Act  and,  

therefore, it has been understood and explained by the Courts  

in general terms to mean as 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”.  

18. As  stated  in  Pollock  and Mulla’s  Indian  Contract  and  

Specific Relief Acts ‘any fact the knowledge or ignorance of  

which  would  materially  influence  an  insurer  in  making  the  

contract or in estimating the degree and character of risks in  

fixing the rate of premium is a material fact.’

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19. In this regard,  it  would be apposite to make a reference to  

Regulation  2(1)(d)  of  the  Insurance  Regulatory  and  

Development Authority (Protection of Policyholders’ Interests)  

Regulations,  2002,  which  explains  the  meaning  of  term  

“material”.  The Regulation reads thus:

“2.  Definitions.—In these regulations, unless the  context otherwise requires,—

(a) xxx xxx xxx (b) xxx xxx xxx (c) xxx xxx xxx

(d) "Proposal Form" means a form to be filled in  by  the  proposer  for  insurance,  for  furnishing  all  material  information  required  by  the  insurer  in  respect of a risk, in order to enable the insurer to  decide whether to accept or decline, to undertake  the risk, and in the event of acceptance of the risk,  to determine the rates, terms and conditions of a  cover to be granted.

Explanation:  "Material"  for  the  purpose  of  these  regulations  shall  mean  and  include  all  important,  essential and relevant information in the context of  underwriting the risk to be covered by the insurer.”

Thus, the Regulation also defines the word “material” to mean and  

include all “important”, “essential” and “relevant” information in the  

context of guiding the insurer to decide whether to undertake the  

risk or not.  

20. The upshot  of  the entire discussion is that  in a Contract  of  

Insurance,  any  fact  which  would  influence  the  mind  of  a  

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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.

21. Bearing in mind the aforestated legal position, we may advert  

to  the  facts  in  hand.   As  noted  earlier,  the  proposal  form  

contained the following two questions:

“10.  Details  of  illness/would  which  may require treatment in  near future  

: Sound Health

11. Details of Treatment/surgical  operation in the last two months

Details of Treatment

Duration of Treatment

Doctor / Hospital

If  fully  recovered,  attached  certificate  

For attending Doctor/Surgeon”

: Nil

From…..to……

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22. Answers  given  by  the  proposer  to  the  two  questions  were  

“Sound  Health”  and  “Nil”  respectively.   It  would  be  beyond  

anybody’s comprehension that the insured was not aware of  

the state of his health and the fact that he was suffering from  

Diabetes as also chronic Renal failure, more so when he was  

stated to be on regular haemodialysis.  There can hardly be  

any scope for doubt that the information required in the afore-

extracted questions was on material facts and answers given  

to those questions were definitely  factors which would have  

influenced and guided the respondent – Insurance Company  

to  enter  into  the  Contract  of  Mediclaim  Insurance  with  the  

insured. It is also pertinent to note that in the claim form the  

appellant  had  stated  that  the  deceased  was  suffering  from  

Chronic  Renal  Failure  and  Diabetic  Nephropathy  from  1st  

June,  1990,  i.e.  within  three  weeks  of  taking  the  policy.  

Judged from any angle, we have no hesitation in coming to the  

conclusion  that  the  statement  made  by  the  insured  in  the  

proposal form as to the state of his health was palpably untrue  

to his knowledge.  There was clear suppression of material  

facts in regard to the health of the insured and, therefore, the  

respondent  –  insurer  was  fully  justified  in  repudiating  the  

insurance  contract.   We  do  not  find  any  substance  in  the  

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contention of learned counsel for the appellant that reliance  

could  not  be  placed  on  the  certificate  obtained  by  the  

respondent from the hospital, where the insured was treated.  

Apart from the fact that at no stage the appellant had pleaded  

that  the insured was not  treated at  Vijaya Health Centre at  

Chennai, where he ultimately died.  It is more than clear from  

the said certificate that information about the medical history of  

the deceased must have been supplied by his family members  

at the time of admission in the hospital, a normal practice in  

any  hospital.   Significantly,  even  the  declaration  in  the  

proposal form by the proposer authorises the insurer to seek  

information from any hospital he had attended or may attend  

concerning any decease or illness which may affect his health.

23. Before  parting  with  the  case,  we  may  also  deal  with  the  

submission of learned counsel for the appellant that the order  

of the National Commission is flawed because it has declined  

to interfere on a wrong premise that both the Fora below had  

arrived at “concurrent findings”, which was not so.  It is true  

that  there  is  an apparent  error  in  the order  of  the  National  

Commission, inasmuch as the State Commission had, in fact,  

disagreed with the view taken by the District Forum but having  

regard to the fact that on our independent examination of the  

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material on record, the claim by the appellant has been found  

to be fraudulent, we are of the opinion that no useful purpose  

would  be  served  by  remitting  the  matter  to  the  National  

Commission for fresh adjudication on merits.

24. In view of the foregoing discussion, we do not find any merit in  

this appeal, which is dismissed accordingly but with no order  

as to costs.  

………………………………….…J.           ( D.K. JAIN )  

…………………………………….J.          ( R.M. LODHA )

 NEW DELHI; JULY 10, 2009.

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