BRANCH MANAGER, LIFE INSURANCE CORPORATION OF INDIA vs BHAGWATI PRASAD TIWARI

THE Life Insurance Corporation of India (LIC) has come up in appeal under Section 15 of the Consumer Protection Act, 1986 (for short the ''Act'') against the order dated 6.8.1997 passed in Case No. 31/1996 by the District Consumer Disputes Redressal Forum, Panna (for short the ''District Forum'').

LATE Smt. Chandrika Tiwari, wife of the complainant Shri Bhagwati Prasad Tiwari, assured her life by obtaining a Life Insurance Policy No. 375107483 dated 14.10.1995 for a sum of Rs. 1 lac of the table and term 74-15, on the Proposal Form No. 100937F dated 14.10.1995. Half yearly premium was fixed as Rs. 4,823/-. On 30.7.1996 that is after 9 months of the commencement of the policy, she died of heart attack. The complainant being the nominee of the deceased submitted the claim for the sum assured and other benefits arising out of the policy. The LIC after examining the merits and demerits and the material collected about the health of the deceased at the time of taking of the policy repudiated the claim vide letter dated 26.10.1996 as on investigation conducted it was found that the life assured had suffered "Colles" fracture of left wrist and for that she was treated as an indoor patient in the Government District Hospital, Panna from 16.9.1995 to 29.9.1995 prior to the date of filing of the proposal. This fact was knowingly suppressed by life assured who gave answer No'' to the Item Nos. 11 (ka), (chha) and (Jha) : "xxx xxx xxx xxx" The complainant challenged the repudiation as arbitrary and on unjustifiable grounds amounting to deficiency in service and claimed the amount of Rs. 1,00,000/- the insured amount and Rs. 50,000/- for mental and physical tension alongwith interest at the rate of 18% per annum. The District Forum after appreciation of material and evidence on record held that the colles a fracture in the wrist had no nexus with the cause of death as insured died on cardiac arrest, hence, there was deficiency in service in not paying the amount of the claim. Therefore, ordered for payment of Rs. 1,00,000/- with its interest thereon at the rate of 18% per annum from 11.12.1996 and also awarded compensation of Rs. 5,000/- for physical pain and Rs. 5,000/- for mental pain and also costs of Rs. 300/-.

Mr. Deepesh Joshi, learned Counsel for the appellants contended that the LIC in view of Section 45 of the Insurance Act, 1938 repudiated the claim and called in question the policy within a period of two years from the date on which it was effected on the ground that any statement leading to the issue of the policy was inaccurate or false. The materiality of the answer was to be judged by the LIC and not by the assured by applying the proper test, whether a reasonable man would have recognised that it was material to disclose the knowledge in question in order that the insurer would be able to make up his mind whether the proposal ought to be accepted or not. That is why the insurers who propound the questions stated in the application form for considering the materiality of the answers in relation to the acceptance of the risk. The answers to the item No. 11 (Ka), (Chha) and (Jha) were material, which were false to the knowledge of the assured. Therefore, the claim was rightly repudiated and the policy was rightly avoided. Counsel cited Mithoolal Nayak v. Life Insurance Corporation of India, AIR 1962 SC 814, and unreported decision of Division Bench of Karnataka High Court in F.A. No. 1977, Life Insurance Corporation of India v. Smt. B. Kusuma T. Rai, decisions of National Commission, Ajay Prakash Mittal v. Life Insurance Corporation of India, I (1998) CPJ 2 (NC)=(1998) NCJ (NC) 477, Divisional Manager, Life Insurance Corporation of India & Ors. v. Smt. Sunita Sharma, 1986-97 National Commission and Supreme Court on Consumer Cases, Part-II, Page 3056 (NS), and a dicision of this Commission in Life); Insurance Corporation of India v. Smt. Shakutala Devi, III (1998) CPJ 267 (M.P.S.C.),

MR. B.V. Bhargava, learned Counsel for the respondent submitted that Section 45 of the Insurance Act imposes a restriction on the insurer''s right to repudiate a policy under the general law of insurance and does not confer a right on the insurer to repudiate policy which has been enforced for less than two years on the ground of false or inaccuracy of mis-statements, irrespective of its materiality. If the insurer wants to repudiate such policy, it must satisfy the requirements of general law of insurance. It was incumbent upon the appellants when they decided to repudiate the claim and to avoid the policy whether the inaccurate or false answers to item Nos. 11 (Ka), (Chha), (Jha) would have influenced the mind of prudent insurer in deciding whether or not to take the risk and if so, at what premium. For that no material has been placed to demonstrate that inaccurate or false answers were material or not for covering the risk. Besides, Colles is a minor fracture which has no nexus either with the longevity of the life or with the cause of death of the assured. Therefore, the repudiation of the claim and avoidance of the policy was arbitrary and on unjustifiable grounds amounting to deficiency in service. Counsel cited Smt. Alia Begum v. L.I.C. of India, III (1997) CPJ 106 (NC); L.I.C. of India v. Smt. Shobha devi Sunder Lal Patni, II (1996) CPJ 67 (NC)=1986-96, Para II, Page 2154 (NS); National Commission and Supreme Court on Consumer Cases, The Divisional Manager, L.I.C. v. Uma Devi, II (1991) CPJ 516 (NC); Savitri C. Pillai v. Life Insurance Corporation of India, I (1998) CPJ 72 (M.P.S.C); Life Insurance Corporation of India v. Sh. Amit Kumar, 1998 (2) CON.LT 345; Life Insurance Corporation of India v. Smt. Laxmi Devi & Ors., 1998 (2) CON.LT 392; Divisional Manager, L.I.C. of India & Ors. v. T. Venkateshwarlu, III (1997) CPJ 147 (A.P.S.C.); Life Insurance Corporation of India v. Parmeshwari, I (1994) CPJ 319 (Maharashtra S.C.); Manoharlal v. Life Insurance Corporation of India, AIR 1981 Delhi 171; Life Insurance Corporation of India v. Shakuntala Bai, AIR 1975 Andhra Pradesh 68; and Rohini Nandan Goswami v. Ocean Accident and Guarantee Corporation Limited, AIR 1960 Calcutta 696. It is well settled that the contract of insurance, including the contract of life insurance are uberrimae fide. They are founded upon utmost good faith. If one party fails to observe this utmost good faith, the contract may be avoided by the other. Therefore, the obligation is cast upon both the parties to deal fairly and honestly in equal degree. In these contracts, the contracting parties are placed under a special duty towards each other not merely to refrain from the active mis-representation, but to make full disclosures of all material facts within their knowledge.

THE repudiation of the claim and calling the policy in question is based on Section 45 of the Insurance Act which we quote : "45. Policy not to be called in question on ground of mis-statement after two years.- No policy of life insurance effected before the commencement of this 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 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, unless the insurer shows that such statement was on a 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 that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal."

A careful reading of Section 45 of Insurance Act, indicates that it modifies the common law in so far as the policy sought to be challenged on account of mis-statement or suppression of facts any document from the date of the actor after the expiry of two years on which it was effected. THE repudiation of the claim and calling in question of the policy in terms of Section 45 was considered by the Supreme Court in case of Mithoolal Nayak (supra). THE Supreme Court in para 8 of the judgment laid down three conditions for the applicability of the second part of Section 45 of the Insurance Act which are extracted thus : "(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 it was material to disclose."

In view of the fact the claim was repudiated from the date a period of two years expired, the Supreme Court in para 7 observed that Section 45 of the Insurance Act applies. Therefore, did not examine the legal position that would follow as a result of inaccurate statements made by the insured in the proposal form or in the personal statements etc. in a case where Section 45 does not apply and where the statements made in the proposal form and personal statements are made the basis of the contract. In the circumstances, the decision of the Supreme Court and unreported decision of the Karnataka High Court in Life Insurance Corporation of India v. Smt. B. Kusuma T. Rai (supra), are of no help to the appellants. Section 45 of the Insurance Act does not confer any right on the insurer to repudiate a policy which has been enforced for less than two years on the ground of falsehood or inaccuracy of a statement, irrespective of its materiality and if the insurer wants to repudiate the liability under such a policy, he has to satisfy the requirements of the general law of insurance. The burden is cast on the insurer to show that the statement was on a material matter which was inaccurate from the point of view from the policy and not at the point of view of the assured, whether it was relevant or material or not. While accepting the contract of insurance, the contract can be repudiated for non-disclosure of material facts. What are material facts that is every circumstance which could be relevant for a prudent insurer to fix premium or to decide whether he should take the risk. The text to determine materiality is; whether the facts has any bearing on the risk undertaken by the insurer. If the fact has any bearing on the risk it is material facts, if not it is not material. See, AIR 1981 Delhi 171, AIR 1975 Andhra Pradesh 68, AIR 1960 Calcutta 696, (supra), and the decision of Kerala High Court in Life Insurance Corporation of India v. Smt. Sosamma Punnam, AIR 1991 Kerala 230.

IN Life INsurance Policies where acceptance or rejection of risk depends upon the state of health, a distinction must be drawn between illness and a simple disorder. IN the present case, incorrect answer in relation to the treatment of fracture of Colles was given. IN Stedman''s Medical Dictionary, 26th Edition at page 686 "colles" is defined as ''a fracture of the lower end of the radius with displacement of the distal fragment dorsally; sometimes called a reversed Colles'' for Smith''s when volar displacement of the distal fragment occurs in the same location''. IN the Concise Oxford Dictionary, 8th Edition at page 222 the meaning of" ''Colles'' fracture" is given as ''a fracture of the lower end of the radius with a backward displacement of the hand''. Colles was a surgeon in whose this type of fracture is known.

NO material has been placed before the District Forum or before us to demonstrate that if the true answers would have been given relating to treatment of fracture of Colles, the appellants would not have undertaken the risk or this fracture would have shortened the longevity of the life and if the risk is undertaken that is on charge of higher premium. Therefore, untrue answers in the facts of this case cannot be said to be material from the point of L.I.C. so as to call in question the policy and repudiation of the claim. Besides, it is also relevant to state that the assured died of cardiac arrest which has no nexus of Colles fracture. The National Commission in case of 15. Chinnamma v. Divisional Officer, L.I.C. of India, III (1996) CPJ 136 (NC), where the repudiation of claim by L.I.C. was on the ground that the insured had undertaken treatment for peptic ulcer for a period of 7 days which he did not mention in the proposal form and later he died due to heart stroke held that the repudiation of the claim because of non-disclosure of averment was not justified amounting to deficiency in service under Section 2(1)(g) of the Act.

The National Commission in Smt. Alia Begum''s case (supra), a case where the insured died of rheumatic heart disease, claim was repudiated on the ground of previous illness before signing the proposal form by the deceased observed that no evidence has been led by the Insurance Company to substantiate that the facts regarding intermitent fever and body aches were material particulars which the deceased suppressed to disclose and had bearing on the risk undertaken by the insurer, which were trivial ailments and the same could not be construed as fraudulent suppression of material facts so as to repudiate the contract of insurance.

IN view of the settled position of law, it is not necessary for us to reproduce the principle enumerated in the decisions of State Commissions cited by the learned Counsel for the respondent. The decisions relied by the learned Counsel for the appellants are distinguishable on facts and are of no help to the appellants. As a result of aforesaid discussion, we are of the view that the materiality of the incorrect or untrue answers and its effect in taking of the risk, longevity of the life of the assured and the fixing of the premium has not been established by discharging burden of calling in question of the policy. The repudiation of the claim in the facts of this case was unjustified without application of proper mind.

BEFORE parting with the case we may state that the L.I.C. and General Insurance Companies are instrumentalities of State. Therefore, the Courts have placed them on a higher pedestal as litigants. L.I.C. carries on business of life insurance, a nationalised and monopolistic business, hence it owes a great responsibility to the public. On claims being repudiated, if the matter reaches the Court, the L.I.C. should not contest the suit or complaint in the way and in the manner in which and ordinary litigant contests it. The contest should be on a higher plane, so as to inspire confidence and leave the impression in the minds of the public that their honest claims are not resisted on unsound and insecure foundations with frivolous pleas and reckless allegations. In the result, the appeal fails and is dismissed with a direction to the appellants to make the payment as ordered by the District Forum within a period of 30 days from today. The appellants shall bear the costs of this appeal which are quantified at Rs, 1,000/-. A copy of this order be conveyed to the parties. Copy of this order be sent to the District Forum alongwith the record of the case. Appeal dismissed.