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P. Sarojam Vs. L.i.C. of India - Court Judgment

LegalCrystal Citation
SubjectInsurance
CourtKerala High Court
Decided On
Case NumberA.S. No. 105 of 1979
Judge
Reported inAIR1986Ker201; [1986]60CompCas445(Ker)
ActsLife Insurance Corporation Act, 1956 - Sections 6 and 43(1); Contract Act, 1872 - Sections 19; Insurance Act, 1938 - Sections 45
AppellantP. Sarojam
RespondentL.i.C. of India
Appellant Advocate V. Rama Shenoi and; R. Raya Shenoi, Advs.
Respondent Advocate S. Easwara Iyer and; E. Subramoni, Advs.
DispositionAppeal dismissed
Cases ReferredCarter v. Boehm
Excerpt:
.....the overwhelming evidence discussed above, the certificates issued by the medical officers of the life insurance corporation cannot be relied on in support of the plaintiffs contention that neelakanta pillai was of perfect health. apparently his medical examination was cursory and the medical officers concerned had failed in their duty to make a proper examination of the person whose life was proposed to be insured. ..good faith forbids eitherparty, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary. it is a contract based on the utmost good faith and if the utmost good faith is not observed by either party the contract may be avoided by the other party. heath, (1899) 1 qb 782, 792). in such contracts as..........made ext b7 proposal for insurance on his life for a sum of rs. 1,75,000/- to the defendant, the life insurance corporation of india. since his salary was not commensurate with the premium payable, the defendant-corporation accepted the proposal for insurance on his life for a sum of rs. 40,000/-. on the same day as ext. b7, his wife the plaintiff made another proposal ext. b8 for insurance on his life for a sum of rs. 1,35,000/-. this proposal was accepted by the defendant. in both the policies the plaintiff is the nominee to receive payment when the policies mature.on the death of neelakanta pillai, the plaintiff demanded payment of the amounts due under the two policies. the defendant repudiated the policies as obtained by fraud and on suppression of material facts relating to the.....
Judgment:

P.C. Balakrishna Menon, J.

1. The plaintiff-appellant is the widow of Neelakanta Pillai, who died on 2-4-1974 at the age of 33 years. He was a Local Fund Auditor in the service of the State of Tamil Nadu. He had on 20-9-1973 made Ext B7 proposal for insurance on his life for a sum of Rs. 1,75,000/- to the defendant, the Life Insurance Corporation of India. Since his salary was not commensurate with the premium payable, the defendant-Corporation accepted the proposal for insurance on his life for a sum of Rs. 40,000/-. On the same day as Ext. B7, his wife the plaintiff made another proposal Ext. B8 for insurance on his life for a sum of Rs. 1,35,000/-. This proposal was accepted by the defendant. In both the policies the plaintiff is the nominee to receive payment when the policies mature.

On the death of Neelakanta Pillai, the plaintiff demanded payment of the amounts due under the two policies. The defendant repudiated the policies as obtained by fraud and on suppression of material facts relating to the life assured. Hence the plaintiff filed the suit for recovery of the amounts due under the two policies covered by the proposals Exts. B7 and B8, accepted by the defendant Corporation. The Court below dismissed the suit finding that the policies were obtained without disclosing material facts regarding the health of the assured and hence the defendant was entitled to repudiate the contracts of insurance. It is against this that the plaintiff has come up in appeal.

2. Both the proposals Exts. B7 and B8 are accompanied by 'personal statements' signed by Neelakanta Pillai wherein the questionnaire relating to conditions of health is answered to show that he was of perfect health. The questionnaire takes in questions particularly relating to ailments if any that the personwhose life is proposed to be assured had suffered in the past. As against the question as to whether he had at any time suffered fainting attacks, pain in the chest, breathlessness, palpitation, or any disease of the heart, the answer is 'no'. To the question as to what has been his usual state of health, his answer is 'good'. In answer to the question as to whether he had remained absent from work on grounds of health during the last two years, he has stated 'no'.

The proposals Exts. B7 and B8 indicate a sound state of health of Neelakanta Pillai free from all ailments until the date of the proposal. The medical officer of the defendant-Corporation had in Ext. B7 certified the life proposed for assurance 'as good', and he considers the life as first class. A similar certificate relating to Ext. B8 proposal is produced as Ext. B8(a) certifying the life of the assured as First Class. Since however Neelakanta Pillai died shortly after the acceptance of the proposals and even before the premiums for the second quarter were due, the defendant-Corporation made investigations relating to the state of health of the assured and found that he was suffering from heart ailment at the time when the proposals were made, his state of health and the history of the ailment were not disclosed and hence the contracts of insurance are vitiated by fraud and suppression of material facts.

It has come out in evidence that Neelakanta Pillai was on leave due to heart ailment at the time when the proposals Exts. B7 and B8 were made. Exts. X2 and X3 are his leave applications and Ext. X4 is a medical certificate accompanying Ext. X3 and produced by D.W. 2 the Assistant Examiner of Local Fund Accounts, Thirunelveli, on summons issued by Court. Exts. X2 and X3 applications for leave are in Tamil. Exts. B2(a) and B3(a) are the translations in English of Exts, X2 and X3. Ext. X2 is the application for earned leave for 120 days from 6-7-1973 to 2-11-1973. The reason for the leave applied for is that the applicant is suffering from weakness of the heart for the last two years for which he has to undergo medical treatment. Ext. X3 is the application for extension of leave for a further period of four months, from 3-11-1973 onwards.

'In Ext. X3 Neelakanta Pillai has stated that he is still suffering from weakness of the heart and his family doctor has advised him to undergo treatment for a further period of four months. Ext. X3 is accompanied by a medical certificate Ext. X4 issued by Dr. Ramamurthy of Nagercoil examined as D.W. 4. Ext. X4 shows that Neelakanta Pillai was suffering from heart disease 'Mitral Stenosis with regurgitation' and he needs bed rest. He was admitted in the Medical College Hospital, Trivandrum on 7-12-1973 and was discharged on 13-12-1973 advising complete rest. Ext. X1 is the case sheet, relating to Neelakanta Pillai produced by D.W. 1, Dr. P.P. Joseph, Associate Professor in the Medical College, Trivandrum. D.W. 1 deposes that Neelakanta Pillai was suffering from Mitral Stenosis and Mitral Incompetence with congestive cardiac failure and that was a case of heart disease of a serious nature. He has further deposed that the patient gave the history of palpitation during physical exertion for a period of five years and that he had rheumatic fever at the age of 16 years. The entries in Ext. X1 were made by Dr. Velayudhan Pillai, Assistant Professor of Medicine who had examined the patient first. Velayudhan Pillai is not available for examination in Court as he is out of India.

3. Exts. X5 and X6 are the case sheets relating to Neelakanta Pillai maintained in the Medical College Hospital, Vellore, produced by D.W. 6, the Head of the Department of Cardialogy attached to the hospital. D.W. 6 has deposed that Neelakanta Pillai reported at the Cardiology Outpatient Department on 22-3-1974 and the doctor who examined him made a note of the case history and recorded his findings diagnosing the case as of rheumatic heart disease. D.W. 6 had occasion to examine the patient on 25-3-1974, and Ext. X5(a) notes were prepared by him. He directed the patient to be admitted in the hospital and on admission he was under his treatment. He diagnosed that the patient was suffering from rheumatic valve disease, mitral regurgitator mitral stenosis, Atrial fibrillation and congestive cardiac failure. D.W. 6 swears that all his ailments are ailments of the heart and are of a serious nature. The patient had reported his case history that he had symptoms of the disease for the last seven years. D.W. 6 swears that the case history given by the patient and his own findings relating to his illness tallied.

4. There cannot be any doubt that at the time when the proposals Exts. B7 and B8 were given Neelakanta Pillai was suffering from a very serious heart ailment. In the light of the overwhelming evidence discussed above, the certificates issued by the Medical Officers of the Life Insurance Corporation cannot be relied on in support of the plaintiffs contention that Neelakanta Pillai was of perfect health. Apparently his medical examination was cursory and the medical officers concerned had failed in their duty to make a proper examination of the person whose life was proposed to be insured. At the time when the proposals were submitted. Neelakanta Pillai was on leave for the reason of his illness as can be seen from Ext. X2. His condition did not improve. He had to extend his leave and had to be treated at the Medical College Hospital, Vellore where he died on 2-4-1974. Neelakanta Pillai was fully aware that he was suffering from a serious heart ailment for several years prior to the proposals Exts. B7 arid B8. He died of the illness, even before the premium for the second quarter had fallen due.

5. H.R. Hardy Ivamy in his General Principles of Insurance Law, Fourth Edition, states at page 157 :

'Those whose business is to insure livescalculate on the average rate of mortality, andcharge a premium which on that average willprevent their being losers. Hence, facts whichtend to show that the average span of life willbe shortened in the case of the particularinsured will be regarded as material Usually,of course, the insurance company puts specificquestions in its proposal form which the insuredis required to answer.'

A contract of insurance is uberrima fides and the person seeking insurance is in duty bound to disclose all material facts relating to the risk involved in the policy of insurance. The learned Author states at page 133 :

'The duty of making disclosure is not confined to such facts as are within the actual knowledge of the assured. It extends to all material facts which he ought in the ordinary course of business to have known, and he cannot escape the consequences of not disclosing them on the ground that he did not know them.'

Fletcher Moulton, LJ. in Joel v. Law Unionand Crown Insurance Co. (1908) 2 KB 863stated at page 884 :

'But the question always is : Was the knowledge you possess such that you ought to have disclosed it? Let me take an example. I will suppose that a man as is the case with most of us occasionally had a headache. It may be that a particular one of these headaches would have told a brain specialist of hidden mischief. But to the man it was an ordinary headache undistinguishable from the rest Now, no reasonable man would deem it material to tell an insurance company of all the casual headaches he had had in his life, and, if he knew no more as to this particular headache than that it was an ordinary casual headache, there would be no breach of his duty towards the insurance company in not disclosing it. He possessed no knowledge that it was incumbent on him to disclose, because he knew of nothing which a reasonable man would deem material, or of a character to influence the insurers in their action. It was what he did not know which would have been of that character, but he cannot be held liable for non-disclosure in respect of facts which he did not know.'

MacGillivray & Parkington on Insurance Law, Seventh Edition, state at para 583 :

'583. The authorities were once not wholly consistent in their definitions of a 'material fact', but this may now be defined in general terms, and for all insurances as any fact which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk.'

The learned Authors at para 614 quote the following statement of the law by Lord Mansfield in Carter v. Boehm, (1766) 3 Burr 1905 :

'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 therisque run is really different from the risque understood and intended to be run at the time of the agreement.............. The policy wouldbe equally void against the underwriter if he concealed.............. Good faith forbids eitherparty, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.'

G.H. Treitel in the Law of Contract, Sixth Edition states at page 304 :

'It has been for centuries in England the law in connection with insurance of all sorts, marine, fire, life, guarantee and every kind of policy, that, as the underwriter knows nothing and the man who comes to him to ask him to insure knows everything it is the duty of the assured..... to make a full disclosure tothe underwriters, without being asked, of all the material circumstances.'

Chitty on Cotracts, twenty-fourth edition states at para 3924:

'An insurance contract is a contract uberrimae fidei. It is a contract based on the utmost good faith and if the utmost good faith is not observed by either party the contract may be avoided by the other party. The reason for this principle of insurance law is that contracts of insurance are founded on facts which are nearly always in the exclusive knowledge of one party (usually the assured) and, unless this knowledge is shared, the risk insured against may be different from that intended to be covered by the party in ignorance. The duty which arises is threefold : a duty to disclose material facts; a duty not to misrepresent material facts; and a duty not to make fraudulent claims.'

The same view is expressed by Cheshire and Fifoot in Law of Contract, 10th edition at page 268 as follows :

'In certain contracts where, from the very necessity of the case, one party alone possesses full knowledge of all the material facts, the law requires him to show uberrima fides. He must make full disclosure of all the material facts known to him, otherwise the contract may be rescinded.'

Anson in his Law of Contract, 25th Edition, states at page 261 :

'The general principles of law applicable to contracts of insurance do not differ in essencefrom those applicable to other kinds of contracts, and the rule with regard to the disclosure of material facts and the penalty for non-disclosure is rather a rule of construction for a particular type of contract.

The rule imposing an obligation to disclose upon the intending assured does not rest upon a general principle of common law, but arises out of an implied condition, contained in the contract itself, precedent to the liability of the underwriter to pay'. The insurer contracts on the basis that all material facts have been communicated to him; and it is an implied condition of the contract that the disclosure shall be made, and that if there has been nondisclosure he shall be entitled to avoid.'

6. In Kumar v. Life Insurance Co. of India, ((1974) 1 Lloyd's Rep. 147, Queen's Bench Division), Kerr J. considered the effect of non-disclosure of a Caesarean operation that the insured had undergone sometime before she had taken a policy of insurance. The proposal form contained a questionnaire answered by the insured and taken down by the Insurance Agent. The learned Judge held that since specific questions were specifically answered and the answers were incorrect, there was no need to consider whether there was non-disclosure of material facts, and the insurer is entitled to repudiate the policy when a claim is made on the death of the assured.

7. The Supreme Court had occasion to consider the effect of false answers to questions in the proposal form relating to a policy of insurance, in the decision in Mithoolal Nayak v. Life Insurance Corporation of India, AIR 1962 SC 814 the Supreme Court stated at page 820:

'The principle underlying the Explanation to Section 19 of the Contract Act is that a false representation, whether fraudulent or innocent, is irrelevant if it has not induced the party to whom it is made to act upon it by entering into A contract. We do not think that that principle applies in the present case. The terms of the policy make it clear that the averments made as to the state of health of the insured in the proposal form and the personal statement were the basis of the contract between the parties, and the circumstance that Mahajan Deolal had taken pains to falsify or conceal that he had been treated for a serious ailment by Dr. Lakshmanan only a fewmonths before the policy was taken shows that the falsification or concealment had an important bearing in obtaining the other party's consent. A man who has so acted cannot afterwards turn round and say : 'It could have made no difference if you had known the truth'. In our opinion, no question of waiver arises in the circumstances of this case, nor can the appellant take advantage of the Explanation to Section 19 of the Indian Contract Act.'

A Division Bench of this Court in Aboobacker v. L.I.C. of India, 1983 Ker LT 492 stated at page 494 :

'Contracts of insurance fall within the category of 'uberrimae fidei' contracts (a term which is convenient though not strictly accurate : Seaton v. Heath, (1899) 1 QB 782, 792). In such contracts as one party is in a very strong position to know the material facts and the other party is in a very weak position to discover them, the former is under a duty not only to abstain from making false representations of material facts but also to disclose, in the utmost good faith, such material facts as are within his knowledge to the other party.'

The Division Bench has referred to the decision of Lord Mansfield in Carter v. Boehm, (1766) 3 Burr 1905 and other decided cases and certain passages from the textbook by McGillivray and Parkington on Insurance Law.

8. We have already adverted to the evidence in the case which would clearly show that Neelakanta Pillai was suffering from a serious heart ailment at the time when Exts. B7 and B8 proposals were made for insurance on his life. Since the contact of insurance is uberrima fides the proposer owed a duty to disclose all material facts relating to his state of health. The insured gave false answers to the questions in the proposal from inducing the insurer to accept the proposal.

The mere fact that the Medical Officers of the L.I.C. of India had certified the life assured as good is not of much consequence, in the light of the facts disclosed by evidence, that the certificates do not disclose the true state of affairs known to the insured who had submitted Exts. B7 and B8 proposals. The false answers to the questions in the proposal form given by the insured vitiate the contract of insurance and the defendant Corporation isentitled to repudiate the policies and decline payment thereunder.

We see no reason to interfere with the decision of the Court below. The appeal fails and is dismissed, in the circumstances without any order-as to costs.


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