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Suppression Of Facts Made In Proposal Form Will Render Insurance Policy Voidable By The Insurer

In Civil Appeal No. 4261 of 2019, Reliance Life Insurance Co Ltd vs Rekhaben Nareshbhai Rathod, the District Forum dismissed the complaint filed by the Respondent inter alia, on the ground that there was a non-disclosure of the fact that the insured had held a previous policy in the proposal form filled up by the proposer. The appeal filed by the respondents was, however, allowed by the SCDRC and reaffirmed by the NCDRC.

On appeal, the Supreme Court decided that the fundamental principle is that insurance is governed by the doctrine of uberrima fidei. This postulates that there must be complete good faith on the part of the insured. The relationship between an insurer and the insured is recognized as one where mutual obligations of trust and good faith are paramount. In the present case, the insurer had sought information with respect to previous insurance policies obtained by the assured. The duty of full disclosure required that no information of substance or of interest to the insurer be omitted or concealed. Whether or not the insurer would have issued a life insurance cover despite the earlier cover of insurance is a decision which was required to be taken by the insurer after duly considering all relevant facts and circumstances. The disclosure of the earlier cover was material to an assessment of the risk which was being undertaken by the insurer. Prior to undertaking the risk, this information could potentially allow the insurer to question as to why the insured had in such a short span of time obtained two different life insurance policies. Such a fact is sufficient to put the insurer to enquiry. 

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