Cannot Burden Insurer To Follow Up An Inadequate Disclosure Of Material Facts By The Insured

In CIVIL APPEAL NO.3359 OF 2019, Oriental Insurance Company Limited vs Mahendra Construction, the claim filed by the insured against the damage of the insured machine was repudiated by the insurer on the ground that the details of claims lodged during the preceding three years were required to be disclosed but were not furnished by the insured.

The SCDRC accepted the contention of the insured based on the fact that previous insurance policy of the insured was attached with the current application which satisfies the need of having informed the insurer of previous policies and claims.

In appeal, the NCDRC held that since the previous insurance policy was annexed to the proposal, the appellant could have known of the claims lodged with the previous insurer on making an enquiry. Alternatively, it was held that if there was a non- disclosure of information under paragraph 25(g), the appellant could have returned the proposal. The NCDRC held that the insurer could have discovered the true state of facts with the exercise of ordinary diligence and was, hence, not justified in repudiating the claim.

The Supreme Court however held that  this line of reasoning of the NCDRC is flawed. Insurance is governed by the principle of utmost good faith, which imposes a duty of disclosure on the insured with regard to material facts. The burden cannot be cast upon the insurer to follow up on an inadequate disclosure by conducting a line of enquiry with the previous insurer in regard to the nature of the claims, if any, that were made under the earlier insurance policy. On the contrary, it was the plain duty of the respondent while making the proposal to make a clear and specific disclosure. The insurance policy with New India Assurance Company Limited was for the period from 15 November 2004 to 14 November 2005. The excavator remained uninsured from 15 November 2005 until 10 October 2006. The case of the respondent was that during that period, it was under repair. This fact, together with the receipt of the earlier insurance claim, was material to the decision of the insurer on whether to accept the proposal for insurance. The disclosures which were required in paragraph 25(g) of the proposal form were material to assess the risk profile of the vehicle at the time of accepting the proposal for insurance.