Pavan Sachdeva v. Office of the Insurance Ombudsman and Anr.

8) Suresh, P.V. vs. Insurance Ombudsman & Anr. - MANU/KE/0185//2012 (para 9)

9) M.Manimekalai vs. The Insurance Ombudsman & Ors. MANU/TN/3022/2015 (para 8 to 10)

10) Smt. Santosh Kanwar W/o Late Shri Kailash Chandra Dashora vs. Life Insurance Corporation of India through the Sr. Divisional Manager (para 24 to 26) W.P.(C) 6304/2019 Page 5 11) Syed Yakoob vs. K.S. Radhakrishnan & Ors. - MANU/SC/0184//1963 (para 7)

12) Rahul Agarwal vs. National Insurance Co. Ltd. - MANU/RH/1301/2018 (para 37)

8. On the other hand, the learned counsel for the respondent no. 2 submits that the present petition is not maintainable as the petitioner has an alternate remedy in form of a complaint under the Consumer Protection Act, 1986 or a Civil Suit. He further submits that the fact of the petitioner having suffered from Sarcoidosis was a material fact, which should have been disclosed by the petitioner in the Proposal Form. It was not for the petitioner to decide whether a particular fact is material to be disclosed for the Policy or not; such decision has to be left to the insurance company. As far as the insured/applicant is concerned, he/she must disclose all information, especially in relation to the medical condition, while taking up any insurance Policy. He further submits that disclosure of such information was material as is evident from the fact that the petitioner disclosed the same at the time of taking admission in the hospital, which occurred only one month after the insurance Policy was taken. The petitioner therefore, very well knew the importance of such disclosure and intentionally withheld the same from the respondent no. 2.

9. I have considered the submissions made by the petitioner and by the learned counsel for the respondent no. 2. Clause VIII.[1] and VIII.[2] of the Policy document are reproduced hereinunder:-

GENERAL TERMS AND CONDITIONS W.P.(C) 6304/2019 Page 6 VIII.1. Duty of Disclosure The Policy shall be null and void and no benefit shall be payable in the event of untrue or incorrect statements, misrepresentation, mis-description or nondisclosure of any material particulars in the proposal form, personal statement, declaration, claim form declaration, medical history on the claim form and connected documents, or any material information having been withheld by You or any one acting on Your behalf, under this Policy. You further understand and agree that We may at Our sole discretion cancel the Policy and the premium paid shall be forfeited to Us. VIII.2. Material Change Material information to be disclosed includes every matter that You are aware of, or could reasonably be expected to know, that relates to questions in the Proposal Form and which is relevant to Us in order to accept the risk of Insurance and if so on what terms. You must exercise the same duty to disclose those matters to Us before the Renewal, extension, variation, endorsement or reinstatement of the contract."

10. While it is correct that non-disclosure of any material particular or material information can entitle the respondent no. 2 to invalidate the Policy and forfeit the premium, however, the said Clause has to be read in a reasonable manner. In the present case, the petitioner has asserted that he suffered Sarcoidosis in 1982, which is almost 35 years before the insurance Policy was taken by the petitioner. The petitioner has also asserted that this was treated by him taking steroids only for a period of three months and he has not suffered any symptoms thereof thereafter. This fact has not been denied by the respondent no. 2. No dispute has W.P.(C) 6304/2019 Page 7 been raised by the respondent no.2 on the fact that the petitioner was completely fine and did not suffer any symptoms from any ailment at the time of taking the Policy or for a reasonable period prior thereto. Therefore, in these facts, it has to be considered whether non-disclosure of this ailment can amount to concealment of material particulars or information from the respondent no. 2.

11. In Mithoolal Nayak v. Life Insurance Corporation of India, AIR 1962 SC 814, in relation to Section 45 of the Insurance Act, 1938, it was held that for the application of Section 45 of the said Act, three conditions must be satisfied:- (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 Policyholder; 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.

12. In Life Insurance Corporation of India and Ors. v. Asha Goel and Anr., (2001) 2 SCC 160, the Supreme Court, while reiterating the test laid down in Mithoolal Nayak (supra), held that on a fair reading of Section 45 of the Insurance Act, 1938 it is clear that it is restrictive in nature; mere inaccuracy or falsity in respect of some recitals or items in the proposal is not sufficient; the burden of proof is on the insurer to establish these circumstances and unless the insurer is able to do so there W.P.(C) 6304/2019 Page 8 is no question of the Policy being avoided on ground of misstatement of facts; repudiation of a Policy should be done with extreme care and caution and not in a mechanical and routine manner.

13. In P.C. Chacko & Anr. v. Chairman, Life Insurance Corporation of India & Ors., (2008)1 SCC 321, the Supreme Court, again in relation to Section 45 of the Insurance Act, 1938, further held that misstatement by itself was not material for repudiation of the Policy unless the same is material in nature; a proposal can be repudiated if a fraudulent act is discovered.

14. The Supreme Court in Satwant Kaur Sandhu v. New India Assurance Company Ltd., (2009) 8 SCC 316, held that a mediclaim Policy is a contract of insurance falling in the category of contract uberrimae fidei, meaning a contract of utmost good faith on the part of the assured. Thus, 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. The obligation to disclose extends only to facts which are known to the applicant and not to what he ought to have known. The term “material fact” is one 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”. It is “essential” and “relevant” information in the context of guiding the insurer to decide W.P.(C) 6304/2019 Page 9 whether to undertake the risk or not. If a proposer has knowledge of such fact, he is obliged to disclose it, particularly while answering questions in the Proposal Form. Needless to emphasize that any inaccurate answer will entitle the insurer to repudiate its 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.

15. In Reliance Life Insurance Company Ltd. & Anr. v. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175, upon an exhaustive analysis of the precedents, it was observed as under:-

45. Where a proposal form is not used, the insurer under Regulation 4(4) is to record the information, confirming it within a stipulated period with the proposer and ought to incorporate the information in the cover note or policy. In respect of information which is not so recorded, the onus of proof lies on the insurer who claims that there was a suppression of material information or that the insured provided misleading or false information on any matter that was material to the grant of the cover.

26. The expression “material” in the context of an insurance policy can be defined as any contingency or event that may have an impact upon the risk appetite or willingness of the insurer to provide insurance cover. In MacGillivray on Insurance Law [ 12th Edn., Sweet and Maxwell (2012). See p. 493 for cases relied upon.] it is observed thus: “The opinion of the particular assured as to the materiality of a fact will not as a rule be considered, because it follows from the accepted test of materiality that the question is whether a prudent insurer would have considered that any particular circumstance was a material fact and not whether the assured believed it so.…” W.P.(C) 6304/2019 Page 11

27. Materiality from the insured's perspective is a relevant factor in determining whether the insurance company should be able to cancel the policy arising out of the fault of the insured. Whether a question concealed is or is it not material is a question of fact. As this Court held in Satwant Kaur [Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316: (2009) 3 SCC (Civ) 366]: (SCC p. 323, para 22)

28. Materiality of a fact also depends on the surrounding circumstances and the nature of information sought by the insurer. It covers a failure to disclose vital information which the insurer requires in order to determine firstly, whether or not to assume the risk of insurance, and secondly, if it does accept the risk, upon what terms it should do so. The insurer is better equipped to determine the limits of risk-taking as it deals with the exercise of assessments on a day-today basis. In a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not accept the risk is a material fact. If the proposer has knowledge of such fact, she or he is obliged to disclose it particularly while answering questions in the proposal form. An inaccurate answer will entitle the insurer to repudiate because there is a presumption that information sought in the proposal form is material for the purpose of entering into a contract of insurance.

29. Contracts of insurance are governed by the principle of utmost good faith. The duty of mutual fair dealing requires all parties to a contract to be fair and open with each other to create and maintain trust between them. In a contract of insurance, the insured can be expected to have information of which she/he has knowledge. This justifies a duty of good faith, W.P.(C) 6304/2019 Page 12 leading to a positive duty of disclosure. The duty of disclosure in insurance contracts was established in a King's Bench decision in Carter v. Boehm [Carter v. Boehm, (1766) 3 Burr 1905: 97 ER 1162], where Lord Mansfield held thus: (ER p. 1164) “Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly in the knowledge of the insured 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, and to induce him to estimate the risque, as if it did not exist.”

30. It is standard practice for the insurer to set out in the application a series of specific questions regarding the applicant's health history and other matters relevant to insurability. The object of the proposal form is to gather information about a potential client, allowing the insurer to get all information which is material to the insurer to know in order to assess the risk and fix the premium for each potential client. Proposal forms are a significant part of the disclosure procedure and warrant accuracy of statements. Utmost care must be exercised in filling the proposal form. In a proposal form the applicant declares that she/he warrants truth. The contractual duty so imposed is such that any suppression, untruth or inaccuracy in the statement in the proposal form will be considered as a breach of the duty of good faith and will render the policy voidable by the insurer. The system of adequate disclosure helps buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries. This allows the W.P.(C) 6304/2019 Page 13 parties to serve their interests better and understand the true extent of the contractual agreement.

31. The finding of a material misrepresentation or concealment in insurance has a significant effect upon both the insured and the insurer in the event of a dispute. The fact it would influence the decision of a prudent insurer in deciding as to whether or not to accept a risk is a material fact. As this Court held in Satwant Kaur [Satwant Kaur Sandhu v. New India Assurance Co. Ltd., (2009) 8 SCC 316: (2009) 3 SCC (Civ) 366] “there is a clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance”. Each representation or statement may be material to the risk. The insurance company may still offer insurance protection on altered terms.”

16. This court in Hari Om Agarwal v. Oriental Insurance Co. Ltd., MANU/DE/8618/2007, while dealing with an exemption Clause in a Mediclaim Policy, held as under:-

17. From the above, it is apparent that the contract of insurance is one of uberrimae fidei, meaning a contract of utmost good faith on the part of the assured. Concealment or misstatement regarding any material information by the assured would entitle the insurer to repudiate the contract and the claim made thereunder. While judging whether any information is „material‟ or not, one has to look from the eyes of the insurer and not the insured. The Proposal Form is the most important document in such determination as it contains what the insurer considers „material‟ for determining whether or not it wants to enter into the contract with the insured and if so, if it wants to charge any additional premium. However, at the same time, all information under the sun cannot be termed as „material‟ so as to allow the insurer to repudiate the contract and deny the claim at any time. To do so would defeat the very W.P.(C) 6304/2019 Page 16 purpose of insurance contracts and vest the insurer with unbridled powers. Therefore, the term „material particulars‟ has to be interpreted in a reasonable and fair manner.

18. In the present case, the Proposal Form of the respondent no.2, sought inter alia the following information from the applicant:- “4. MEDICAL AND LIFESTYLE INFORMATION: Please answer the below mentioned questions in Yes (Y) / No (N). If the answer to any of the questions is Yes, please ✓ against the relevant Insured Person Insured 1 Insured 2 Insured 3 Insured 4 Insured 5 1 Have you or any of the persons proposed for insurance, ever suffered from or taken treatment, or hospitalized for or have been recommended to take investigations/ medication / surgery or undergone a surgery for a medical condition?

2 Any illness/disease/injury/disability suffered from in the past 48 months other than for childbirth, flu or for minor injuries that have completely healed.

3 Are you currently in good health and not undergoing any treatment or medication for any illness/medical condition (physical or mental).

19. In the „Medical Examination Report Form‟, the following information was sought: W.P.(C) 6304/2019 Page 17 “4. Have you ever suffered from or taken treatment, or been hospitalized for or have been recommended to take investigations/medication/surgery or undergone a surgery for any of the following medical conditions? A) Cardiovascular system/Circulatory system: High or Low Blood Pressure ✅ Chest Pain/Angine✅ Heart Disease✅ Palpitations✅ Any Other✅

1. Hypertension history: If yes please provide below details a. Duration: b. Medications (Name and dosage):

2. Any other ailment? B) Endocrine Glands & Exocrine Gland: Diabetes✅ Thyroid disorder✅ Pituitary disorder✅ Any other✅

1. Diabetes or Pre-diabetes condition: if yes please provide below details: a. Type 1 or Type 2: b. Duration: c. Medications (Oral/Insulin): d. Name and Dosage of Medications:

2. Any other ailment? C) Nervous System: Stroke/TIA✅ Epilepsy✅ Paralysis✅ Psychiatric/psychological✅ Any other✅ Please Give Details: W.P.(C) 6304/2019 Page 18 D) Musculoskeletal System: Arthritis/Joint Disorder✅ Backache/Spinal Disorder✅ Gout/Rheumatic fever✅ Bone/Muscle Disorder✅ Any Other✅ E) Respiratory system: Tuberculosis✅ Asthma✅ Chronic Bronchitis/COAD✅ Pneumonia/Any lung infection✅ Any other✅ F) Renal/Urinary system: Renal failure✅ Dialysis✅ Stone✅ Any Infections✅ Prostate Disorder✅ Any other✅ G) Gastro Intestinal System: Liver Disorder✅ Ulcers✅ Gall Stones✅ Any other✅ H) Female Genital and Reproductive system: Fibroid/Fibroadenoma✅ Cyst/PCOD/Polyp✅ Pelvic infections/Bleeding disorders✅ Menstrual/Hormonal Disorders✅ Any other✅ I) Any disorder/disease of the following: Ear✅ Nose✅ Throat✅ Eye✅ Skin✅ J) Any History of the follow: W.P.(C) 6304/2019 Page 19 Tumor/abnormal Growth✅ Cancer✅ HIV/AIDS✅ Any STD✅ Any other✅ K) Any other illness/disease/injury in the past 48 months other than for childbirth, flu or for minor injuries that have completely healed:

5. Please detail any treatment taken by the insured in the past or being taken at the present: a) Name of the medication(s): b) Dosage and Frequency: c) Date of starting medication(s):

6. Do you or any of the persons proposed for Insurance, Chew Tobacco/Smoke/consume gutka – YES ✅NO✅ If yes please specify duration and quantity”:

20. A reading of the above Clauses would show that the emphasis of the respondent no.2 was on the information regarding illness/disease/injury/disability suffered in the last 48 months. The Clauses further required information regarding specific ailments like Blood Pressure, Diabetes, Epilepsy, Arthritis, etc. There is no mention of Sarcoidosis in the Form. Clause 4(1) inquiring whether the assured had „ever suffered from or taken treatment, or been hospitalized for or have been recommended to take investigations/medication/surgery or undergone a surgery for a medical condition‟ has to be read in harmony with the other Clauses of the Proposal Form and the „Medical Examination Report Form‟; it has to be read in a reasonable manner. W.P.(C) 6304/2019 Page 20 When so read, it cannot mean and include all ailments ever suffered by an assured as such interpretation would make it totally absurd and unworkable. A person cannot reasonably be expected to remember all ailments/treatments/investigation/medication etc. undertaken in his life and failure to mention them cannot be held to be a ground for the insurer to repudiate the contract at its discretion. Once read reasonably, this Clause can only mean any major ailment suffered by the assured reasonably prior to filling up the Proposal Form. Of course, for the ailments that have been specifically mentioned in the „Medical Examination Report Form‟, the period may lose significance and details may need to be mentioned irrespective of when it was suffered by the applicant.

21. Coming back to the facts of the present case, the petitioner had suffered with Sarcoidosis in 1982 and it is stated that he was cured of it within three months. It is not the case of the respondent no.2 that he continued to suffer with it even thereafter. The insurance Policy was acquired by the petitioner in 2017, that is 35 years after suffering from the said disease. It cannot, therefore, be held that disclosure of such disease would be a „material information‟ and the non-disclosure thereof would make the Policy null and void under Clause VIII.[1] of the terms and conditions of the Policy or under the general principles applicable to the insurance contracts.

22. It is also contended by the petitioner and not disputed by the respondent no.2 that prior to the issuance of the Policy, the petitioner was made to undergo a medical examination by the doctors of the respondent W.P.(C) 6304/2019 Page 21 no.2. This again would be an important factor in determining whether the repudiation of the Policy by the respondent no.2 was reasonable. It is not the case of the respondent no.2 that in such medical examination, the petitioner was inquired if he had ever suffered from Sarcoidosis and he still concealed this information. In fact, this shows that even the team of doctors, on examining the petitioner and looking into his health, did not consider it important or material to ask him about this disease.

23. The fact that the petitioner suffered from cardio incident within a month of taking the Policy can be just a coincidence and cannot be held to be sufficient to annul the Policy. Similarly, the petitioner‟s disclosure of him having suffered from Sarcoidosis in 1982 to the doctors at the time of his admission to the hospital, may also be because the doctors at the hospital may have put this specific query to him. Anyway, it cannot be inferred from this that the petitioner was aware that the disclosure of this information in the Proposal Form was „material‟.

24. In view of the above discussion, it must be held that the repudiation of the Policy by the respondent no.2 and the consequent rejection of the claim of the petitioner thereunder, was unreasonable and could not have been sustained.

25. As far as the objection of the learned counsel for the respondents on the maintainability of this petition due to availability of alternate remedy, the same is also rejected. In Asha Goel and ors. (supra), the Supreme Court, specifically in relation to a Writ challenging the repudiation of an insurance claim, has held as under:- W.P.(C) 6304/2019 Page 22

11. The position that emerges from the discussions in the decided cases is that ordinarily the High Court should not entertain a writ petition filed under Article 226 of the Constitution for mere enforcement of a claim under a contract of insurance. Where an insurer has repudiated the claim, in case such a writ petition is filed the High Court has to consider the facts and circumstances of the case, the nature of the dispute raised and the nature of the inquiry necessary to be made for determination of the questions raised and other relevant factors before taking a decision whether it should entertain the writ petition or reject it as not maintainable. It has also to be kept in mind that in case an insured or nominee of the deceased insured is refused relief merely on the ground that the claim relates to contractual rights and obligations and he/ she is driven to a long drawn litigation in the civil court, it will cause serious prejudice to the claimant/other beneficiaries of the policy. The pros and cons of the matter in the context of the fact situation of the case should be carefully weighed and appropriate decision should be taken. In a case where claim by an insured or a nominee is repudiated raising a serious dispute and the Court finds the dispute to be a bona W.P.(C) 6304/2019 Page 24 fide one which requires oral and documentary evidence for its determination then the appropriate remedy is a civil suit and not a writ petition under Article 226 of the Constitution. Similarly, where a plea of fraud is pleaded by the insurer and on examination is found prima facie to have merit and oral and documentary evidence may become necessary for determination of the issue raised then a writ petition is not an appropriate remedy.” (Emphasis supplied)

26. Applying the above test to the facts of the present case, it must be held that the present Writ Petition is maintainable. There are no disputed questions of fact involved in the present petition. Further, what is challenged before this court is the order passed by the Insurance Ombudsman appointed under Rule 7 of the Insurance Ombudsman Rules, 2017 (hereinafter referred to as „Rules‟). The object of the Rules is to resolve all complaints of insurance in a cost effective and impartial manner. The Insurance Ombudsman can, under Rule 16 of the Rules, make recommendations on a fair settlement, and failing a settlement, under Rule 17, pass an Award adjudicating such complaint, as has been done in the present case. The Ombudsman, in such adjudication has to keep in mind the relevant considerations required for such adjudication. Where the Writ Court finds that the Award has been passed by the Ombudsman by ignoring relevant considerations or on irrelevant considerations, it would be entitled to entertain such petition and issue a Writ of Certiorari quashing such Award. W.P.(C) 6304/2019 Page 25

27. In the present case, the Ombudsman has clearly failed to apply the correct test to the dispute before it. The impugned order records that “the Discharge Summary dated 01.10.2017 confirms that the insured patient had Sarcoidosis since 1982”. The Discharge Summary in fact, records “Past Medical History” as under:- “Sarcoidosis 1982 took steroids for 3 months”

28. The above remark in the Discharge Summary cannot be read to mean that the petitioner continued to suffer from Sarcoidosis as has been interpreted by the Ombudsman. The impugned order has therefore, proceeded on an incorrect basis and cannot be sustained.

29. There is no dispute on the quantum of the claim of the petitioner. The petitioner has claimed Rs. 6,06,859/- towards medical reimbursement. Such claim is stated to have been made on 01.10.2017. There is no dispute on this date as well.

30. Accordingly, the respondent no. 2 is directed to pay to the petitioner, within a period of four weeks from the date of the judgment, a sum of Rs. 6,06,859/- (Rupees six lakhs six thousand eight hundred and fifty nine only) along with simple interest at the rate of 9% per annum with effect from 01.10.2017 till the date of payment. The respondent no.2 shall also pay cost quantified as Rs. 25,000/- (Rupees twenty five thousand only) to the petitioner. W.P.(C) 6304/2019 Page 26

31. The petition is allowed in the above terms.

NAVIN CHAWLA, J JULY 27, 2020