Uberrima fidesis a Latin phrase meaning "utmost good faith" (literally, "most abundant faith"). It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal.It is defined as “firm adherence to promises made to another including disclosure of all relevant facts and complete trust in the fidelity of the other.”
The insurance contract is dominated by the legal maxim “the utmost good faith”. The observance of utmost good faith by the parties is vital to a contract of insurance. Insurance is called an UBERRIMA FIDEI contract because the parties are required to conform to a higher degree of good faith than inthe general law of contract.Insurance being a device of risk transference stands on a separate basis. The non-disclosure of a material fact by the assured whether fraudulent or innocent, has the same effect of avoiding the contract. A stringent duty is imposed on the assured to provide all the material facts that might influence the decision of the insurer.
It is the duty of the assured to disclose all material facts within their knowledge. In cases of life insurance, certain specific questions are proposed as the points affecting in general all mankind. But there may be circumstances also affecting particular individuals, which are not likely to be known to the insurer, and which had they been known, would no doubt, have been made subject to specific enquiries. The question as to which information is material to the contract is a wide one. In case of dispute a court or a committee of arbitrators may decide it. But this cannot certainly be left to the opinion of the proposer. “Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk”.
In an insurance contract each party acts on the good faith of the other. If the proposer conceals or misrepresents material facts, the contract is vitiated. Deliberate concealment or misrepresentation amounts to fraud, and the policy is legally void. Innocent misstatement or misrepresentation renders the policy voidable at the option of the insurer up to two years.
Section 45 of Insurance Act, 1938:
Under section 45 of the Insurance Act, 1938 in the case of life insurance a two years’ time limit is imposed in bringing the validity of the policy into question by the insurer on the ground of misstatements in answers to questions in the proposal form or in any report or document leading to the issue of the policy. Section 45 says that after the expiry of two years from the date on which it was effected no policy of life insurance 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.The insurer cannot avoid the consequences of the insurance contract by simply showing inaccuracy or falsity of the statement made in the proposal form but has to prove under section 45 that the life insurance policy has been obtained by means of fraudulent misrepresentation.
For avoiding the policy on the ground of fraudulent concealment under the provisions of section 45, “it must be convincingly shown that the matter in question was knowingly concealed.” The insurer has also to show:
(1) That such statement was on a material matter or suppressed facts
which it was material to disclose and,
(2) That it was fraudulently made by the policyholder and,
(3) That the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose.
Indisputability Of Policy
The doctrine of utmost good faith works as a great hardship for a long period on the plea of miss-statement at the time of proposal. In such cases, it would be very difficult to prove or disprove whether a particular statement made, at the time of policy was true. Therefore, to remove this hardship, certain sections in the concerned Act are provided. In India, Section 45 of the Insurance, Act 1938 deals with such dispute. It is called indisputable clause. No policy of life insurance, after expiry of two years from the date on which it was effected, be called into 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 policyholder 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.
Material facts are based on the legal principal of "utmost good faith," which requires a person who is seeking insurance of any kind to disclose any and all information that could be deemed relevant by an insurer. This information, known as material fact, may be any fact or facts that an insurance underwriter could use to assess the level of risk associated with insuring a particular individual. This degree of risk is what an insurer uses to determine your coverage and your premium, or cost.
In the case of SatwantKaurSandhuvs New India Assurance Co. Ltd, the term “material fact” was explained by the court to mean any fact that would influence the judgement of the insurer in fixing the premium or determining if he would like to accept the risk or not.
Uberrima Fides: Duty Of Both The Parties
Good faith is expected from the insured or assured as well as the insurer. It is the buyer’s duty to disclose all facts related to the risk to be covered. Similarly, it is the insurer’s duty to inform the insured of all the terms of the contract. However, it is generally the assured person on whom there is a bigger duty to disclose. This is primarily because very often the insurer has to depend upon what details the insured mentions in his form. If the insured gives wrong details or details of goods which are actually not in existence, the insurer may end up paying for the wrong claims in the future. The insurer faces a lot of problems trying to verify all such details, even though the advent of technology has made the task comparatively easier nowadays. Wrong information given not only affects the insurer but also the other people involved in the insurance pool whose premiums may be wrongly utilized to satisfy the claims. It is therefore an implied condition or principle of insurance that the Assured be required to make a full disclosure of all material particulars within his knowledge about the risk. Further, considering the increase in new businesses in which insurance is being taken, it becomes mandatory for the assured to inform the insurer if there are any alterations or changes to the business which increases the risk during the validity of the policy and get his permission. If no disclosure is made, the insurer has every right to avoid the contract.
Non-Disclosure Of Material Facts As Ground Of Repudiation
Cases wherein the insured suppresses material facts or provide false and untrue information regarding the pre-existing disease, correct age, income and occupation and insurance policy. In such cases, the insurer is within its rights to repudiate the claim, arising after the death of the insured, on the ground that the insured did not disclose material facts at the time of entering the contract. The life assured or proposer is under solemn obligation to make full, complete, true and correct disclosure of the material facts which may be relevant for the insurer to take into account while deciding whether the proposal should be accepted. If the life assured or proposer failed to disclose the true and correct material facts to the insurer, then the policy obtained by the life assured or proposer stands vitiated and the life assured or any person claiming under the policy is not entitled for any benefits under the said policy.The onus of proof is on the insurer to prove that the claim is repudiated on the ground of non-disclosure or misstatement of material facts.In the absence ofdocumentary evidence, the District Forum or State Commission will reject the repudiation of claim.
Land Mark Cases
1. Life Insurance Corporation Vs Asha Goel
Brief facts of the case:
· Insurance policy was taken by the husband of the respondent and the insured died with 1 and half year of taking of the policy and the claim was repudiated on the ground of Non-disclosure and withholding information regarding the health of the Insured.
· Writ petition was filed under Article 226 in High Court.
· Learned judge held that in view of question of maintainability held that liabilities of the corporation under life insurance is statutory liability and writ petition can lie under article 226.
· Corporation stated that the claim was repudiated on the ground that deceased gave incorrect answers because he stated that his health was good and he had no consulted a medical practitioner within last 5 years, and also not remained absent from work on ground of health for 13 daysfew year back.
· Corporation was not given the opportunity to lead the evidences by the single judge and there was no enough record brought by corporation to establish conditions mentioned in the second part of Sec. 45 of the Insurance act. 13 days leave could not be ground to draw conclusion that deceased suffered from health ailment in 1976.
· The Division bench held that the corporation should be allowed to lead evidence because it would be useful for their contention that policy was obtained by fraud. Fresh trial started.
Issues in the case:
1. Whether the high court should entertain writ petition with disputes regarding facts and evidences ?
The High Court should not entertain the matter regarding contractual liability. In the case of SMT. KiranSinhaVs LIC of Patna High Court writ jurisdiction no. 1620 of 1981 ,that Supreme Court passed an order that “High Court could not have directed payment of money claimed under Insurance policies in question in petition under Art. 226 of constitution. The only remedy available to the Respondent in this case was suit before a civil court. The judgement of High court is thus set aside.
In the following case, the appeal to division bench was allowed on the ground that corporation was not allowed to lead evidence. This was allowed by the Division Bench. So, when corporation when starts presenting evidence will defeat the position that states that if it becomes necessary to inquire into evidences then the proceeding should not be entertained under Art. 226 of constitution and the matter should go to alternate forum which is civil suit and not writ petition under writ under High Court. The writ petition should be filed in such cases where there is no dispute to the facts and no requirement to file evidences. Therefore the matter should be entertained in civil suit and not in writ petition.
2. Whether the judgement of the division bench is right in cancelling the repudiating of the claim?
The judgement of the division bench upholding the decision of single judge to pay the claimed is supported because of the following points:
I. That the claim was repudiated on the ground Non-disclosure of medical history of the ailment and the policy was repudiated after passing of the limitation period of 2 years. Where Sec. 45 clearly states that claim cannot be brought in to questioning after period of 2 years had expired from the date of issuance of the policy.
II. The defence taken under the second part of the policy cannot be supported because the corporation has to prove that the deceased had made a false statement and such statement was material in nature and was made fraudulently. The corporation submitted a claim form B-1 that showed that the deceased suffered from Myocardial infarction given by the patient to Dr.Kowde.
III. The thing to note is that the claim form B-1 came into the possession of the LIC after the claim had been repudiated. Which shows that there was a clear hurry in the minds of the corporation to repudiate the claim. Another thing to note is that Dr.Kowde is still working in the hospital and for unknown reasons no affidavit by doctor was filed in court
IV. The petitioner (widow) had annexed 2 documents. Firstly, medical attendant’s certificate by Dr. P.S. Kulkarni which states that he had no heart ailment prior to the policy and secondly, another claim form B-1 obtained by Irwin group of hospital that showed he suffered from no heart ailment.
It is clear from the following grounds that there is no sufficient evidences to prove that he suffered from heart ailment. So there is no question of repudiation on grounds of Non-disclosure by fraudulent means.Taking all points in mind the repudiation of claim seems to be done unfairly, unjustly and arbitrarily. The claim should be passed.
2. Mithoolal Nayak Vs Lic
Facts in brief:
· Appellant (MithoolalNayak) took life insurance for sum of Rs 25000/- for life of one MahajanDeolal. After the death of MahajanDeolal the claim was repudiated on the ground of deliberate misstatement.
· Dr. Desai checked him and gave report that Mahajan looked 55 as opposed to what he had claimed i.e. 45 years and suffered from Pneumonia. Company suggested check up from 2 other doctors.
· He has stated his answer in negative to the question when asked “whether he has consulted a medical practitioner for treatment in last 5 years?”.
· Respondent company claims that his answer was lie because Dr. P.N. Lakshman, Japalpur stated he treated Mahajan suffering from diarrhoea and panting from exertion.
· On the other hand Dr.Motilal, Brother of the appellant had stated in his report that Mahajan was fit and healthy and suffered from no ailments.
· After his death, certificate of Dr. Clarke, showed that Mahajan’sdeath was caused by Malaria followed by Diarrhoea and secondary anaemia. Supreme court upheld the repudiation.
Issues in the case:
1. Whether the policy is void due to the suppression of material facts by Mahajan Deolal?
The policy is void and liable to be repudiated because the insured had given negative answers to the question that he had never received treatment for any illness.
Dr.Lakshman had stated on record that patient was brought to him by Dr.Motilal Nayak himself. In his report Dr.Motilal Nayak had stated that he does not remember the deceased to have ever consulted the doctor. There is no valid reason why Dr.Motilal would forget that he himself took insured to Dr.Lakshman few months ago.
Deceased not only did not disclose the information of getting treated by the doctor but he also made false statement that he has not been treated by any doctor. This shows that there was intention of supressing the material fact deliberately and policy passes to be repudiated.
2. Whether the appellant is entitled to a refund of money, paid to insurance company?
Money was paid as premium because of the policy belonging to the company. Policy was declared void because of suppression of facts. When the party to a contract breaches his promise of the contract then the other party shall be discharged from the performance of his part of the contract. The party guilty of fraud can not be entertained for the refund of money.
3. Satwant Kaur Sandhu Vs New India Assurance Company
Facts in Brief:
· Pritam Singh was insured under Mediclaim Policy. He fell ill and was shifted to Vijaya Heath Centre, Chennai. The claim was repudiated on the ground of non-disclosure of previous ailment. The company furnished a certificate collected from Vijaya Heath Centre stating deceased to be a known case of “chronic renal Failure” and “diabetes”.
· District forum preferred the appeal on the ground that certificate was not supported by evidences hence disregarded. District Forum ordered company to pay the claim.
· State forum stated that the answers given by insured amounted to misrepresentation and suppression of factsregarding his health. Held That there was no deficiency of service.
· NCDRC dismissed the revision petition stating no changes in order of the State Commission.
· Matter went to appeal to Supreme Court.
Issues in the case:
1. Whether the mediclaim policy be repudiated on ground of misstatement and nondisclosure of facts?
There is dispute that Section 45 places restrictions on right of insurer to call in question a life Insurance policy on ground of misstatement and suppression of material facts. It will not be applicable in the following case because this provision applies only to life insurance policies and not to mediclaim policy. A mediclaim policy is a non life insurance policy. Nonetheless, it is a contract of insurance falling under the “UBERRIMA FIDES” meaning a contract of utmost good faith on part of the assured. Thus it needs emphasis that when an information is asked for in a proposal form , an assured in under solemn obligation to make true and full disclosure of the information on the subject which is within his knowledge. Of course the obligation to disclose extends only to the facts that are known to the applicant and not to what he ought to have known.
2. Whether at the time of taking the Mediclaim policy, the policy holder suffering from disease was material fact?
The term “Material fact” is not defined in the act and, therefore it has been understood and explained by the courts in general terms to mean anyfact that would influence the judgement of insurer in fixing the premium or determining whether he would like to accept the risk. Any fact that goes to the root of the contract of insurance and had a bearing on the risk involved would be “Material”. It is stated in Pollock and Mulla’s Indian contract and specific relief acts that “any fact the knowledge or ignorance of which would materially influence an insurer in estimating the degree and character of risks in fixing the rate of premium is Material fact. In the following case, it would be ignorant to say that the insured was not aware of his health and the fact that he was suffering from diabetes and chronic renal failure, more so when he was stated to be on regular haemodialysis. There is hardly any scope of doubt that the questions asked in the proposal form were material facts the answer to which would have influenced the insurer.
It is clear that wrong answer given about the health issues was clearcut suppression of material facts and therefore the insurance company was justified to repudiate the claim.
The term good faith has been mentioned in the Indian Penal Code and it signifies good intention and due care and caution.The contracts of insurance including the contract of life insurance is contracts Uberrima fides that means contract based on "utmost good faith" hence each and every material facts must be disclosed and the concealment of any material information or providing any false or incorrect information in the policy is a violation of the insurance contract. This emanates from the right of every person to know about every material fact associated with the subject matter of the contract and there is no escape to this.Concealment of any material fact will entitle the insurer to deprive the assureds’ benefits of the contract.It was observed that the purpose for taking a policy of insurance is not very material. It may serve the purpose of social security but then the same should not be obtained with a fraudulent act by the insured. Proposal can be repudiated if a fraudulent act is discovered. The proposer must show that his intention was bona fide. It must appear from the face of the record. Thus, this principle forms an integral part of insurance law. It gives a fair chance of risk assessment to the insurer and also ensures that the assured fully understands all the terms and conditions of the contract. But, this principle is more favourable to the insurer as it is the assured who has to generally make all the disclosures.Further, the Insurance Act lays down that an insurance policy cannot be called in question two years after it has been in force. This was done to obviate the hardships of the insured when the insurance company tried to avoid a policy, which has been in force for a long time, on the ground of misrepresentation. However, this provision is not applicable when the statement was made fraudulently. Never the less, technological advancements have further made it possible for both parties to see to it that their interest is taken care of. But, there are several other grey areas to this doctrine as well.
Firstly, There is still no clear cut distinction between as to what is material or immaterial and the same is largely dependent on the whims of the insurers and the terms of the contract. It is still very easy for an insurer to repudiate the contract on the slightest point of non-disclosure by treating them as warranties, thereby putting the assured in an even more difficult position.
Secondly, while both parties are under a duty of utmost good faith, it is unclear what this entails on behalf of the insurer. In effect the insurer is left with the minimum or no duties at all other than a duty to make certain questions. These questions are often vague and it is not clear to the assured, what he is being asked or what to disclose. Therefore the assured may find himself in a position where he is required to disclose material facts.
An effective solution must be provided considering the principle of utmost good faith is one of the most fundamental principles associated with insurance law.