Oriental Insurance Company Limited – Appellant Versus Mahendra Construction – Respondent

Core ratio / Key holding

Headnote

Insurance Law — Contract of Insurance — Utmost Good Faith — Duty of Disclosure

Insurance Law — Material Facts — Non-Disclosure — Burden of Inquiry

Issues for determination

• Whether an insurer can repudiate an insurance claim on the ground of non-disclosure of material facts by the insured, even if the previous policy was enclosed with the proposal form?

Ratio decidendi

• A contract of insurance is governed by the principle of utmost good faith (uberrima fides), imposing a solemn obligation on the insured to make a true and full disclosure of all material facts relevant for the insurer to assess the risk, particularly when information on a specific aspect is asked for in the proposal form.
• Information sought in an insurance proposal form is presumed to be a material fact, and any inaccurate answer or suppression of such information entitles the insurer to repudiate liability, as the burden cannot be cast upon the insurer to conduct further inquiry based on inadequate disclosure.
• The mere enclosure of a previous insurance policy with a proposal form does not discharge the insured's obligation to make a full, true, and complete disclosure of claims lodged under that previous policy, especially when specific questions regarding past claims are asked in the proposal form.

Important points

• Held, the NCDRC erred in partly allowing the claim by deducting 25% for non-disclosure, as the insurer was entitled to repudiate the claim entirely.
• Clarified, the burden of inquiry for inadequate disclosure does not fall on the insurer; the insured has a plain duty to make clear and specific disclosure.
• Dismissed, the complaint filed by the respondent against the insurer for repudiation of the insurance claim.