Proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material facts

The Supreme Court on an appeal filed by an insurance firm against March this year's National Consumer Disputes Redressal Commission (NCDRC) verdict which had rejected its plea against the state’s CDRC order in the matter, while setting aside the verdict of NCDRC which had dismissed the plea of an insurance firm against the order asking it to pay full death claim along with interest to the mother of the deceased, held that "A contract of insurance is one of utmost good faith. A proposer who seeks to obtain a policy of life insurance is duty bound to disclose all material facts bearing upon the issue as to whether the insurer would consider it appropriate to assume the risk which is proposed. It is with this principle in view that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at a considered decision based on the actuarial risk. In the present case, as we have indicated, the proposer failed to disclose the vomiting of blood which had taken place barely a month prior to the issuance of the policy of insurance and of the hospitalization which had been occasioned as a consequence. The investigation by the insurer indicated that the assured was suffering from a pre-existing ailment, consequent upon alcohol abuse and that the facts which were in the knowledge of the proposer had not been disclosed."

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