The Principle of Uberrima Fides and the Evolving Judicial Approach to Non-Disclosure of Lifestyle Diseases

Introduction

The Latin term “uberrima fides” means “utmost good faith”. It is one of the basic principles on which insurance contracts are based. The principle of “uberrima fides” signifies that there should be utmost honesty and transparency by the parties entering into contracts. In the case of insurance contracts, it is imperative for the proposer or the person willing to obtain an insurance policy that he/she reveals all the material information with respect to the contract, so that the insurer is in a better position to assess the risk to be covered. However, the recent pronouncements by various Consumer Commissions as well as the Supreme Court of India showcase a discernible trend where courts have adopted a consumer-centric approach even in cases involving non-disclosure of common lifestyle diseases like hypertension (BP) and diabetes. Thus, this article is an attempt to explore the scope of strict application of the uberrima fides principle to life insurance contracts.

Understanding the principle of uberrima fides

The principle of uberrima fides was laid down by Lord Mansfield in Carter v. Boehm¹ where it was observed that in case there is any suppression, inaccuracy or untruth in the proposal then it would render the policy voidable at the behest of the insurer. Thus, the principle established by Lord Mansfield required that all parties entering into an insurance contract must enter into contract with utmost transparency, honesty and a high degree of good faith. While there is an obligation on the insurer to make sure that the terms and conditions of the insurance policy are clear to the insured,² there is also a duty on the part of the insured to disclose all material information that could potentially influence the insurer to underwrite the risk.

The principle of uberrima fides also finds its place under Section 45 of the Insurance Act, 1938³. Section 45 of the Insurance Act, 1938 provides that an insurance policy can be repudiated by the insurance company if it is obtained by fraud. However, the said policy can be called into question only within a period of 3 years from the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later. As per Section 45, the term fraud in insurance policies includes submitting facts which the insured believes to be not true, the active concealment of a fact despite the insured having the requisite knowledge or belief about the fact, or any other act to deceive the insurer.

In LIC v. Asha Goel⁴, the Supreme Court observed that there is complete obligation on the assured to provide full disclosure of the material facts that are relevant to the insurer while deciding whether to accept the proposal or not. Then, in Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod⁵, the Supreme Court upheld the repudiation of insurance claim on the ground of non-disclosure of previous policies as asked in the proforma. It was observed that the principle of uberrima fides is fundamental to insurance contracts. However, despite the Supreme Court upholding the principle of uberrima fides in insurance contracts, the lifestyle diseases are seen to be an exception to this fundamental rule.

Judicial precedents on non-disclosure of lifestyle diseases

In recent years, a noticeable trend has emerged where the courts have held against the repudiation of insurance policies solely on the ground of non-disclosure of pre-existing lifestyle diseases. One of the most cited judgments on this issue is that of the Delhi High Court in Hari Om Agarwal v. Oriental Insurance Co. Ltd.⁶ where the Court held that non-disclosure of lifestyle diseases like diabetes should not disentitle the insured from getting indemnified. The Court observed that hypertension and diabetes can lead to a host of ailments like cardiac arrest, liver failure, etc. Such ailments can arise even in non-diabetic or people without hypertension. Moreover, in Hari Om Agarwal⁷, the insurance cover was granted after the insured underwent an electrocardiogram (ECG). Thus, it was observed that a strict interpretation of the terms of the policy would render it meaningless.

In Sulbha Prakash Motegaonkar v. LIC⁸, the Supreme Court of India set aside the repudiation of insurance claim by the insurance company on the ground of concealment of lumbar spondylitis with prolapsed intervertebral disc (PID) with sciatica. The Court observed the cause of death of the deceased was due to ischaemic heart disease and myocardial infarction, which is not related to the ailments that were concealed. Thus, to repudiate an insurance claim on the ground of non-disclosure of ailments, a direct nexus between the cause of death and the ailments that were concealed must be proved.

Similarly, in Care Health Insurance Ltd. v. Harjinder Singh Sohal⁹, the insured had concealed pre-existing ailments of coronary artery disease (CAD) and dyslipidemia before obtaining the insurance policy. However, the National Consumer Disputes Redressal Commission (Ncdrc) while relying upon the Supreme Court’s judgment in Manmohan Nanda v. United India Assurance Co. Ltd.¹⁰ ruled that the insurance company cannot deny the claim solely on the ground of concealment of pre-existing disease when it had the occasion to assess the risk before issuing the insurance policy.

While the courts have time and again set aside the repudiation by the insurance companies even when there was concealment of lifestyle diseases or ailments not connected to the cause of death, they have been cautious to observe that no insured person has a right to suppress information pertaining to lifestyle diseases as the person might get reduced claims.¹¹ The precedents laid down by various forums establish the liability of insurance companies. Thus, it has become important for the insurance companies to assess the risk and do not rely only on the proforma filled by the proposer.

Material facts: An analysis

The courts have laid that suppression of lifestyle diseases cannot be a ground for repudiation of insurance claims if they are not material to the contract of insurance. The term “material fact” includes those facts that have a bearing on the very foundation of the insurance contract and the risk to be covered. The interpretation of what constitutes a material fact has always been a matter of dispute, especially in the circumstances when there is a pre-existing lifestyle disease. Thus, it is imperative to understand if the non-disclosure of common lifestyle diseases such as hypertension or diabetes should itself lead to the repudiation of the insurance policy.

The Supreme Court in Satwant Kaur Sandhu v. New India Assurance Co. Ltd.¹², Asha Goel¹³ and P.C. Chacko v. LIC¹⁴ while analysing what constitutes a material fact observed that any fact that could influence the mind of a prudent insurer on the question of whether to accept or not to accept the risk is a material fact. Further, it is the duty of the assured to disclose every fact that is material to the contract and continue to do so uptil the conclusion of the contract. The duty to disclose extends to any material alteration in the risk.¹⁵

Recently, in Mahaveer Sharma v. Exide Life Insurance Co. Ltd.¹⁶, the Supreme Court while considering a matter of repudiation of insurance claim on the ground of suppression of previous insurance policies observed that the materiality of a particular fact is based upon the facts and circumstances of each case. No one size fits all approach can be adopted. Thus, the issue regarding what constitutes a lifestyle disease cannot be ascertained like a mathematical formula. In the case, non-disclosure of any particular disease leads to further health complications or death of the insured, then such disease will be treated as material to the insurance contract.

Should the principle of uberrima fides be made strictly applicable to insurance contracts

The principle of uberrima fides is the foundation of insurance contracts and finds its place in Section 17 of the Contract Act, 1872¹⁷ which provides that the active concealment of a fact by a party having the knowledge or belief of the fact would amount to fraud. However, the principle of uberrima fides cannot be made strictly applicable to insurance contracts due to the inherent exceptions provided under Section 45 of the Insurance Act, 1938.

Section 45 of the Insurance Act, 1938 provides that an insurance policy issued to the insured cannot be called into question on the ground of misstatement or fraud after a period of three years. Thus, if a misstatement or fraud is discovered after a period of 3 years, then the insurer cannot claim the application of the uberrima fides principle. Moreover, the explanation of Section 45 provides that the material fact or suppression of fact should have a direct bearing on the risk undertaken by the insurer. Further, as observed in Hari Om Agarwal¹⁸, the insured cannot be said to have concealed any pre-existing ailment when he/she has already undergone medical tests as asked by the insurer. In such circumstances, the insurer has to be careful while issuing insurance policies.

The insurance contracts are contracts of adhesion, where a standard form of contract is drafted by the insurer and the insured is left with no option to negotiate the contract rather is bound to take it or leave it. In many cases, the insured is not even made aware of the exclusion clauses in the insurance policy while issuing the policy rather it comes to their knowledge only when the insurance claim is repudiated. In Texco Mktg. (P) Ltd. v. TATA AIG General Insurance Co. Ltd.¹⁹, the Supreme Court had cautioned the insurance companies to disclose the “exclusion clauses” to the individuals before issuing the insurance policies. Thus, in the present scenario where insurance contracts are contracts of adhesion, there was a need to safeguard the insured consumers from the wide repudiation of insurance claims on the ground of non-disclosure.

Conclusion

Although the principle of uberrima fides is central to insurance contracts, yet it cannot be made strictly applicable to insurance contracts owing to several exceptions and practical limitations. The recent judicial pronouncements by the Supreme Court and other forums, regarding the non-disclosure of lifestyle diseases in insurance contracts underscore a consumer-centric approach adopted by courts. Further, the courts have time and again diluted the implementation of the uberrima fides principle in cases where the non-disclosure was not material to the insurance contract. It was also observed that a strict approach of the uberrima fides principle could undermine the very purpose of insurance contracts. Thus, a balanced approach in such cases was required to safeguard the rights of the policyholders.