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I would like to express my gratitude towards our law of Insurance Professor Mrs. Bhagyalaxmi
Mam for giving me the opportunity to work on this topic and guiding towards completing the
project in an appropriate manner. I would like to thank everyone who has supported me and
guided me towards completing this project.

Maurya Kallepalli



Page No.














St. Paul Fire and Marine Insurance Co. (UK) Ltd. v. Mc Connell Dowell Constructors Ltd

Elton v. Larkins
Economides v. Commercial Union Assurance Co. plc
LIC v. Shakunthalabai
Bhagwani Bai v. LIC of India
Life Insurance Corporation of India v. Shakuntala
Bhagwati Bai v. LIC
Bank of Nova Scotia v. Hellenic War Risks Assn. (Bermuda) Ltd., The Good Luck
Banque Finaciere de la Cite v. Westgate Insurance Co. Ltd
Brownlie v. Campbell
Rozanes v. Bowen
United India Insurance Co. Ltd. v. MKJ Corpn
Joel v. Law Union

Insurance Act, 1938
Motor Vehicle Act, 1988
Marine Insurance Act, 1963



Through this paper the researcher aims at understanding the concept of misrepresentation, non
disclosure and breach of warranty by the insured as it appears in a new chapter inserted into both
Insurance act, 1938 and as well as marine insurance from which the researcher has tried to
understand as to what is meant by misrepresentation and non disclosure, who will be liable upon
such misrepresentation and related questions and issues.
Also the objective of this paper is to see why proper and good faith in required in the terms of

What is a misrepresentation and whether the insureds interest are effected through the

What is meant by non disclosure and who will be principally liable upon such act?

When the breach of warranty in a insurance arises?

In insurance contract, all the information shall be disclosed by the parties. If a party fails to
adhere to the principle of utmost good faith then the outcome of claim may be affected. The
parties must disclose all relevant information. A false or misleading statement that, if intentional
and material, can allow the insurer to void the insurance contract. Some insurance policies and
state laws that govern insurance contract provisions vary on the exact details of the conditions
under which coverage may be voided; these variations are usually denoted in state amendatory
Insurers need information from consumers to decide whether to offer (and renew) insurance, and
to decide the price or other terms of the insurance to be offered to the consumer. The law
imposes a duty of disclosure on policyholders when they seek to take out new insurance cover or
to renew existing insurance cover.
Insurers may be able to refuse to pay a claim or part of a claim under an insurance policy if the
policyholder has not complied with their duty of disclosure. However, an insurer must first
establish that:

the insurer clearly informed the policyholder in writing about the duty of disclosure and
the consequences of non-disclosure;

the policyholder knew or should have known that the insurer required information about
certain matters;

the policyholder failed to provide information, or misrepresented the information; and

the insurer would not have offered insurance, or would have offered insurance on
different terms, had the policyholder properly disclosed the information.


The scope of this research paper is to understand the concept of misrepresentation, non
disclosure and breach of warranty by the insured as it appears under the Insurance Act. The
researcher has limited himself to discussing the substantial law aspects of the paper which are
connected with law of insurance and has kept the discussion of the procedural aspects at a
The researcher has used both a descriptive and analytical method of writing in order to
understand the issues better. The researcher has also relied on case law, to get an in depth
understanding of the topic.
A uniform mode of citation has been followed throughout this project.
The researcher has used secondary sources in order to obtain sufficient data for this project,
namely, books, articles and the internet.

Chapter 1: this chapter deals with the misrepresentation, material facts and
misrepresentation of material facts.

Chapter 2: this chapter deals with the Disclosure, Facts which need to be disclosed, facts
which need not be disclosed and Facts which need not be disclosed.

Chapter 3: this chapter deals with the Warranty, Breach of warranty and Conclusion &

Getting into a contract with a person or a company by making statements that are not in
accordance with the facts is known as misrepresentation.
Definition: Getting into a contract with a person or a company on false grounds by making
statements that are not in accordance with the facts is known as misrepresentation. In an
insurance policy, misrepresentation on the behalf of the insured gives the insurance company a
right to terminate the policy.

In case of health insurance if the applicant is aware of the inaccuracy of the clause(s) in an
insurance statement and he/she does not disclose it before signing the contract, then he/she can
be denied coverage for the same. An insurer can refuse a claim only if the misrepresentation is
unjustifiable or in other words the risk is substantial.

Material Fact
Another problem arises as to the definition of the term material fact. What may be material for
one may be immaterial for the other and vice-versa. But, generally speaking, a material fact is
one which affects the judgmental capacity of a person. It must be such that a different
consequence would have occurred had it not been disclosed. The following cases illustrate the
different theories evolved by the judiciary regards this.

In the case of St. Paul Fire and Marine Insurance Co. (UK) Ltd. v. Mc Connell Dowell
Constructors Ltd,1
Two major questions were decided in this case. The first was the test of materiality according to
which the fact in question must have been of interest to a prudent insurer. Secondly, as regards
the presumption of inducement, it was held that the test would be satisfied if the insurer could
show that he was influenced in whole or in part by the assureds misleading presentation of the

The Prudent insurer test has been adopted in S.149(6) of Indian MV Act,1988 and S. 149(5) of
English Road Traffic Act, 1972.
Misrepresentation of Material Facts
This is the offence most often thought of when the term fraud is used. Misrepresentation cases
can be prosecuted criminally or civilly under a variety of statutes or they might be the basis for
common law claims. The gist of the offence is the deliberate making of false statements to
induce the intended victim to part with money or property.
The specific elements of proof of misrepresentation vary whether the case is prosecuted as a
criminal or civil action. The elements normally include:

Material false statement;

Knowledge of its falsity;

Reliance on the false statement by the victim;

(A loss) Damages suffered;

A deceit or fraud constituting a false statement made willfully or recklessly, which causes

loss to another.
Not only is a misrepresentation fraudulent if it was known or believed by the maker of the
representation to be false when made, but mere non-belief in the truth is also indicative of fraud.
Thus whenever a person makes a false statement which he does not actually and honestly believe
to be true, for purposes of civil liability, that statement is as fraudulent as if he had stated that
1 45 Con LR 89

which he did not know to be true, or knew or believed to be false. The motive of the person
making the representation is irrelevant.
The maker of the representation will not, however, be fraudulent if he believed the statement to
be true as he perceived it, provided that perception was one that might reasonably be held,
though the court later holds that the representation objectively bears another meaning.

The assured must disclose to the insurer, before the contract is concluded, every material
circumstance which is known to be assured and the assured is deemed to know every material
circumstances which, in the ordinary course of business ought to be known to him.
Usually, the parties to the contract can examine the items or service, which is the subject matter
of the contract. Each party can verify the correctness of the statements of the other party. There is
no need to take the statements on trust.
Assignment of Interest-Section 17 of the Marine Insurance Act, 1963 provides: 'Where the
assured assigns or otherwise pans with his interest in the subject-matter insured, he does not
thereby transfer to the assignee his rights under the contract of insurance, unless there be an
express or implied agreement with the assignee to that effect. But the provisions of this section
do not affect transmission of interest by operation of law." Disclosure and Representation I.
Disclosure Marine insurance is uberrimae files (utmost good faith) Section 19 of the Marine
Insurance Act, 1963 provides that: "A contract of marine insurance is a contract based upon the
utmost good faith, and if the utmost good faith be not observed by either party, the contract may
be avoided by the other party.' The doctrine of caveat emptor (let the buyer beware) applies to
commercial contracts, but insurance contracts are based upon the legal principle of uherrimae
fidel (utmost good faith) If this is not observed by either of the parties, the contract can be
avoided by the other party. In marine insurance the material facts are as to the subject matter,
the .ship and the perils to which the ship is exposed; knowing these facts the underwriter must

form his own judgment of the premium and other people's judgment is quite immuterial. Thus in
a marine proposal it is not material to disclose wnether any other office has refused the proposal.
The duty of the utmost faith applies to the insurer. He may not urge Ae proposer to affect an
insurance which he knows is not legal or has run off safety. But, the duty of disclosure of
material facts rests highly on the insured because he is aware of the material common in other
branches of insurance are not used in the marine insurance. Disclosure by assured Section 20 of
the Marine Insurance Act, 1963 provides that: "(1) Subject to the provisions of this section, the
assured must disclose to the insurer, before the contract is concluded, every material
circumstance which, is known to the assured, and the assured is deemed to know every
circumstance which, in the ordinary course of business, ought to be known to him. If the assured
fails to make such disclosure, the insurer may avoid the contract. (2) 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. (3) In the absence of inquiry the following
circumstances need not be disclosed, namely: (a) any circumstance which diminishes the risk.
(b) any circumstance which is known or presumed to be known to the insurer. The insurer is
presumed to know matters of common notoriety or knowledge, and matters which an insurer in
the ordinary course of his business as such ought to know; (c) any circumstance as to which
information is waived by the insurer; (d) any circumstance which it is superfluous to disclose by
reason of any express or implied warranty. (4) Whether any particular circumstance, which is not
disclosed, be material or not is, in each case, a question of fact. (5) The term "circumstance"
includes any communication made to. or information received by, the assured." In "Elton v.
Larkins,2, it has been observed that where the material facts are known to the assured at the time
of affecting a policy, he is bound to communicate them and the circumstance of their being
contained in what are called Lloyd's lists, which the underwriter has the power of inspecting, will
nol dispense with the necessity of such communication.

Facts which need to be disclosed and facts which need not be disclosed-

2 [(1832) 8 Bing 198]


Facts required to be disclosed1. A fact which is earlier immaterial but becomes material later on must be disclosed if it has
been expressly mentioned in the terms and conditions of the policy. Eg. Fire insurance of ones
house. Earlier, vacant plot located nearby. Later on a petrol pump is constructed on such plot.
2. A fact which increases the risk must be disclosed in all circumstances. E.g. incase of theft
insurance, if a person lives alone in an isolated place, the same needs to be compulsorily
disclosed as it increases the risk.
3. Previous losses incurred and claims under previous policies needs to be disclosed. This is
mainly in case of double insurance where it needs to be ascertained as to whether the subsequent
insurance company is willing to insure and to what extent.
4. Special terms and conditions under previous policies if any.
5. Fact of existence of non-indemnity is to be disclosed. This relates to any charge or
encumberance on the policy in the form of a loan security or otherwise.
6. The description of the subject matter must be stated properly. This is mainly to locate the
property if it is immovable and to recognize it if it is movable.
7. Facts which suggest any special motive to take the insurance.
8. Facts which suggest the existence of any moral hazards which relate to the moral integrity of
the proposer, etc.
In Economides v. Commercial Union Assurance Co. plc,3

3 (1997) 3 All ER 636


It was held that the duty of the assured to disclose all material facts required an assured only to
disclose facts known to him. There is no obligation on the assured to make enquiries as to the
factual basis of his belief.
Facts which need not be disclosed1. Fact lessening the risk need not be disclosed.
2. Public knowledge. E.g. facts regarding govt. policies, taxes, subsidies, etc. which are expected
to be known to all.
3. Fact of law like rules, regulations, etc. which have already been made available to all by way
of the notification in the official gazette.
4. Superfluous facts or such information which is not logical.
5. Facts which are inferred information.
6. Fact waived by the insurer himself.
7. Facts governed by the policy itself.
In LIC v. Shakunthalabai,4 In this case, the insured had failed to disclose that he suffered from
indigestion for a few days and took chooram from an ayurvedic doctor. He died within that year
due to jaundice. The insurer repudiated the claim on this account. The court did not approve of
the repudiation as the insurer did not establish by clear and cogent evidence that the question was
properly explained to the insured and that he was told that illness included such casual
disturbances to health and medicines included tablets that could be purchased at the nearest
coffee store.
In Bhagwani Bai v. LIC of India,5
4 AIR 1975 AP 68

5 AIR 1984 MP 126(130)


The insurer cannot avoid or repudiate an insurance policy on the ground of non-disclosure of
lapsed policies by the assured which had no bearing on the risk taken by the insurer.
Does Silence Amounts To Non-Disclosure?
A policy of life insurance of a person who at the time of insurance is in good state of health, is
not vitiated by the non-disclosure by such person of the fact that few years back he had some
disease or he had been suffering from headaches or body aches all such things are presumed to
be known to the company. What an insured undergoes in his normal course of life neednt be told
to the company.6
How Is Section 45, Being Misused By The Insurer?
The section was enacted to prevent immense loss and hardships caused to the insured and his
legal representatives because the insurers avoided contract of life insurance policy due to
incorrect statements whether material or not made by the insured even after the policy had been
in force for several years and all the premium paid by the insured was forfeited by the insurer.
Thus the provision in effect mitigated the rule of uberrima fides, i.e., utmost good faith.
Obligation to deal fairly and honestly with each other is upon both the parties equally.
In the past, problems have arisen with misrepresentation or non-disclosure by the insured. In this
context, the issue is when would failure to make such a disclosure render the contract void or
voidable. There have been several judgments of the Honble Supreme Court in this regard which
have underscored the importance of the burden of proof shifting to the insurer after the expiry of
two years from effective date of the policy, if the insurer seeks to repudiate the claim on the basis
of fraud or suppression of facts which were material to be disclosed.7

6 BrijAnand Singh, New Insurance Law, University Book agency, 4th ed., 2000,
7 visited on
March 15, 2015.







Shakuntala. 8

Facts Of The Case: Jamanadas died of jaundice on 4-11-1986 who had an insurance policy with
appellants, one and half years after he died. This policy was taken on the grounds of his personal
statement that he had not suffered from any illness and had not consulted any medical
practitioner within last five years, but had once suffered from indigestion for few days and had
taken chooranam from an ayurvedic practitioner.
Arguments Raised: Learned Counsel for respondents as usually relied on Section 45 of the
Insurance Act and stated that insurer had right to repudiate a policy on the grounds that statement
made in proposal for insurance or any documents which leads to policy was inaccurate or false.
Judgment: Court was of the view that, treating occasional headaches or a bout of indigestion as
a material fact which an insured was under an obligation to disclose would be extremely
unreasonable. No reasonable man would deem it material to tell an insurance company of all the
casual headaches he had in his life, and if he knew that it was an ordinary casual headache, there
would be no breach of his duty towards the insurance company in not disclosing it.
The confidential report made by the medical officer of the insurance Company shows that the
appellant was in first class life. And the jaundice of which he died had nothing to do with the
undisclosed indigestion from which he suffered 18 months earlier. And the only connection
between them would be the advantage life insurance was seeking. Therefore non-disclosure
would not amount to an untrue statement and Life Insurance Company was held not justified in
repudiating the policy. And therefore his wife was entitled to the insurance claim.
Comments: - This case puts forth the principle that the non-disclosure of material facts only
provides power to repudiate the contract by the company, but other ordinary facts which are
unconnected to the main contract entered into by the insured cannot be ignored. Here for the
same reason Company was restrained from taking such step, on the bases of facts which were
irrelevant to be disclosed (i.e. indigestion) by the insured to effect of the contract.

8 AIR 1975 A.P 68.




LIC .9


FACTS OF THE CASE: Plaintiff is (beneficiary of the policy) and her husband late Moolchand
insured himself with the defendant on 28-3-1972 for the sum of Rs. 25,000/- he also had filed a
proposal form and personal statement on the same date, and died within a month on 16-4-71.
Division manager refused the claim by the appellant on the fact that he had concealed the fact
that before filing for the present policy he had three policies in March 1965, which had lapsed in
March 1970.
Issues: Now









Whether the deceased deliberately concealed the fact of the existence of earlier three policies in
Was the fact concealed material to the bearing of risk undertaken by the company i.e. if it still
would have insured the life of the insurer if the corporation was made aware of the fact of the
facts alleged to be concealed?
Arguments Raised: But plaintiff stated that the fact was told but the same was not recorded by
the agent, and contended that even if it was not disclosed its not material to the disentitle the
defendant. Plaintiff therefore claims interest amounting to 11,000/-, w.e.f. 16-4-1972 at the rate
of 12 % per annum. Corporation contended that if it would have known the fact of existence of
three policies with the insured it wouldnt have issued the same to him, and therefore money paid
by him would stand forfeited. Being mis-represented by the deceased the contract would stand
void under section 45 of the Insurance Act.
Judgment: - Court applied Section 17 and 19 of the Contract Act and held that the Insurer
cannot repudiate the liability by showing only some inaccuracy or falsity of the statement, nor
can avoid the policy for a material misrepresentation if it has no bearing on the risk. Thus on
every misrepresentation or concealment of a fact a contract cannot be avoided merely on trivial
and inconsequential misstatement or non-disclosure That the non-disclosure about the lapsed
policies had no bearing on the risk and didnt amount to fraudulent misrepresentation as no
undue advantage was derived by the concealment of facts and the corporation was made liable to

9 AIR 1984 M.P 126.


pay the insurance amount with interest at the rate of 6% per annum w.e.f. 29-12-1973 till
Comments: - This case upholds the same principle of materiality of facts; this principle is
widely misused by the companies to discharge themselves from liability of paying the insured.
Prior policies though disclosed were firstly, not recorded by the insurers agent and secondly
even if proved to be concealed had no bearing on the claim made by the insured. What is
important is the nexus between the materiality of the facts and the risk borne by the insurance
company and everything else is the way of its escape from the responsibility it bears towards the
It is a guarantee or security that goods are of the quality stated. It may be defined as stipulation
or engagement by a party insured that certain matters relating to the subject matters affecting risk
exist or shall exist or have been done or shall be done.
Breach of warranty
The Effect of Breach of Warranty A breach of warranty has the same effect as a breach of
condition in other branches of law. The assured is discharged from further liability on proof of
breach of warranty. Section 36(2) of the Marine Insurance Act provides that Where a warranty is
broken, the assured cannot avail himself of the defence that the breach has been remedied, and
the warranty complied with before toss". But the assured may prove that a breach of warranty is
waived. Regarding the effect of breach of warranty, in Bank of Nova Scotia v. Hellenic War
Risks Assn. (Bermuda) Ltd., The Good Luck10, it has been stated that "A warranty, is a condition
which must be exactly complied with, whether it is material to the risk or not. If it not be so
complied with, then, subject to any express provision in the policy, the insurer is discharged from
liability as from the date of the breach of warranty, but without prejudice to any liability incurred
by him before that date." Relating to the extent to which a contract would survive breach of
10 [(1992) 1 AC 233]

warranty it was stated in this case, "It does not have the effect of avoiding the contract ab initio.
Not, strictly speaking, does it have the effect of bringing the contract to an end. It is possible that
this may be obligation of the assured under the contract which will survive the discharge of the
insurer from liability as for example a continuing liability to pay a premium". The insurer derives
the following advantages from breach of warranty by insured: 1 The breach of warranty gets the
insurer, an option or a right to avoid the contract. 2. Where the insurer decides to avoid the
contract he can repudiate his liability. The effects of breach of warranty are the same whether it is
an express warranty or an implied one. The insurer is the person who alleges the breach of
warranty and the burden of proof lies on him to prove the breach. It is common practice in
modem contracts of marine insurance to include a special clause that in case a particular
warranty is covered the assured can still be covered inspite of its breach if he pays an additional
premium to be arranged. Breach when excused Non-compliance with a warranty is excused in
the following cases: when, on account of change of circumstances, the warranty ceases to be
applicable to the circumstances of the contract; when compliance with the warranty is rendered
unlawful by any subsequent law; and a breach of warranty may be waived by the insurer. Waiver
may be expressed or implied, but must be intentional.

Principle of utmost good faith under the Marine Insurance Act, 1963The Marine Insurance Act, 1963 is somewhat relaxed in application when it comes to the
principle of utmost good faith. This is mainly because of the problems of access to the vessel,
cargo, etc. as well as the jurisdictional problems associated with international waters. If at any
point of time, the vessel or cargo is destroyed on high seas, the time when the same came to the
knowledge of the parties needs to be considered rather than the general principles of insurance
contract. Ss. 19-23 of the act talk about the principle of utmost good faith by using the terms
disclosure and representation. S.19 lays down the general principle and says that in absence of
utmost good faith, the contract may be avoided by the parties. S.20(1) says that the assured must
disclose every material circumstance he knows. Thus, the knowledge of the insured is more
important than the actual happening of the event. S.22(1) says that the representation made by
the insured must be true, which is again dependent on the capacity of the insured to know the


truth and is hence subjective. Finally, S.22 also says that whether the assured failed to disclose
intentionally or innocently or inadvertently is immaterial.
In a insurance contract, the parties have to act in a good faith and follow the principle of
ubberima fides- the utmost good faith.
Insurance contracts are a special class of contracts which are guided by certain basic principles
like those of utmost good faith, insurable interest, proximate cause, indemnity, subrogation and
contribution. As such, an insurance contract is generally a combination of more than one of these
principles and no single principle can be used at one time. The rest is dependent on the contract
between the parties. These principles are mostly guided by common law principles from which
they have developed. They have also been modified by principles of contract and by statutes as
in the case of the Marine Insurance Act, 1963 which has to a certain extent relaxed the basic
principles of insurance law.

General Principle of Utmost Good Faith

Out of all the abovementioned principles, the principle of utmost good faith remains one of the
most important doctrines underlying the law of insurance. In Banque Finaciere de la Cite v.
Westgate Insurance Co. Ltd.,11, it was held that-The duty of disclosure is neither contractual, nor
tortuous, fiduciary or statutory in character but is founded on the jurisdiction originally exercised
by the courts of equity to prevent impositions.
The term good faith has been mentioned in the Indian Penal Code and it signifies good intention
and due care and caution. However, this principle under insurance law needs to be examined in
the contractual context. In every contract in general, both parties owe no positive duty toward
each other beyond showing ordinary good faith. 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. This follows from the maxim Caveat Emptor or buyer beware as under the Sale of
Goods Act. It means that each party must be given a reasonable opportunity to make independent
11 (1989) 2 All ER 982

enquiries about the subject matter in question so that they may take a decision. Thus, all material
facts must be disclosed or made available to the party so that he or she may reasonably enquire
about the same.
In the case of Brownlie v. Campbell,12it was held that:
If one knows any circumstance at all which may influence the underwriters opinion as to the risk
he is incurring, there is an obligation to disclose that which one knows and the concealment of
any material circumstance whether you thought of it as being material or not, avoids the policy.

This further puts a duty on the party making the subject matter accessible to the person
enquiring, not to play fraud or misrepresent the same, else it would be hit by S.19 of the Indian
Contract Act, making the contract voidable at the option of the innocent party. But, S.19 also
clarifies that misrepresentation or even silence amounting to fraud will not entitle a party to
avoid the contract if he had the means of discovering the truth with ordinary diligence and did
not do so. Hence, there must thus be free consent and the parties must understand the same
things in the same sense.
The burden of proof to show non-disclosure or misrepresentation is on the insurance company
and the onus is a heavy one. The duty of good faith is of a continuing nature in as much no
material alteration can be made to the terms of the contract without the mutual consent of the
In the case of Rozanes v. Bowen,13
The principle of utmost good faith was laid down here. It was said that since it is to be presumed
that the underwriter knows nothing and the assured knows all, the latter must disclose the same.
Thus, an insurance contract is a contract uberrima fides.
12 (1880), 5 App Cas 925
13 (1928), 32 L.I.L.R. 98

Good Faith expected from both partiesGood 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 now a days. 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.
In United India Insurance Co. Ltd. v. MKJ Corpn.,14 it was held that,
Just as the insured has a duty to disclose, it is the duty of the insurers and their agents, to
disclose, all material facts within their knowledge, since obligation of good faith applies to them
equally with the assured.
In Banque Finaciere de la Cite v. Westgate Insurance Co. Ltd.,15
In this case, the plaintiff bank had agreed to lend some 30 million pounds securities in the form
of some gemstones and some credit insurance policies. The gemstones when valued did not
prove to be worth much. So, the bank sought to rely on the insurance policies. The policies had
14 (1998) 92 Comp Cases 331 (333)
15 (1989) 2 All ER 982

been brokered by a major firm of brokers who resorted to a series of false covers due to inability
to obtain full cover. On making claims under the policies, the bank discovered severe shortage in
cover. It was held that the insurers were under an obligation to disclose the same. It was also held
that the only remedy available to the insured is to rescind the policy and claim the premium. No
other damages may be awarded.
In Joel v. Law Union,16 it was held that
The duty to show good faith falls on the insured as well as the insurer to an equal degree in all
types of insurance contracts.
Conclusion & Suggestions
Even though law seems to be clear in constituting a balance between the insuring party and
insured, but in reality, there is no equality between the two, as insurer is the richest corporation
and the individual is an ordinary individual. Insured has no legal knowledge about the
ambiguous language used in the companys policy with intention to waive them from liability to
pay insured on happening of an agreed event. On discussion on these cases we can observe how
the companies willfully neglects reimbursing the insured, who later instead of getting their
amount from the company have to pay the courts for getting their rights enforced.
Its pertinent to note that the position of disclosure is different between India and England where
the insured is only bound to answer the questions being put to him in the policy. As all the
questions relevant for the contract are been put before the insured therefore theres more
accuracy of facts before the contract comes to force. This reduces the chances of confusion later
when the claim is made by the insured on his policy. This system must be adopted by the India
also to reduce the chances of ambiguity, and hence the burden of cases on the courts and insured
to get the agreed amount. The malpractice and arbitrary use of power by the insurance companies
must be restrained by incorporating provisions in the Act similar to the one adopted by the
English law to reduce the chances of ambiguity at later date. Else the insurer would keep taking
advantage of the insured by falsely repudiating the claims made by the insured. The change if
brought in the Act would not only reduce the hardship caused to the insured, but also reduce the
burden of courts over the insurance cases flooding on the false rejection of claims been made by
16 77 LJKB 1108

the companies, where most of the insured from the rural locality are not even aware of their
present rights under the Act.
Great care must be taken in deciding what would constitute illness or material change in health
or what ordinary simple disorder is, theres a great chance for one being take for another by the
insurance companies. Therefore courts must take due care in identifying if the fact of which
insurance company is tending to repudiate the claim is of material nature, or not before deciding
the claim. Liberal interpretation must be adopted to further the object of the Act in favor of
insurer, for fulfillment of the claim raised by him, which depends on case to case bases. The
ambiguity lying in the Act must be removed, and in addition to that the time frame under the Act
must be reduced to one year instead of two years, as the premiums paid by the insured would be
at great risk if the time limit provided under, Section 45 is increased in accordance to the Law
Commissions report.
Insurance is all about serving the consumers, therefore the Act must try furthering the purpose as
the greater trust of the consumers would only hamper the business of the insurer. Therefore for
its own sake it must try gaining the trust of the insured to gain business at a larger level.



Dr. Avtar Singh, Principles of Insurance Law, 17th ed., 2002,Wadhwa& Co., Nagpur.

BrijAnand Singh, New Insurance Law, University Book agency, 4th ed., 2000,

Dr. S.R. Myneni, Law of Insurance, Asia Law House, First Edition,2014,Hyderabad.

March 17th, 2015.