BANKING LAW NOTES by Nandan Kumar Rai

PINK V. FLEMING

A cargo of oranges and lemons was insured against loss “consequent upon collision” of the
carrying vessel. The vessel did suffer a collision and had to be repaired in a very port. throughout
repairs, the payload had to be discharged and reloaded when repairs. once the payload acquired
the destination it had been broken attributable to the handling at the repair port and therefore
causing the delay. The direct loss wasn’t the collision however the perishable character of the
payload. The assured was unsuccessful in getting the claim. The proximate cause does not ought
to be the most recent in time.

MITHOOLAL NAYAK V. LIC

Appellant (Mithoolal Nayak) took life insurance for sum of Rs 25000/- for life of one Mahajan
Deolal. After the death of Mahajan Deolal 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
from2 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’s death was caused by Malaria
followed by Diarrhoea and secondary anaemia. Supreme Court upheld the repudiation.

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 cannot be entertained for the refund of money.

KASIM ALI BULBUL v. LIC

The plaintiff, Kasim Ali Bulbul, carries on business in wood carving and paper machine
Srinagar. On 8th June 1960, he got his stock-in-trade consisting of wood carving, paper machine,
business furniture and two pieces of carpet contained in the shop insured with the defendant
company for one year from for a sum of Rs. 30,000. The plaintiff’s shop caught fire on the night
in February 1961. Next morning he came on the scene and found that the shop had been taken
possession by the local officials of the defendant company and the police. It was sealed.

The plaintiff’s books were seized by the police. The police inquired into the matter and declared
the fire accidental. The loss that he sustained on this account was Rs. 27340.31. The shop
remained in possession of the defendant company and another fire broke out which destroyed the
remaining articles in the shop. According to the plaintiff, the defendant company was liable to
make good the loss to him, but did not do so. The defendant was further liable for the loss of
uninsured goods valuing Rs. 564.50. The court held that all the benefits under the policy and the
suit stand forfeited because the claim is fraudulent and a false declaration has been made in
support of the claim as he was earlier insured by another company; his claim was not entertained.

KRISHNA WANTI PURI v. LIC

Dharam Pal Puri insured his life with LIC and took out four policies, first being on 12 October,
1959. He died on 5 August, 1964, and his widow claimed the sum assured on the four policies.
The deceased was admitted to hospital on 4 August, 1964 where it was diagnosed as suffering
from mitzal stenosis and auricular fibrillation, which caused his death. LIC repudiated the claim
on ground that Dharam Pal Puri was suffering from heart disease for many years, and that he
knew about his ailment at the time of taking the policies. He had fraudulently suppressed these
facts and had not disclosed it in the application form that he was suffering from heart disease.

In the proposal forms and the personal statements he made declarations knowing them to be false
because he never disclosed to the Corporation that he was suffering from heart disease. The
insurance contract is based on the principle of “ubberima fides,” which is a Latin term that
means “utmost good faith,” and it is the responsibility of both parties. The principle of good faith
applies to insurance contracts for the mandatory particulars such as health, occupation, and so
on, which are necessary for the insurer’s proper risk assessment and premium fixation. It is the
duty of the assured to mention all the material facts. As he had suppressed the facts and had not
acted with uberrium fides, the claim was rejected.

SMT. DIPASHRI V. LIFE INSURANCE CORPORATION OF INDIA AND OTHERS

In the proposal form, the deceased policy holder had stated that the usual state of his health was
good, that he had not consulted a Medical Practitioner within the last five years prior to the date
of making the proposal and that he had not remained absent from work on ground of health
during previous two years. The certificate issued by the employer of the deceased set out in
detail, the ailments viz. influenza, dysentery, bleeding piles and fever suffered by the deceased
before taking the policy and the sick leave secured by him from his office on production of
medical certificate. The Life Insurance Corporation relying on the said certificate claimed that
the statements made by the deceased in the proposal form were fraudulent suppression of
material facts. The deceased in that case had died while lighting a stove in the kitchen
accidentally after sustaining severe burns.

In that background this Court observed that assuming the certificate issued by the employer was
correct and the deceased had in fact secured sick leave on the relevant dates by production of
medical certificate, it could not be concluded that the deceased was in fact suffering from
bleeding piles or hypertension and that the ailment of bleeding piles, influenza and dysentery are
very minor and trivial ailments and the failure to disclose such ailments in the proposal form
could not be treated as suppression of the relevant particulars and the deceased might have very
well felt that it was not necessary to state that he had suffered from flu, dysentery or common
cold because such ailments have no bearing whatsoever to the longevity of the person.

This Court also held that there was no suppression whatsoever by the deceased in that case
because it was not necessary for the deceased to disclose trivial ailments like fever, flu or
dysentery. This Court further observed that on perusal of the proposal form left no manner of
doubt that it is not each and every petty ailment which has to be disclosed in the proposal form
and what is required to be disclosed is a serious ailment and the deceased in that case was not
suffering from any serious ailment and was a young man of 41 years of age while taking out the
policy.

LIFE INSURANCE CORPORATION VS ASHA GOEL

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. 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 days few year back.

The Court remarked that notwithstanding the law on the subject, in reality, there is no parity and
balance between the insurer and insured. “In many cases, the individual has no legal knowledge
about the ambiguous language used in the company’s policy with an intention to waive them
from the liability to pay the injured on happening of an agreed event. Many times the companies
willfully neglect reimbursing the insured, who instead of getting their amount from the company
have to pay the Courts for getting their rights enforced. The case on hand is the classic example
of the same.”

It was opined that the “malpractice and arbitrary use of power by the insurance companies must
be restrained by incorporating provisions to reduce the chances of ambiguity at a later date. Or
else, the insurer would continue to take advantage of the insured by falsely repudiating the
claims made by the insured”. The Court asked for a medical report to clear the doubt whether
massive cardiac arrest comes under major medical diagnosis, and after a perusal of the said
report, it was concluded that the cause of death of the insured was well within the defined
medical events prescribed in the policy.

NEW INDIA ASSURANCE CO LTD V M/S ZUARI INDUSTRIES LTD

There was a short circuiting in the main switch board installed in the sub-station receiving
electricity from the State Electricity Board, which resulted in a flashover producing over
currents. The flashover and over currents generated excessive heat. The paint on the panel board
was charred by this excessive heat producing smoke and soot and the partition of the adjoining
feeder developed a hole. The smoke /soot along with the ionized air traveled to the generator
compartment where also there was short circuiting and the generator power also tripped. As a
result, the entire electric supply to the plant stopped and due to the stoppage of electric supply,
the supply of water/steam to the waste heat boiler by the flue gases at high temperature continued
to be fed into the boiler, which resulted in damage to the boiler.

In the present case, it is evident from the chain of events that the fire was the efficient and active
cause of the damage. Had the fire not occurred, the damage was also would not have occurred
and there was no intervening agency which was an independent source of the damage.
Proximate cause is not the cause which is nearest in time or place but the active and efficient
cause that sets in motion a train or chain of events which brings about the ultimate result without
the intervention of any other force working from an independent source.

SIMMONDS v. COCKELL

The insurance policy warranted that the premises would be always occupied. The premises were
damaged while the insured and his wife were absent for a few hours. It was held the warranty did
not require a permanent continuous presence, and the insurer did not avoid liability. If the
insurers had wanted a ‘continuous presence of someone in the premises’, they could have
stipulated that ‘the premises were never to be left unattended’.

HARRIS v. POLLAND

In this case the insured who was an elderly lady, had experienced burglaries in her apartment
several times. In order to prevent the theft of further personal items, she decided to hide her
jewellery, money and watch, in a fire grate among sticks and paper used for lighting the fire,
before she went out of her house. Later when she returned, feeling cold, she lighted the fire,
forgetting that she had kept her wealth there. The fire in the grate burned all the valuables kept
there.

The court held that when the ordinary man insures against loss by fire, he believes that he is
insuring against every kind of loss which he may suffer from the more or less compulsory use of
fire by himself or his neighbour. If he were told that the words in a Lloyds policy meant only loss
from contact with fire where no fire ought to be, many questions would spring his mind, as they
spring to mine. There certainly ought to be some clear understanding as to the meaning of these
apparently simple words, so that persons insuring may know where they stand, and – if the
defendant is right – not continue in a fool’s paradise believing that they have a protection which
in fact they have not.”

The court thereafter examined various judgements and text books as referred and concluded as
under: “In the textbooks, there is no clear consensus as to the meaning of these words which
might force one to say that they have acquired an authorised meaning to which one can give
effect. The most which counsel for the defendant can get out of the textbooks is perhaps a
difference of opinion or an ambiguity. However, ambiguity is not his case, because the
interpretation of those words which is most favourable to the insured must be adopted, and it
seems to me that, if the underwriters wish to avoid liability, they must put words to that effect in
their policy. The plaintiff was entitled to succeed. It is, of course, an unusual case. It has not been
suggested that the loss was due to the negligence of the plaintiff. The underwriters have made it
clear that they wish to stand or fall on the principle for which they have contended. I give
judgment for the plaintiff for the agreed amount of £460.”

R C COOPER v. UNION OF INDIA

In the year 1969 when the government of India nationalized 14 banks of India, RC Cooper at that
time had a major share in some of the banks and it affected him and he felt that as an individual
his fundamentals rights have been violated, he then filed a writ petition. The government of India
decided to nationalize banks in order to make banking available to most parts of India.

Supreme Court said that the government has violated Article 31 because of the compensation
decided by the government. Supreme Court also said that the government has also violated
Article 14 in this case because the government only nationalized 14 banks and gave their
permission to the rest of the banks to work normally. Supreme Court also said that any
shareholder or director cannot file a petition that the company fundamental rights have been
violated but they can file a petition if the fundamental rights of the shareholder or director is
been violated as an individual. These judgements were passed with a majority of 10:1.