Valid acceptance and consideration:

1. Gen assurance Society v. Chandmull Jain (1966) - life insurance policy, and
person who taken it had sent cheque to pay premium which was received by
insurance company and it was kept but before they could reply the person died.
They even refused to pay insurance amount as the contract was not formed
because they did not send any formal acceptance letter. Court held that it is not a
contract so ins co not liable to pay the amount. Insurance - cancellation of policy
- cancellation is reasonably possible before liability under policy has commenced
or has become inevitable – in present case assurers cancelled policy on grounds
of bad conditions of dam built to prevent floods - cancellation was done at a time
when no one could have guessed that houses located so far from river would be
destroyed by ensuing floods - held, cancellation of policy was not illegal.
2. LIC V raja vasireddy komalavalli (1984) - life insurance policy, and person who
taken it had sent cheque to pay premium which was received by insurance
company and it was kept but before they could reply the person died. They even
refused to pay insurance amount as the contract was not formed because they
did not send any formal acceptance letter. Court held that contract formed and
co liable to pay. Insurance - contract liability - mere receipt and retention of
premiums until after death of applicant does not give rise to contract -
circumstances may be such that approval could be inferred from retention of
premium execution of policy not an acceptance - acceptance to be complete must
be communicated to offer or either directly or by some definite act such as
placing contract in mail - test not intention alone when application so requires
acceptance must be evidenced by signature of one of company' executive officers
- general rule that contract of insurance concluded only when party to whom
offer has be made accepts unconditionally and communicates his acceptance to
person making offer - held, High Court was in error that there was concluded
contract of insurance between deceased and Life Insurance Corporation.

Difference between both judgements: In the General Assurance Society judgment, the
Court held there to be a valid concluded contract (thereby resulting in a valid
cancellation). This was done by virtue of the cover notes sent by the assurer along with the
acceptance letter. Even though the cover notes explicitly stated that they were only valid
for a temporary period (30 days), the Court opined that the reference to the standard or
future policy would mean that the contract would subsist beyond the 30 days, and would
be governed by the terms and conditions of the policy, thereby allowing the society to
validly cancel the contract. On the other hand, in the LIC judgment, the Court was faced
with a situation of silence from the side of the assurer after the premium had been paid.
Here, the policy required the Divisional Manager's approval, which was not explicitly
given. This silence was interpreted by the Court, to mean the failure to form a contract.
Since, the requisite signature had not been taken, there had been no conclusion of the
contract. There perhaps is no fundamental difference in the two interpretations taken by
the Supreme Court. As stated in the LIC judgment, "acceptance must be signified by some
act... from which the law raises a presumption of acceptance". In the LIC judgment, there
was no such act which was intimated in express terms to the insured, while in the General
Assurance judgment, there was a temporary acceptance in the form of the cover notes,
thereby implying acceptance and formation of the contract.

Insurable Interest:
Macaura v Northern insurance co The owner of a timber estate sold all the timber to
a company which was owned almost solely by him. He was the company’s largest
creditor. He insured the timber against fire, but in his own name. After the timber
was destroyed by fire the insurance company refused the claim. the House of Lords
held that in order to have an insurable interest in property a person must have a
legal or equitable interest in that property. The claim failed as “the corporator even if
he holds all the shares is not the corporation… neither he nor any creditor of the
company has any property legal or equitable in the assets of the corporation.”

Dalby v india and London life assurance company-- The contract of life-assurance is a
mere contract to pay a certain sum of money upon the death of a person, in
consideration of the due payment of certain annual premiums during his life. It is not a
contract of indemnity.—Where a policy effected by a creditor on the life of his debtor is
valid at the time it is entered into, the circumstance of the interest of the assured in such
life ceasing before the death does not invalidate it, by reason of the provisions of the 14
G.3, c. 48.— Godsall v. Boldero , 9 East, 72, overruled. This was an action upon a policy
of assurance effected by the plaintiff, on the 9th of January, 1847, for and on behalf of
the directors of the Anchor Life-Assurance Company, in the sum of 1000l., on the life of
His Royal Highness, Adolphus Frederick, Duke of Cambridge, for the whole term of
such life, in consideration of the sum of 122l. 15s. 10d., and an undertaking to pay the
like sum yearly during the life of the duke. It is an action on what is usually termed a
policy of life-assurance, brought by he plaintiff as a trustee for the Anchor Assurance
Company, on a policy for 1000l. on the life of his late Royal Highness, the Duke of
Cambridge. At the time this policy was subscribed by the defendants, the Anchor
Company had unquestionably an insurable interest to the full amount. Afterwards, an
arrangement was made between the office and Wright, for the former to grant an
annuity to Wright and his wife, in consideration of a sum of money, and of the delivery
up of the four policies to be cancelled, which was done; but one of the directors kept the
present policy on foot, by the payment of the premiums till the Duke's death. It may be
conceded, for the purpose of the present argument, that these transactions between
Wright and the office totally put an end to that interest which the Anchor company had
when the policy was effected, and in respect of which it was effected: and that, at the
time of the Duke's death, and up to the commencement of the suit the plaintiff had no
interest whatever. As the Anchor Assurance Company had unquestionably an interest
in the continuance of the life of the Duke of Cambridge,—and that to the amount of
1000l., because they had bound themselves to pay a sum of 1000l. to Wright on that
event,—the policy effected by them with the defendants was certainly legal and valid,
and the plaintiff, without the slightest doubt, could have recovered the full amount, if
there were no other provisions in the act.

Good faith principle :

Aldrich v Norwich union life insurance co ltd

The provider of endowment insurance, has a duty of utmost good faith to an insured, but need
disclose only matters which are material to the risk. Such facts need not include every fact
which might affect the decision to enter into any contract collateral to the insurance contract.
Duties under the Financial Services Act did not extend this duty
The narrow approach adopted by the Court of Appeal in Westgate towards the insurers’ duty
of good faith was recently applied in Aldrich v Norwich Union Life Insurance Co
Ltd. Norwich Union had sold certain ‘property backed guarantee plans’ to Lloyd’s names
229

whereby guarantees were given in respect of their liabilities. Calls by Lloyd’s exhausted the
guarantees and Norwich Union sought to enforce the security provided by the names. The
security included the assignment of endowment and life policies to the insurer. The Court of
Appeal upheld the striking-out of claims that Norwich Union had failed to disclose its
knowledge that the syndicates to which the names belonged were likely to incur substantial
losses. It was held that there was no obligation on Norwich Union to disclose matters relating
to the risk of losses at Lloyd’s because this particular risk was not covered by the endowment
and life policies; the only issue material to such policies related to the insureds’ (ie the

Carter v bohem

The insured need not mention what the underwriter knows or ought to know, and the latter
cannot insist that a policy is void because the insured did not tell him what he knew already
or what he reasonably ought to have found out by inquiry. This included ‘general topics of
speculation, including every cause which may occasion natural perils, the difficulty of a
voyage, the kind of seasons, political perils’.40

An underwriter cannot insist that the policy is void, because the insured did not tell
him what he actually knew. The insured need not tell what the under-writer ought
to know; and what he waives being informed of. The under-writer need not be told
what lessens the ‘risque’ agreed. He need not to be told general topics of
speculation: as for instance - The under-writer is bound to know every cause which
may occasion natural perils; as, the difficulty of the voyage-the kind of seasons -the
probability of lightning, hurricanes, earthquakes, etc. He is bound to know every
cause which may occasion political perils; from the ruptures of States from war, and
the various operations of it. He is bound to know the probability of safety, from the
continuance or return of peace; from the imbecility of the enemy, through the
weakness of their counsels, or their want of strength etc. Mansfield accepted that
Carter had proved that Fort Marlborough was no military fortress but a trading
factory. He also found that the general state of its fortifications was ‘well known by
most people conversant with Indian affairs’, and ‘could not be kept secret or
concealed from persons who should endeavour by proper inquiry to inform
themselves’. The underwriter in London in May 1760 ‘could judge much better of
the probability of the contingency’ than Carter would have been able to at Fort
Marlborough in September 1759. The former would, or should, have known the
state of the war in Europe, what naval forces had been sent by the French and the
English to the East Indies, and the probability of an attack. There was no knowledge
of any plan to attack Fort Marlborough existing in September 1759, and therefore no
concealment by Carter - the actual attack that took place was opportunistic and
without premeditation.

The underwriter also knew the insurance was for the governor. If there was an
attack, the underwriter knew that it was incapable of resistance. He knew the
success of the operations of the war in Europe. He knew the governor must be
acquainted with the state of the place. He knew the governor could not disclose it,
consistent with his duty. He knew the governor, by insuring, apprehended at least
the possibility of an attack. With this knowledge, without asking a question, the
underwriter underwrote.

Biggar v Rock life iNSURANCE co. 0--- In this case Biggar, who was a
pubhcan, seems to have been canvassed by the insurance company's
agents, who in February induced him to send in a proposal for insurance
against accidents. The ordinary course would have been for the applicant
to fill in the answers to the questions in the proposal form ;^ but in the
pres- ent case Cooper, the company's agent, filled up the proposal form
without consulting Biggar as to the answers to be given, and then in-
vited Biggar to sign the form so filled up, which Biggar did without
reading it. The proposal form so signed contained not only the ques-
tions, with the answers inserted by the agent, but also a declaration
at the foot to which Biggar himself signed his name, and which stated
(inter alia) that "no company has ever declined to assure me nor to
renew my policy," and also that he requested the company to grant
"a. policy in accordance with the above particulars" ; by the declara-
tion Biggar further agreed that "the above statements shall form
the basis of the contract." The answers inserted by Cooper, the
agent, were false in many material particulars ; but Biggar was not
aware of their falsity, and apparently was not aware of what the an-
swers were in fact or of what were the questions to which they were
the answers. This false proposal form was afterwards transmitted
to the company by Cooper and the proposal was accepted ; the premi-
um was then paid by Biggar through Cooper and the policy was issued.
Some little time afterwards Biggar met with an accident, and the ques-
tion now is whether he is entitled to recover on the policy.

It is plain that the policy is prima facie avoided, for some of the
particulars and statements in the answers, the correctness of which
was a condition precedent to the validity of the policy, were false ;
Biggar, therefore, cannot recover unless he is able to show that the
insurance company is prevented from setting up that ground of avoid-
ance by reason of its agent, Cooper, having acted in fraud of his
principals. I will deal with a minor point first. It is said that in any
case (whatever may be the proper decision as to the main question
here) the claimant is disentitled to recover, because he signed a paper
containing certain other particulars, and especially tlie statement that
no company had ever declined to assure him or to renew his policy.
I am inclined to think that that is of itself sufficient to prevent him
from having any claim against the company ; but I do not wish to rest
my decision upon that, because I do not think the case was stated with
reference to that particular contention, and I do not think it is so
explicit with regard to it as I could have wished, I do not feel quite
clear that this representation which he signed is sufficiently untrue,
and I prefer to deal with the case upon the main point.

LIC V ASHA GOEL

Case Note: Insurance - repudiation of claim - Section 45 of Life

Insurance Corporation Act, 1956 - Section 45 is restrictive in nature
- three conditions are essential for application of second part - firstly
statement must be on material matter or must suppress material
fact - secondly suppression must
be fraudulently made by policy holder - thirdly at time of making
statement policy holder must have known it to be false - mere
inaccuracy in recital is not sufficient - to avoid policy on ground of
misstatement insurer must prove these conditions - in case of
misstatement in material facts policy can be called in question

Coming to the question of scope of repudiation of claim of

the insured or nominee by the Corporation, the provisions
of Section 45 of the Insurance Act is of relevance in the
matter. The Section provides, inter alia, that no policy of
life insurance effected after the coming into force of this
Act shall, after the expiry of two years from the date on
which it was effected, be called in question by an insurer
on the ground that a statement made in the proposal for
insurance or in any report of a medical officer, or
referee, or friend of the insured, or in any other document
leading to the issue of the policy, was inaccurate or false,
unless the insurer shows that such statement was on a
material matter or suppressed facts which it was material
to disclose and that it was fraudulently made by the policy-
holder and that the policy-holder knew at the time of
making it that the statement was false or that it
suppressed facts which it was material to disclose. The
proviso which deals with proof of age of the insured is not
relevant for the purpose of the present proceeding. On a
fair reading of the Section it is clear that it is restrictive in
nature. It lays down three conditions for applicability, of
the second part of the Section namely:- (a) the statement
must be on a material matter or must suppress facts which
it was material to disclose; (b) the suppression must be
fraudulently made by the policy holder; and (c) the policy
holder must have known at the time of making the
statement that it was false or that it suppressed facts
which it was material to disclose. Mere inaccuracy of falsity
in respect of some recitals or items in the proposal is not
sufficient. The burden of proof is on the insurer to
establish these circumstances and unless the insurer is
able to do so there is no question of the policy being
avoided on ground of misstatement of facts. The contracts
of insurance including the contract of life assurance are
contracts uberrima fides and every fact of material must
be disclosed, otherwise, there is good ground for rescission
of the contract. The duty to disclose material facts
continues right up to the conclusion of the contract and
also implies any material alteration in the character of the
risk which may take place between the proposal and its
acceptance. If there are any misstatements or suppression
of material facts, the policy can be called in question. For
determination of the question whether there has been
suppression of any material facts it may be necessary to
 also examine whether the suppression relates to a fact
which is in the
exclusive knowledge of the person intending to take the policy
and it could not be ascertained by reasonable enquiry by a
prudent person.

Norwich union lifer insurance co v Qureshi

he holders of life policies issues as part of a guarantee scheme for potential liabilities of
Lloyd’s Names were held not to be entitled to any common law or statutory duty of disclosure
against the insurers, and their actions were struck out. Those decisions have now been
reversed in part by the Court of Appeal in Aldrich v Norwich Union Life Insurance Company
Ltd (forthcoming in [1999] Lloyd’s Rep IR).

Ratanlal v metropolitan insurance co

Insurance - Realisation of claim - Appeal by Appellant- Plaintiff arose out of a suit for
realisation of a claim under an insurance policy on death of life insured - Trial Court
dismissed the suit - Held, contracts of insurance including the contracts of life assurance are
contracts uberrima fides and every fact of materiality must be disclosed otherwise there is
good ground for rescission - Non-disclosure of material facts even in absence of
misrepresentation or fraud may make contract voidable at the instance of parties to whom
'uberrima fides' is due - Any fact which tends to suggest hat life insured is likely to fall short
of average duration is a material fact - Contract became a binding obligation between parties
when acceptance given by insurance company through letter - Assured had not developed any
complaint about his health at any time between the date of his medical examination and
acceptance - Complaint which he had on next day of acceptance was of an ordinary disorder
character and not what is known as llness - No breach of warranty by assured if he did not
send any information of his illness which began after acceptance - Insurance Company was
not justified in withholding payment of amount due under policy of insurance on life of
deceased - Appellants-Plaintiffs were entitled to interest at 6 per cent, per annum on amount
due from date of institution of suit until the date of realization - Judgment passed by court
below were set aside – Appeal allowed.

Unit 3 - Life iNsurance

Chandulal Harjivandas, Jamnagar v Commissioner of Income Tax- Income Tax & Direct
Taxes - Indian Income Tax Act, 1922 - Insurance
Act, 1938 - Provident Funds Act, 1925 - Insurance policy - Premium - Assessment -
Terms of contract - Liability - Children's Deferred Endowment Assurancefor sum of
Rs. 50,000/- was issued by Insurance Corporation - Proposer was X was father of
appellant/assessee and life assured was that of assessee - Premium payable in
respect of policy was paid as premium out of taxable Income of assessee - In
assessment for assessment year assessee claimed rebate on insurance premium
u/s.15(1) of 1922 Act - Income Tax Officer rejected the claim on the ground that
under policy life of minor assessee had not been assured - Appellate Assistant
Commissioner agreed with Income Tax Officer and claim of assessee was rightly
rejected - On appeal, Tribunal dismissed the appeal - Reference was made to HC -
HC concluded that contract of insurance with Insurance Corporation was entered
into by father of assessee and under terms contract was to become assessee's
contract only by his adopting it on attaining majority - Interpretation of terms of
contract even if minor were to be alive on deferred date it was 'assessee's father
entitled to receive cash option unless assessee adopted contract as his own -
Whether rebate u/s.15(1) of 1922 Act was admissible on premium payable during
minority of assessee - Held, contract of insurance between assessee's father and
Insurance Corporation must be read as whole and contract in substance contract of
life insurance regard to life of assessee - If assessee adopts policy upon attaining
majority Corporation becomes liable to pay sum assured to assessee on stipulated
date of maturity if assessee was alive - Insurance liable to pay amount assured if
assessee were to die before stipulated date of maturity but on or after deferred date
- Insurance on life of assessee was main intention of contract and other clauses
were ancillary or subordinate to that main purpose - Appeal allowed.

Mithoolal Nayak v Life Insurance Corporation of India--Contract & Commercial - Indian

Contract Act, 1872, ss. 17, 19, 64 and
65 - Insurance Act, 1938, s. 45 - (A) What are three conditions for applicability of s.
45 of Insurance Act? - Held, three conditions for application of second part of s. 45
are (a) statement should be of material facts or suppressed facts which are material
to be disclosed, (b) suppression should be fraudulently made by policy holder and
(c) policy holder must have known at time of making statement that it was false or
that it suppressed facts which it was material to disclose - (B)Whether suppression
of material facts leads to vitiation of policy under Insurance Act and Indian Contract
Act? - Further held, when u/s. 17 of Contract Act, a policy holder is guilty of
deliberately making fraudulent suppression of material facts while making
statements, policy issued to him relying upon those statements is vitiated - u/s. 38
and s. 45 of Insurance Act - Contracts of life insurance if entered with fraudulent
suppression of material facts by policy holder policy stands vitiated - (C) Whether a
person guilty of fraud is entitled for refund of money from insurance agency? -
Further held, whenever a policy is vitiated by reason of fraudulent suppression of
material facts all money been paid in consequence of policy shall go to insurance
company - A person guilty of fraud is not entitled of any refund of money - Appeal
dismissed with costs.

Life Insurance Corporation of India v Smt G. M. Channabasamma--- Insurance Act, 1938 -

Pre-Life Insurance - Contract thereof - Assured is under solemn obligation to make full
disclosure of material facts - Allegation of insured being guilty of making false
representations and suppressing material facts - Burden of proof - Held, it is on
corporation - Appeal dismissed.

Life Insurance Corporation Of India v Jaya Chandel --- Insurance Act, 1938 - Claim is
repudiated on the ground that policy had lapsed due to non-payment of premium in time
- State Commission held that in any event the amount was received within the grace
period and therefore, the claim could not have been repudiated - National Forum held
that there was revival - Appeal against - Held, grace period is one month and therefore the
State Commission was not justified in holding that the payment was made within the
grace period - Cheque was admittedly received after the death of the assured - Revival
takes effect only after the same is approved by the Corporation and is specifically
communicated to the life insured - Appeal allowed.

Harshad J. Shah and Another v L.I.C. of India and Others --- Held, in disclaiming its liability,
LIC was acting in accordance with provision in
regulations/rules framed by it whereby agents had been prohibited from collecting
moneys on behalf of LIC - Said provision had been made in public interest in order to
protect Corporation from any fraud on part of agent - It should not be said that in
making such provision in regulations/rules and in acting in accordance with same
LIC had not acted fairly or in consonance with its obligations under Part III of
Constitution - Hence, claim of appellants could not be upheld - No ground was made
out for interfering with decision of National Commission that respondent no.3 in
receiving bearer cheque for Rs.2,730/- from insured was not acting as agent of LIC -
In view facts and circumstances of instant case LIC was directed to refund entire
amount of premium paid to it on four insurance policies to appellant no. 2 along with
interest at 15 per cent per annum - Interest would be payable from date of receipt of
amounts of premium - Having regard to fact that appellants had succeeded before
State Commission and questions raised by them were of sufficient importance
requiring decision by this Court respondent no.1 should pay appellants sum of Rs.
10,000/- as costs - Appeals disposed of.

Life Insurance Corporation of India and Another v Dharam Vir Anand---- Consumer
Protection Act, 1986, s. 12 - Whether date of policy is date on which policy was issued or
date on which risk under policy has commenced? - Held,mwhen same clause of a contract
uses two different expressions, ordinarily those different expressions convey different
meanings and both expressions cannot be held to be conveying one and same meaning -
When parties had agreed to terms of contract, it is impermissible to hold that a particular
term was never intended to be acted upon - Proviso to cl. 4-B will have its full play if
expression 'the date of policy' is interpreted to mean date on which policy was issued and
not date on which risk under policy has commenced - Appeal disposed of.