General Principles

Uberrimae Fidei
• Principle of Utmost Good Faith
• Principle applies to all types of insurances.
• Caveat Emptor diluted by Duty of Disclosure.
“Insurance is a contract upon speculation. The special facts,
upon which the contingent chance is to be computed, lie
most commonly in the knowledge of the insured only: the
under-writer trusts to his representation, and proceeds
upon the confidence that he does not keep back any
circumstance in his knowledge, to mislead the under-
writer into a belief that the circumstances does not exist,
and to induce him to estimate the risk as if it does not
exist.”
• Carter v Boehm (1766) 3 Burr. 1905
- Lord Mansfield
“either party may be innocently silent, as to
grounds open to both, to exercise their judgment
upon.... An under-writer can not insist that the
policy is void, because the insured did not tell
him what he actually knew.... The insured need
not mention what the under-writer ought to
know; what he takes upon himself the knowledge
of; or what he waives being informed of. The
under-writer needs not be told what lessens the
risk agreed and understood to be run by the
express terms of the policy. ”
- Declared in favour of carter
• Disclosure and Representations mentioned in S. 19 – 23 of
the Marine Insurance Act, 1963…applies mutatis mutandis
to all other forms of insurance.
• S.20 lays down the following:
• 1. Duty of disclosure of all the material facts by the
assured which are known and deemed to be known by
the assured in the ordinary course of business. In case of
failure, the insurer may avoid the contract.
• 2. Every circumstance is material which would influence
the judgment of a prudent insurer in (i) fixing the
premium, or (ii) determining whether he will take the risk.
• LIC v G.M. Channabasamma AIR 1991 SC 392
• Srinivas Pillai v LIC AIR 1977 Mad. 381.
• Bansari Devi v New India Assurance Corp. AIR 1959 Pat. 540 – The
material fact is one:
• (i) which increases the risk,
• (ii) whether the insured would have rejected the policy on these
terms if the fact had been disclosed.
• As per S. 25, Halsbury’s Laws of England, even in the absence of
specific questions the proposer must disclose voluntarily the
following facts and circumstances because they are material:
(1) Facts which render or tend to show that the risk is greater than
normal,
(2) Facts which suggest any special motive for taking the insurance,
(3) Facts which suggest the existence of moral hazards which relate to
the moral integrity of the proposer or which suggest that the
proposer is himself abnormal, that is which indicate his accident
proneness, etc.
• Examples of Material facts:
(a) Life Assurance: Suffering from lung infection or damaged kidney.
(b) Fire Insurance: Building having a thatched roof or being used for manufacturing
explosives.
(c) Marine Insurance: Ship has unrepaired damage affecting its handling.

• (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.
• Other facts like law of the land, public and professional knowledge.
• LIC v Shakuntalabai AIR 1975 AP 68.
• Rohini Nandan v Ocean Accident and Guarantee Corporation  AIR 1960 Cal 696
• (4) Whether any particular circumstances, 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.
• S.21 lays down the duty of disclosure by the agent effecting
insurance.
• 22. Representations pending negotiation of contract.—(1)
Every material representation made by the assured or his
agent to the insurer during the negotiations for the contract,
and before the contract is concluded, must be true. If it be
untrue the insurer may avoid the contract.
• (2) A representation is material which would influence the
judgment of a prudent insurer in fixing the premium, or
determining whether he will take the risk.
• (3) A representation may be either as to a matter of fact,
or as to a matter of expectation or belief.
• (4) A representation as to a matter of fact is true, if it be
substantially correct, that is to say, if the difference
between what is represented and what is actually correct
would not be considered material by a prudent insurer.
• (5) A representation as to a matter of expectation or
belief is true if it be made in good faith.
• (6) A representation may be withdrawn or corrected
before the contract is concluded.
• Looker v Law Union and Rock Insurance Co. Ltd. (1928) 1
KB 554
• (7) Whether a particular representation be material or
not, is, in each case, a question of fact.
• Burden of Proof: On the Insurer.
• Illustrations:
1. Filling of form by Agent: Biggar v Rock Life Assurance
Co. (1902) 1 KB 516
2. Where contents of proposal are basis of contract:
Dawsons Ltd. v Bonnin (1922) AC 413
3. Inconsistent Statements
4. Form completed with blanks
-Glickman v Lavchashire and General Insurance Co.
Ltd. (1925) 2 KB 593
• Duty on revival or renewal of policy
• - Lampert v Co-operative Insurance Society (1975) 1
Lloyd’s Rep. 169.
• London Assurances v Mansel (1879) 11 Ch.D. 363
• “Whether it is life or fire or marine insurance I
take it good faith is required in all cases….” –
Jessel M.R.
• LIC v Asha Goel SCC (2001) 601
“Contracts of Insurance are contracts uberrimae
fide and every fact of material must be disclosed
otherwise there is good ground for rescission of
the contract.”
• Duty of disclosure on both parties
• Mere non-disclosure is a ground for invalidating
the insurance contract – London General Omnibus
Co. v Holloway (1912) 2 KB 72 (CA)

• Disclosure of material facts in motor vehicle

accidents cases, principle of contributory
negligence - Oriental Life Insurance Co. v Usha
Bhagchandani SLP No. 2671/2018
• Duty of the Insurer to advise and caution the insured
regarding principle of averaging out/under-insurance.
-IC Sharma v The Oriental Insurance Co Ltd. CIVIL APPEAL
NO. 3167 OF 2017
• The claim is allowed by applying the principle of
averaging out, i.e. the insured is paid an amount
proportionate to the extent of insurance as compared to
the actual value of the goods insured.

• “The insurance company must at the time of accepting

the premium advice the policy holder properly. The
insurance company cannot accept the premium without
asking for any details and later deny its liability on the
ground that such details were not given”
 S. 45 Insurance Act
• Amended in 2015
• Only applies to LIC policies
• No policy of life insurance shall be called in question on
any ground whatsoever after the expiry of three years
from the date of the policy, i.e., from the date of issuance
of the policy or 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.
• Mitthulal Naik v LIC AIR 1962 SC 814
• Insurer need to provide grounds of repudiation to the
insured/Nominee/Legal representative.
• Ground No.1 is Fraud
• Fraud means:
• (a) the suggestion, as a fact of that which is not true
and which the insured does not believe to be true;
• (b) the active concealment of a fact by the insured
having knowledge or belief of the fact;
• (c) any other act fitted to deceive; and
• (d) any such act or omission as the law specially
declares to be fraudulent.
• Mere silence as to facts likely to affect the
assessment of the risk by the insurer is not fraud,
unless the circumstances of the case are such that
regard being had to them, it is the duty of the
insured or his agent keeping silence, to speak, or
unless his silence is, in itself, equivalent to speak.
• LIC policy cannot be repudiated on the ground of
fraud if the insured can prove that the
misstatement of or suppression of a material fact
was true to the best of his knowledge and belief
or that there was no deliberate intention to
suppress the fact or that such misstatement of or
suppression of a material fact are within the
knowledge of the insurer:
• In such case, the onus of disproving lies upon the
beneficiaries, in case the policyholder is not alive.
• Ground No.2 is mis-statement or suppression of facts
material to the expectancy of life.
• In this case unused premium (premium collected) shall
be refunded within a period of ninety days from the
date of such repudiation.
• Mis-statement or suppression of material facts will be
deemed material only if has direct bearing on the risk
undertaken by the insurer.
• The onus is on the insurer to show that had insurer
been aware of the said fact no life insurance policy
would have been issued to the insured.
• Insurer may at any time call for age of the insured and
adjust the terms accordingly as per the discrepancies.
• P.J. Chacko v. Chairman, LIC. AIR 2008 SC 424