Raja made a proposal to an insurance company for an insurance policy on his life for ₹ 8,00,000 and paid the insurance premium. He truthfully answered all questions on the proposal form and had disclosed all relevant fac

A contract of insurance is a contract of absolute good faith ( uberrimae fidei ). The duty of observing utmost good faith by the proposer to an insurance contract continues throughout the negotiations till the proposal is accepted by the insurance company and the contract becomes operative. This means that any material alteration in the risk between the day of the proposal and its acceptance must be disclosed to the insurance company. In this case, Raja fell ill with pneumonia a few days after making the proposal but before it was accepted. This illness constitutes a material alteration in the risk. Although Raja had truthfully answered all questions at the time of the proposal, he did not disclose his illness to the insurance company before the proposal was accepted. Such notice was not given, and therefore there was a breach of good faith on the part of the insured (or his representative, if he was incapacitated). The insurance company is entitled to get notice of any material alteration in the risk. Since this material fact (Raja's illness) was not disclosed before the acceptance of the proposal, there was a breach of the principle of utmost good faith. Therefore, the insurance company is not liable for making the payment, as the contract was voidable due to the non-disclosure of a material fact that occurred during the negotiation period and before the contract became operative.