Many proponents feel that filling up of the proposal form is a boring and tiresome job and the agent of the insurance company should take care of that. But actually, that should not be the case. The proposer himself is s

CS Professional · Insurance - Law & Practice · PYQS · June 2023
Many proponents feel that filling up of the proposal form is a boring and tiresome job and the agent of the insurance company should take care of that. But actually, that should not be the case. The proposer himself is supposed to fill up the same on his own. Despite that, many prefer the agent to do the job and most of the times the agents do it without asking for any details of the health status of the proponent. This innocent act may run into a nightmare, if the policyholder dies within two years from the date of commencement of the policy. In such a situation, mandatory investigations are carried out before passing such claims and the insurer may reject the claim, if the probe reveals that the policyholder had withheld some information which was material information for the purpose of underwriting by the insurer. It is the responsibility of the proponent to fill up the proposal form while the agent may only help him. Regulations too do not allow an agent to go beyond this." Thus, an insurance policy is a contract, and it must, therefore, conform to the rules of general contract law. Through a contract of insurance, the insurer agrees to make good any loss on the insured property or loss of life that may occur in course of time in consideration for a small premium to be paid by the insured. The business of insurance aims to protect the economic value of assets or economic value of life of a person. On the basis of the above facts, answer the following questions: (a) Despite a contract, how can the insurer repudiate its liability?

Answer & Explanation:

Insurance contracts are contracts of utmost good faith, based on the principles of 'Uberrimae Fidei'. The person taking the insurance policy is expected to disclose the information required in the application form concerning his health, occupation, family history, habits and all other material questions truthfully without withholding any information required. This is to enable accurate assessment of the risk and fixing of the premium by the insurer accordingly. Repudiation is a breach of a contract by the one-party that justifies cancellation. Repudiation is conduct that exhibits the clear and unequivocal intention of the party concerned to no longer be bound to the contract. Since only the person taking the insurance is privy to the personal information, obligation to truthfully disclose lies with the person taking the insurance. If there is any misstatement or concealment of a material fact (any information which would have impacted the decision to accept the risk), the insurance company has the right to cancel the contract (repudiation) and deny the policy benefits. In this case, there is a high possibility that the agent may commit mistake and that may turn into a misrepresentation on the part of the policy holder. Moreover, the policyholder has to provide a warranty regarding the correctness of all the facts mentioned therein. Therefore, the contract will be treated as voidable at the option of the insurer owing to misrepresentation, if anything wrong is written in the proposal form. A Life Insurance 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 and in such a case, the onus of disproving lies upon the beneficiaries, in case the policyholder is not alive.

Topics: Insurance Contracts

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