Dalbir Singh aged 40 took a policy on 5th August, 2014 for a sum insured of ₹10 lakh from a private Indian Insurer on the basis of the solicitation made by an agent of the insurer. The agent had indicated to Dalbir Singh

In insurance, material facts are used to determine the amount of coverage and the cost of the premium that will be charged. The information is used to determine the level of risk or class of insurance that the insurance company may be willing to offer. The statement of material facts is a document in which the moving party sets out each material fact that it contends is not in genuine dispute. The rules regarding the statement of material facts vary widely among district courts. A material fact is one that will critically affect the decision of the acceptor to a contract, whether to agree or not to agree, being a party to the contract. Proposer is the offeror and insurance company is the acceptor and for the existence of a valid contract, there must be consensus as-idem i.e. meeting of two minds or complete understanding and consensus between the parties as to the subject matter of the contract. A breach of the condition may lead to the parties cancelling the contract. In some cases, contract will become illegal or void ab initio. A material fact is one which will critically affect or influence the decision making of the parties and affect the very structure of the obligation flowing under an agreement. Fraud or misstatement of facts with a view to inducing the other party to conclude an agreement, a fact or statement that could materially affect the decision maker as to accepting the contract or not, is an issue that is critically questioning the very roots or the basis of an agreement, are material facts in the eye of law. A breach of this fundamental philosophy can break the contract and make the party responsible for that misstatement etc. to penalties in addition to the cancellation of the agreement/contract. These cannot be an application of this principle to situation where the party or its agent knew about the impugned facts or a mere mistake unknowingly made or done without wilful motives or a mere slip cannot be considered as material facts wrongly portrayed. In these cases, the contract will enforce but there can be monetary penalties for a non-willful breach. This is the argument that the insurer had placed before the Supreme Court for having rejected the claim. The source of the power of the insurer to adopt this stand is found in section 45 of the Insurance Act which gives scope and cover for an insured to question the validity of life insurance policies and consequently to avoid any liability under the policy. This power can be used within two years of the commencement of the policy where the question of genuineness of the claim, the non-acceptability of the liability under the policy due to prevalence of fraud, non-statement of material facts etc. can be looked into. Non-disclosure of material facts is a clear ground for breach of contract. Fraudulent representation of a material fact entitles the insurer to avoid the policy and moreover, when the non-disclosure is intentional, like in the present case, where the hospitalization facts were deliberately not revealed in the proposal form. Thus, the wilful intention makes the contract enforceable, and the insurer has the right to repudiate the claim on the basis of non-disclosure of material facts. As per the provisions of the law, there is a time limit of two years from the date of issue of the policy for the insurer to contest in cases like these. Thereafter, the insurer cannot cancel or contest on the ground of mis-statements in the policy application. An incontestability clause is a provision in a life or disability insurance policy that prevents the insurance company from cancelling the policy based on misstatements in the policy application after the insurance has been in effect for a certain period of time, usually two years, as per the Insurance Act, 1938, but then recently revised to three years as per the Insurance Amendment Act, 2015. In this case, however, the said time period of two years has not lapsed. Therefore, the insurer can repudiate the claim on breach of contract, and breach of utmost good faith and mis-statement in the policy application, as it is not time barred allegation. In the present case, death of the insured having taken place within six month of the commencement of the policy triggered an investigation by the insurer leading to the presence of a wrong statement of material facts. The time limit set by section 45 can be looked as some sort of safety value for the policy holders since, if the time of 3 years, as per the recent amendment in the year 2015, had been lapsed, the insurer cannot question the wise of the policy except in very limited cases of downright fraud.