A life insurance policy has been taken by B, an individual on his life for a sum assured of ₹25 lakh from an Indian Insurer on 15th July, 2018. B has opted to pay the premium due on the policy on an annual basis and the

The first policy existing was taken on 15th July, 2018 for a sum assured of ₹25 Lakhs by Mr. B. The Policy is current and premium was paid. Mr. B had made proposal for second policy in January 2021, after about 30 months after the inception of the first policy. Medical examination now made in 2021 reveals a material misstatement in the proposal of July 2018. An insurance contract between a proposer/insured and the insurance company is a contract where the doctrine of utmost faith is applicable. Either side should not make a statement, claim or disclose that is not fully true and correct. A material statement will affect the very fundamentals of the contract if found to be wrong and can lead to avoidance or cancellation of the contract itself. Material misstatement was a statement, on examination by the person to whom it is made, is found to be erroneous, or a statement that will materially affect the acceptance of a proposal made so as to change the very nature of the agreement or the contract to be proved by documentary evidence where the insurer if only he had been appraised of the nature of risk that it underwrites had been told of a misstatement, false declaration etc. which materially affects the nature of risk sought to be covered or the quality of the risk that is offered for risk protection etc. Disclosure to information norm: In accordance with Condition 4 "Duty of Fair Disclosure", the Policy shall be void and all premium paid hereon shall be forfeited to the Insurer, in the event of misrepresentation, mis-description or non-disclosure of any material fact. Notwithstanding anything contained herein or otherwise, no refunds of premium shall be made in respect of the Policy where any Notice is required to be given by the Insured in accordance with Condition 6, or any claim has been admitted by Insurer or has been lodged with the Insurer, or any benefit has been availed by Insured under the Policy. Earlier, before 2015 the Insurance Act under section 45 had provided an insurer with a two year window to cancel a risk or repudiate a claim under a life contract. This period has been extended to 3 years under the 2015 amended law, prohibits a life insurer to avoid a policy on the claim of misrepresentation of facts. Where fraud is established, premium paid till the date of cancellation or repudiation can be forfeited. However, where the misstatements were posed to be unintentional, premium paid till date of repudiation or cancellation may be refunded to the insured. The ground of reason on which repudiation is sought by the insurer must be intimated to the insured. No repudiation of a policy is possible if the facts alleged to have been misrepresented to a life insurer were within the knowledge of the agent who had sourced the policy for the customer. In the present case, section 45 is available to the insurer to repudiate the life policy issued on 15th July, 2018 since an investigation made in January 2021 in connection with the proposal of a second policy for the same insured revealed material misrepresentation of facts. Insurer has to disclose to B the result of the investigation made by it and how an attempt had been made in 2018 to prompt the insurer to issue a life policy on the strength of misstatement of material facts. B can prove if the mistake attributed to him, is material or not, fraudulent or otherwise, only when the alleged misstatement in the 2018 proposal form is established by documentary evidence to be of a nature that would affect the decision of the insurance company to accept the policy or not. Insurance company can recourse to section 45 but action proposed is within the time limit set by law. B can lead evidence on the ground that the misstatement alleged by the insurer is not of such a serious nature that could convert it into a material one but only a minor mistake based on evidence in his possession or of such nature. Secondly, B can also claim that the 2018 policy and the 2021 proposal have been finalized through the same agent of the insurer and hence there could be no allegation of misfeasance or fraudulent act when the agent of the insurer was fully aware of the statements made in the proposal form. The case has to be decided upon a full examination of all relevant facts both the insured and the insurer have to lead evidence. Section 45 is however available for use.