Insurance is nothing but an arrangement by which the insurer guarantees to pay compensation

to the insured in return for payment of premium paid by the insured. The fundamental
underlying reason is to assure that the funds are easily available to the insured in the event of
illness or death of the insured. Hence, it gives comfort to the dependents of the insured so that
they can continue to maintain their standard of living in the event of unanticipated death of
the insured.

Insurance is a form of contract which is primarily governed by the doctrine of uberrima fidei
which means contract based on utmost good faith. The policy-holder is under an obligation to
make available to the insurer, full information on specific subjects when asked about in the
proposal form. The information which needs to be furnished in the form includes name,
income, occupation, employment, etc of the policyholder, details of existing policies etc. The
non-disclosure of material facts or providing incorrect or false information in the policy is
against the insurance contract and hence can be a valid ground for repudiation of contract by
the insurer. There is clear presumption that any information sought for in the proposal form is
material for the purpose of entering into a Contract of Insurance, hence, any inaccurate
answer will entitle the insurer to repudiate the claim.

The next question for consideration would be as to which information must be disclosed in
the policy be constituted as ‘material fact’. Material fact is a fact which would influence the
mind of any prudent insurer in determining as to whether accept or to no accept the risk. An
insurer has grounds to avoid the contract if the insured provides false information. The
information must be material, for example, a false description of a person’s skin colour
should not defeat a claim under a life insurance policy. But a false statement, even if
innocent, about a material fact for e.g., that active concealment of monthly income of the
applicant, will at the option of insurer defeat a claim of the insured under the policy.

In a recent judgment of the Supreme Court in Reliance Life Insurance Co. Ltd. v. Rekhaben
Nareshbhai Rathod, the appellant repudiated the respondent’s claim under the policy on the
ground of not disclosing previous policies held by the proposer. It was decided in the case
that the disclosure of a pre-existing life insurance policy is necessary to enable the insurer to
assess the human life value of the proposer before the issuance of a policy. The effect of not
disclosing of a prior policy is that the insurer is unable to assess the real risk arising out of the
contracted policy.
It was decided in Mithoolal Nayak v. LIC that if the information required by the insurer in the
proposal form is not disclosed, is suppressed or if a false answer is furnished by the proposer,
the insurer is entitled to repudiate the insurance policy.

Generally, the insurer is not responsible for non-disclosure of material facts or furnishing
wrong information by the insured. Therefore, it is the duty of the policyholder to keep in
mind that the proposal form should be correctly answered and the terms and conditions of the
policy must be understood thoroughly at the time of entering into the insurance contract.

The responsibility of the insurer is to settle genuine claims, distribute insurance amount and
at the same time repudiate the false and spurious claims on the basis of insufficient and
unreliable material evidence. Insured should also bear in mind that obtaining an insurance
policy does not guarantee distribution of policy amount on eventuality. For that to happen,
they shall disclose all the material facts to the insurer at the time of making a policy. Else
ways, the insurer has no liability to settle the claim amount and the dependants of insured will
be in dire straits.