Materiality Of Facts In Life Insurance Contracts
In the contracts of life insurance the significance of disclosure of material facts by the person who life is under the cover of life insurance, is immense . What constitutes a material fact? It is reasonable to interpret it as any fact which would have a bearing on the judegement of a prudent insurer in deciding whether the risk should be accepted or not and if accepted what would be the premium for such a policy. Thus, facts regarding age, height, weight, build, previous medical history, habits like smoking and drinking etc. However, there might be some previous policies of the insured with the same insurer and in regard to such a case the insured may not disclose certain facts which can be accessed from the earlier records.
The duty to disclose remains operative till the risk commences and the fact must be material on the date on which it should be communicated to the insurer. It is not necessary to communicate a fact of an immaterial kind as it was at the time of taking out the policy but became material at a later date. When any alteration is contemplated in the original terms of the contract then it becomes a duty on the part of the insured to disclose all the material facts relating to alteration. Similarly the question of a duty to disclose would arise in the case of revival or reinstatement of lapsed or surrendered policies. A policy may a have a clause providing for continuous disclosure during its currency.
Misrepresentation or non-disclosure strikes at the very root of the principle of utmost good faith which the fulcrum on which a contract of insurance rests. In life insurance contracts a declaration by the proposer that all the statements in the proposal form are true in every respect and if any untrue statement be contained therein, the insurer would be entitled to treat the contract as null and void and forfeit all the money paid.
However the right of the insurer to cancel a contract in this regard is circumscribed by the provisions of Section 45 of Indian Insurance Act, 1938 which stipulates that a policy can not be called in question after 2 years on the grounds of inaccurate or false statement, unless it is proved to be material and fraudulent at the time when it was made. The Law Commission has recommended that an insurer can repudiate a policy of life insurance at any time before the expiry of a period of five years from the date of issuance of the policy or the commencement of the risk.
What constitutes a material fact which affects the risk sought to be undertaken by the insurer, would depend upon the facts and circumstances of a particular case. For example suppression of health status has been held by the court to be material and misstatement of age has not been held to be material in every case. .
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