Insurance Contract Dispute Hearing in Supreme Court

P.C. CHACKO & Anr. V. CHAIRMAN, LIC OF INDIA & Ors.
IN THE
HONBLE SUPREME COURT
OF INDIA

Case Concerning
CONTRACTS OF INSURANCE AND BREACH OF CONTRACT

P.C. CHACKO & ANR.
(APPELLANTS)
V.
CHAIRMAN, LIC OF INDIA & ORS.
(RESPONDENTS)

MEMORANDUM FOR THE APPELLANTS

COUNSEL ON BEHALF OF THE APPELLANTS

AYUSHI DWIVEDI
Roll No.-47
Sem-1
Section-A


CONTENT
LIST OF ABBREVIATIONS..................................................................................................i
INDEX OF AUTHORITIES...ii
LIST OF CASES.iii

STATEMENT OF JURISDICTION...4
STATEMENT OF FACTS..5
ISSUES RAISED.6
SUMMARY OF ARGUMENTS.7

WRITTEN SUBMISSIONS.8-15

PRAYER FOR RELIEF..16


i

LIST OF ABBREVIATION

AIR - All India Reporter
& - And
Anr. - Another
Co. - Corporation
Edn - Edition
LIC - Life Insurance
Corporation
Ltd. - Limited
Ors - Others
P. - Page number
S. - Section
SC - Supreme Court
SCC - Supreme Court Cases
v. - versus
vol. - Volume


ii

INDEX OF AUTHORITIES

Books:
1. Mulla Dinshah Firdunji, The Indian Contract Act, Lexis Nexis Butterworths
(Wadhwa 13
th
Edn., 2011)
2. Avtar Singh, Contracts And Specific Relief ( Eastern Book Company, Lal
Bagh Lucknow, 11
th
edn. 2013).

Acts:
Indian Contract Act, 1872
Insurance Act,1938

Dictionaries:
Blacks Law Dictionary (West Group Publishers, 2002)
The Law Lexicon, Bakshi, P. M., Ashoka Law House, New Delhi.


iii

LIST OF CASES

FOREIGN CASES
Thomson v. Weems, (1884) 9 AC 671

Wheelton v. Hardisty(1858) 8 E and B 232

Anderson v. Fitzgerald(1853) 4 H.L. Cas. 484
INDIAN CASES

All India General Insurance Co. Ltd. and another vs. S.P. Maheshwari AIR 1969
Mad 484

LIC of India v. Smt. Asha Goel 1989 65 CompCas 710 Bom

Allianz Und Stuttgarter Life Insurance Bank Ltd v. Hemanta Kumar Das AIR 1938
Cal 641

Ratan Lal And Anr. vs Metropolitan Insurance Co. Ltd. AIR 1959 Pat 413

Dipashri vs LIC Of India, AIR 1985 Bom 192, 1984 (2) BomCR 155

Mithoolal Nayak v. LIC of India 1962 AIR 814, 1962 SCC(2) 571


4

STATEMENT OF JURISDICTION

The Counsel on behalf of the appellants has appealed under the following provisions:

1. S. 39 of the Indian Contract Act, 1872
2. S.73 of the Indian contract Act, 1872

STATEMENT OF FACTS

I. A judgment and order dated 17th December, 2004 passed by a Division Bench of the
High Court of Kerala at Ernakulum in A.F.A. No. 18 of 2000 setting aside the
judgment and order of a learned Single Judge dated 23rd September, 2000 passed in
Appeal Suit No.633 of 1993 confirming the judgment and decree passed by the
Subordinate Judge of Kozhikode in OS No. 240 of 1990 dated 27th February, 1993
leads to this appeal.
II. Plaintiffs in the suit are the appellants herein. They filed the said suit inter alia for
recovery of the amount of insurance on the death of one Chackochan (hereinafter
referred to as (the insured). The insured took an insurance policy on 21st February,
1987. He died on 6th July, 1987.
III. On his death, the appellants herein claimed the insured amount. On the premise that
the insured suppressed material facts, the policy had been repudiated by the
respondent on 10th February, 1989. Non-disclosure and mis-statement in the
proposal form to the various questions to which answers were given by the insured is
said to be the reason for the aforementioned repudiation of the contract of insurance.
IV. It now stands admitted that the insured had undergone an operation for Adenoma
Thyroid. The particulars furnished by him while filling up the application form for
obtaining the said policy were as under :-
(a) Did you ever have any operation, accident or injury? The answer was No.
(b) Have your remained absent from place of your work on ground of health during

5

the last 5 years? To which answer was No.
(c) What has been your state of health? The answer was good.
V. The fact that the said answers were incorrect is not in dispute. The insured had
undergone an operation for Adenoma Thyroid. It was a major operation. The said
operation was undergone four years prior to the date of proposal but he did not
disclose this prior to obtaining the policy. We may notice that he died within six
months from the date of taking the policy i.e. on 6
th
july, 1987, policy having
being taken on 21
st
February, 1987.
VI. On an appeal preferred by the respondents, on the premise that despite such wrong
answers, as the injured died on account of Polyneuritis, a learned Single Judge of
the High Court opined that there was nothing to indicate that if the injured had
disclosed the factum of previous operation, the appellant-Corporation might not have
inclined to insure and insisted on a higher premium and thus there was no material to
show that the non- disclosure was of a material fact justifying repudiation of the
policy by the Corporation.
VII. On an intra court appeal, the Division Bench of the High Court, however, by reason
of the impugned judgment opined that the parties are bound by the warranty clause
contained in the agreement which is also clear from the declaration signed by the
insured and the non-disclosure related to a material fact which was required to be
answered correctly under question No.22 (a).
VIII. To this dispute rises the appeal.


6

ISSUES RAISED

I . Whether LI C has committed any Breach of Contract?
I I . Should the legal representatives of the deceased be entitled to receive the
compensation so claimed?


7

SUMMARY OF ARGUMENTS

I. The mis-statement made by the insured was not material in nature.
There is no nexus between Adenoma Thyroid and Polyneuritis. Thus the disclosure
of the fact of the operation for adenoma thyroid four years prior to the date of
proposal of the policy would not amount to any material change in it.

II. There is a huge difference between representation and warranty.
Representation and Warranty are not the same thing. A false but immaterial
representation, which happened in this case, is not a ground for repudiation.

III. The Insured was examined by a Doctor who was appointed by the Corporation
itself.
A medical officer, who had been appointed by LIC, had examined the insured and
conferred that he was in a good state of health. Thus, the insureds health condition
had been counter-checked by the corporation and thus, the insured didnt
misrepresent anything.

IV. LIC of India committed Breach of Contract.

Repudiation from the policy without any reasonable reason amounts to breach on the
part of the insurance corporation.

V. Since LIC committed Breach of Contract, it should provide compensation to the
legal representatives of the deceased.
The party which has been injured due to a breach of contract has full right to claim
damages. Hence, the legal representatives of the deceased should receive
compensation.


8

WRITTEN SUBMISSION

ISSUE 1.Whether LIC has committed any Breach of Contract?
CONTENTION A:
The mis-statement made by the insured was not material in nature.
As per the facts of the case, the insured had undergone an operation for Adenoma Thyroid
while he died of Polyneuritis which had no connection with the operation. Both these
diseases have nothing in common.
Adenoma Thyroid is a benign tumour of the thyroid gland.
Polyneuritis is an acute, rapidly progressive, ascending motor neuron paralysis,
beginning in the feet and ascending to the other muscles, often occurring after an
enteric or respiratory infection.
1

(i) S. 45 of the Insurance Act, 1938 says that:
"No policy of life insurance effected before the commencement of this Act shall, after the
expiry of two years from the date of commencement of this Act and no policy of life
insurance effected after the coming into force of this act shall, after the expiry of two years
from the date on which it was effected, be called in question by an insurer on the ground that
a statement made in the proposal for insurance or in any report of a medical officer, or
referee, or friend of the insured, or in any other document leading to the issue of the policy,
was inaccurate or false, unless the insurer shows that such statement was on a material matter
or suppressed facts which it was material to disclose and that it was fraudulently made by the
policy-holder and that the policy-holder knew at the time of making it that the statement was
false of that it suppressed facts which it was material to disclose."

1
Farlax Medical Dictionary

9

.
(ii) The Supreme Court considered the ambit of S. 45 of the Insurance Act in the case
of Mithoolal Nayak v. LIC of India
2
laid down that the three conditions for the application of
the second part of S. 45 are:
(a) the statement must be on a material matter or must suppress facts which it was material to
disclose,
(b) the suppression must be fraudulently made by the policy holder and
(c) the policy holder must have known at the time of making the statement that it was false of
that it suppressed facts which it was material to disclose.
(iii) Here, a ticklish question arises as to what is a material fact. In Thomson v. Weems
3
, it
was held that any fact which tends to suggest that the life insured is likely to fall short of the
average duration is a material fact. Since in this case, the insured had undergone a successful
adenoma thyroid operation, hence its disclosure would not lead to a material fact.
(iv) In the case titled as LIC of India v. Smt. Asha Goel and Anr.
4
the Hon'ble Supreme Court
held that mere inaccuracy of falsity in respect of some recitals or items in the proposal is not
sufficient. The burden of proof is on the insurer to establish these circumstances and unless
the insurer is able to do so there is no question of the policy being avoided on ground of
misstatement of facts. Moreover, for determination of the question whether there has been
suppression of any material facts it may be necessary to also examine whether the
suppression relates to a fact which is in the exclusive knowledge of the person intending to
take the policy and it could not be ascertained by reasonable enquiry by a prudent person.
Similar provision was laid down in the case Allianz Und Stuttgarter Life Insurance Bank Ltd
v. Hemanta Kumar Das.
5

(v) In Halsbury's Laws of England, Volume 18, Article 588, a distinction has been drawn
between mis-representation & non-disclosure & in the course of that it has been observed :

2
AIR 1962 SC 814
3
(1884) 9 AC 671
4
1989 65 CompCas 710 Bom
5
AIR 1938 Cal 641

10

"..... Since, however, the duty to disclose is limited to facts within the knowledge of the
assured, a mistaken statement about a material fact (Wheelton v. Hardisty
6
) made honestly,
that is, with belief in its truth, will not affect the validity of the contract (Anderson v.
Fitzgerald
7
), unless there is an express condition that it shall do so".
Hence, it is clear that since the adenoma thyroid operation had no actual connection with the
actual death of the insured, it cannot be considered as of material nature.
Thus the Counsel on behalf of the appellants pleads that the mis-statement was not of
material nature and hence, should not be considered as a reason for repudiation.

CONTENTION B:
There is a huge difference between Representation &Warranty.
The mis-statement made by the insured was not an intentional suppression or warranty, but
just a representation of what he thought was substantial enough to be told.
(i) All India General Insurance Co. Ltd. and another vs. S.P. Maheshwari
8
highlighted the
distinction between Representation & Warranty.
The duty of disclosure comes under two heads, viz. (a) representation and (b) warranties:
representations which are made the basis of the contract and those which do not constitute the
basis of the contract of insurance. The former are known as warranties. A representation is
not strictly speaking a part of the contract of insurance or of the essence of it, but rather
something collateral or preliminary and in the nature of an inducement to it. A false
representation unlike a false warranty will not operate to vitiate the contract or avoid the
policy unless it relates to a fact actually material or clearly intended to be made material by
the agreement of the parties.
(ii) What is representation? In insurance law the word representation bears a technical
meaning. It means a verbal or written statement made by the assured to the underwriter, at or

6
(1858) 8 E and B 232
7
(1853) 4 H.L. Cas. 484
8
AIR 1960 Madras 484


11

before the making of the contract, as to existence of some fact or state of facts calculated to
induce the underwriter more readily to assume the risk, by diminishing the estimate he would
otherwise have formed of it. Defined in this manner, a representation, in relation to a contract
of insurance, must have the particular object of inducing the underwriter to enter into the
contract, on the strength of the statement of facts contained in the representation.
The facts so stated must have reference to the risk undertaken, and must be such as may
reasonably be presumed likely to influence the judgment of a prudent underwriter; such facts
are called "material facts" and a representation of such facts "a material representation", all
other facts and representations thereof being immaterial. It is the falsehood of such
representation only that will avoid the policy.
Thus, in this case the insured made a an unintentional falsehood representation of immaterial
facts, which therefore should not be a ground to avoid the policy.
Thus the Counsel on behalf of the appellants pleads that the answers to the questions were a
representation on the part of the insured.
CONTENION C:
The insured was examined by a Doctor who was appointed by the respondent-
Corporation itself.
In an insurance contract , the insurer's sources of information about the health of the insured
are:
(1) the assured himself ,
(2) the opinion of persons to whom the latter may consent to refer the insurer and lastly,
(3) there is the opinion formed by the medical examiner appointed by the insurer, and to
whose inspection the "life" must submit himself.
These are the only avenues of information which affect the contract by reason of the
doctrine of disclosure, informed as that doctrine is by the rule of good faith. It s thus not

12

necessary to refer to any confidential channels of information to which an insurer or his
agents may have access.
9

In this case, LIC had appointed a doctor to examine the insured. As per the Insurance Act, it
is the duty of the doctor to correctly and efficiently examine the client and make sure that no
misrepresentation is being made, so as to avoid future losses. The medical officer, while
examining the insured, had noted a black mole on lower aspect of left side of neck and from
Ext. A1 wherefrom it appeared that there had been no past history suggestive of allergies,
injuries, operations, and diseases like rheumatic fever, syphilis etc. and the deceased having
no other complaint due to operation. This proves two points:
(a) The insurance company had themselves made clear that the insured is not suffering
from any previous health problems and in their results entirely depend upon the
medical officer, who in turn, was also appointed by them.
(b) After the examination of the doctor, it was clear that the insured was in a good state of
health and there were no problems because of the operation.
Hence, it can be inferred that the adenoma thyroid operation had no after-effects on the health
of the insured and at the time of entering into the contract, he was fit as a fiddle and this
inference is bagged by the examination report of the doctor appointed by LIC.
Therefore, the Counsel pleads on the behalf of the appellants for this matter to be considered
that the state of health of the insured was counter-checked by the insurance corporation.

CONTENTION D:
Since there is no Misrepresentation, Fraud or Material Disclosure on the part of the
insured, the contract has thus been breached by the LIC of India.
The above three contentions clearly portray that the insured had not disclosed the information
about his operation with a wrong intention. Moreover, even this fact was not material in
nature.
(i)In Ratan Lal And Anr. vs Metropolitan Insurance Co. Ltd
10
it was held that:

9
C. Kameswara Rao Treatise on the Law of Insurance (1957) (Law Book Co.)

13

The principles underlying the doctrine of disclosure and the rule of good faith oblige the
proposer to answer every question put to him with complete honesty. Honesty implies
truthfulness. But it happens that no man can do more than say what he believes to be the
truth. It is, however, common knowledge that mankind is constantly, albeit honestly in error;
that indeed, in an attempt accurately to describe his own physical, moral or mental condition
a man is peculiarly the victim of erroneous ideas. That this is so depends not merely upon the
more ordinary impediments in the way of self-observation, but, quite as often, upon the
absence of sufficient general or special knowledge to which whatever may have been self-
observed has yet to be related, if correct conclusions are to be drawn.

Hence, the act of the insurance company of denying to give money to the legal
representatives of the deceased completely comes under Breach of Contract.
(ii) Section 39 of the Indian Contract Act, 1872 defines Breach of Contract as:
A breach of contract occurs when a party thereto renounces his liability under it, or by his
own act makes it impossible that he should perform his obligations under it or totally or
partially fails to perform such obligations.

Contracts of insurance are Contingent Contracts. Thus, in this case, when the insured died, it
is the duty of LIC to perform its part and give the money to the legal representatives of the
deceased. But, on the contrary, LIC repudiated its policy and did not, intentionally perform its
part of the contract.

Thus, the Counsel, on behalf of the appellants pleads that LIC of India has committed Breach
of Contract.

10
AIR 1959 Pat 413

14

ISSUE 2. Should the legal representatives of the deceased be entitled to receive the
compensation so claimed?
CONTENTION 1: The insured had not committed Misrepresentation or Fraud.
Section 17 of the Indian Contract Act, 1872, defines Fraud as:
(a) the suggestion, as a fact, of that which is not true, by one who does not believe it to be
true;
(b) the active concealment of a fact by one having knowledge or belief of the fact;
(c) a promise made without any intention of performing it
(d) any other act fitted to deceive;
(e) any such act or omission as the law specially declares to be fraudulent. Explanation.-
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud, unless the circumstances of the case are such that, regard being had to them, it is
the duty of the person keeping silence to speak, 1[ or unless his silence is, in itself, equivalent
to speech.
Section 18 of the Indian Contract Act, 1872, defines Misrepresentation as:
(a)the positive assertion, in a manner not warranted by the information of the person making
it, of that which is not true, though he believes it to be true
(b) any breach, of duty which, without an intent to deceive, gains an advantage to the person
committing it, or any one claiming under him, by misleading another to his prejudice or to the
prejudice of any one claiming under him;
(c) causing, however innocently, a party to an agreement to make a mistake as to the
substance of the thing which is the subject of the agreement.
As per the facts of the case, it is clear that the insured didnt misrepresented or committed a
fraudulent act as he just made a simple representation of his heath. Moreover, the fact non-

15

disclosed was immaterial in nature. So, the legal representatives have the right to receive
compensation.

CONTENTION B:
Since LIC of India committed Breach of Contract, it should pay compensation to the
legal representatives of the deceased.
As per Section 73 of the Indian Contract Act, 1872, When a contract has been broken, the
party who suffers by such breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him thereby, which naturally arose
in the usual course of things from such breach, or which the parties knew, when they made
the contract, to be likely to result from the breach of it.
A contract is not a property. It is only a promise supported by some consideration upon which
either the remedy of specific performance or that of damages is available.
11
The party who is
injured by the breach of a contract may bring an action for damages. Damages means
compensation in terms of money for the loss suffered by the injured party.

In this case, LIC of India has breached the contract of insurance, thus exploiting and injuring
the rights of the legal representatives of the insured. Insurance Contracts are based upon the
principles of trust and confidence. Here, these very principles are being violated. Hence, they
should get compensation i.e. the amount decided in the insurance policy.

Thus the Counsel, on behalf of the appellants pleads that the legal representatives of the
deceased should receive the claimed compensation.

11
Sunrise Associates v. Govt of Nct of Delhi,(2006) 5 SCC 603;AIR 2006 SC 1908

16

PRAYER FOR RELIEF

In the light of facts stated, arguments advanced, issues raised and authorities cited, it is
humbly prayed on the behalf of the appellants , that is to honourable Supreme Court of India,
may be pleased to adjudge and declare that:

1. The mis-statement made by the insured was unintentional and immaterial in nature.
2. The mis-statement cannot be considered a ground for repudiation as it was not material in
nature.
3. LIC OF India committed Breach of Contract.
The honourable court may also be pleased to pass any of the order which it may feel deemed
in the light of justice, equity and good conscience.
All of which is most humbly prayed

DATE OF FI LI NG: 26
th
October, 2013 COUNSEL ON BEHALF OF APPELLANTS
PLACE: DELHI AYUSHI DWIVEDI

Insurance Contract Dispute Hearing in Supreme Court

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P.C. CHACKO & Anr. V. CHAIRMAN, LIC OF INDIA & Ors.

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