ORIENTAL INSURANCE COMPANY LIMITED versus MAHENDRA CONSTRUCTION

Citation: [2019] 6 S.C.R. 673 · Decided: 01-04-2019 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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ORIENTAL INSURANCE COMPANY LIMITED
v.
MAHENDRA CONSTRUCTION
(Civil Appeal No. 3359 of 2019)
APRIL 01, 2019
[DR. DHANANJAYA Y CHANDRACHUD AND
HEMANT GUPTA, JJ.]
Insurance – Insured – Duty of Disclosure – Respondent-
Complainant purchased hydraulic excavator machine in 2004-05–
Excavator was insured with New India Assurance Company Limited
(earlier insurer) from 15 Nov. 2004 to 14 Nov. 2005 – Claim lodged
on 12 April 2005 on the ground that the excavator had been set on
fire by Naxalites – Claim settled – On 10 Oct. 2006, the excavator
was insured with the appellant-insurer from 11 Oct. 2006 to 10 Oct.
2007 – Excavator allegedly caught fire on 15 Oct. 2006 – Insurance
claim repudiated on the ground that u/para.25(g) of the printed
proposal form, the details of claims lodged during the preceding
three years were required to be disclosed, but were not furnished
and hence, the insurer was deprived of the opportunity to assess
the risk profile of the vehicle at the time of accepting the proposal
for insurance – Complaint before State Consumer Dispute Redressal
Commission (SCDRC) – Allowed – National Consumer Dispute
Redressal Commission (NCDRC) inter alia held that the insurer was
not justified in repudiating the claim – On appeal, held: Insurance
is governed by the principle of utmost good faith, which imposes a
duty of disclosure on the insured with regard to material facts –
Information regarding insurance claims lodged by the respondent
for his excavator in the preceding three years was a material fact –
Mere disclosure of previous insurance policy did not discharge the
obligation cast on the respondent, as the proposer, to make a true
and complete disclosure of the claims lodged under the previous
policy in the preceding three years – Burden of establishing that
the insured made false representation and suppressed material facts
lies on the insurer – Insurer placed on record the best possible
evidence in support of the plea that there was misrepresentation
and suppression of material facts – Respondent was under bounden
   [2019] 6 S.C.R. 673
673
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SUPREME COURT REPORTS
[2019] 6 S.C.R.
duty to disclose that the excavator was previously insured with
another insurer and that a claim for damage to the excavator on 12
April 2005 was settled– It was only in the affidavit of evidence dtd.
6 Jan.2017, that the respondent disclosed that the earlier insurer
had paid Rs 36.66 lakhs by cheque on 23 Sep. 2005 – This material
fact was suppressed from the proposal form – Impugned order set
aside.
Respondent-Complainant purchased a hydraulic excavator
machine in 2004-05. The excavator was insured with the New
India Assurance Company Limited (earlier insurer) from 15 Nov.
2004 to 14 Nov. 2005. Claim lodged by the respondent on the
ground that the excavator had been set on fire by Naxalites. Claim
was settled. On 10 Oct. 2006, the excavator was insured with the
appellant-insurer from 11 Oct. 2006 to 10 Oct. 2007. Excavator
allegedly caught fire on 15 Oct. 2006. Appellant repudiated the
insurance claim. Complaint filed by the respondent before
SCDRC, which was allowed. NCDRC, in appeal, inter alia held
that the insurer was not justified in repudiating the claim. Hence,
the present appeal.
Allowing the appeal, the Court
HELD: 1.1  Insurance is governed by the principle of
utmost good faith, which imposes a duty of disclosure on the
insured with regard to material facts. Information regarding
insurance claims lodged by the respondent for his excavator in
the preceding three years was a material fact. The burden of
establishing that the insured made false representation and
suppressed material facts lies on the insurer. The insurer has
placed on record the best possible evidence in support of the
plea that there was misrepresentation and suppression of material
facts. Mere disclosure of previous insurance policy did not
discharge the obligation which was cast on the respondent, as
the proposer, to make a full, true and complete disclosure of the
claims which were lodged under the previous policy in the
preceding three years. It was only in the affidavit of evidence
dated 6 January 2017, that the respondent disclosed that New
India Assurance Company Limited had paid an amount of Rs 36.66
lakhs by cheque on 23 Sep. 2005. This material fact was
suppressed from the proposal form. [Para 11][678-F-G;
680-F-H; 681-A-B]
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1.2  The burden cannot be cast upon the insurer to follow
up on an ina

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