Duty of Disclosure

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CHANAKYA NATIONAL LAW

UNIVERSITY

SUBJECT- INSURANCE

PROJECT WORK ON

DUTY OF DISCLOSURE

SUBMITTED TODR. Shaiwal SatyarthiFACULTY OF INSURANCE!

SUBMITTED BY

RO"IT SIN"A

ROLL NO. #$%

&th'()('t(r


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ACKNOWLEDGEMENT

Making a project is one of the most significant academic challenges I have ever faced. Any

attempt at any level can't be satisfactorily completed without the support and guidance of

learned people. I am overwhelmed with my gratitude to acknowledge all those who have

helped me put these ideas well above the level of simplicity and into something concrete

effectively and moreover on time.

I am very thankful to my subject teacherDr. Shaiwal Satyarthi for his valuable help. !e was

always there to show me the right track whenever I needed his help. !e lent his valuable

suggestions guidance and encouragement on different matters pertaining to the topic. !e has

been very kind and patient while suggesting me the outlines of this project and clearing my

doubts. I thank him for his overall support without which I would not have been able to

complete this project. I would also like to thank my colleagues who often helped and gave

me support at critical junctures during the making of this project. "ast but not the least I

would like to thank my family members for their emotional support.


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Contents

$%&%A$! M%(!)*)")+,...........................................................................................-

&)% A/* )0%( ) (!% $)%(..........................................................................-

&)3$%&..............................................................................................................................-

I/($)*3(I)/......................................................................................................................4

%valuation of *octrine 3nder ommon "aw............................................................................5

+eneral rinciples of 3tmost +ood aith..................................................................................6

+ood aith %7pected rom 0oth the arties............................................................................18

9hat is a material fact:............................................................................................................12

acts which need to be disclosed and need not to be disclosed...............................................1#

acts re;uired to be disclosed..............................................................................................1#

acts which need not be disclosed.......................................................................................1-

rinciple of utmost good faith under the Marine Insurance Act 165#....................................14

Active and assive *uty of *isclosure....................................................................................14

%ffect )f /on................................................................................................................15

/on


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RESEARCH METHODOLOGYRESEARCH METHODOLOGY

(he researcher has adopted doctrinal method of research. (he researcher has made e7tensive

use of the available resources at library of the hanakya /ational "aw 3niversity and also

the internet sources.

SCOPE AND OBJECT OF THE PROJECTSCOPE AND OBJECT OF THE PROJECT

(he project revolves around the concept of duty of disclosure. It is aimed at getting an insight

into intricacies of utmost good faith emphasis being laid on the new policy framed by our

legislature and various case laws..

SOURCESSOURCES

(he following secondary sources of data have been used in the project

1. Ecn#ides v. C##ercial 1nin Assurance C. $lc12

It was held that the duty of the assured to disclose all material facts re;uired an assured only

to disclose facts known to him. (here is no obligation on the assured to make en;uiries as to

the factual basis of his belief.

Fact& $'ic' n!!" not +! "i&clo&!"Fact& $'ic' n!!" not +! "i&clo&!"

1. act lessening the risk need not be disclosed.

2. ublic knowledge. %.g. facts regarding govt. policies ta7es subsidies etc. which are

e7pected to be known to all.

#. act of law like rules regulations etc. which have already been made available to all byway of the notification in the official gaGette.

-. &uperfluous facts or such information which is not logical.

4. acts which are inferred information.

5. act waived by the insurer himself.

12 166?B # All %$ 5#5


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?. acts governed by the policy itself.

A&%&>

1. LIC v. /-a3unt-ala%ai1#

In this case the insured had failed to disclose that he suffered from indigestion for a few days

and took chooram from an ayurvedic doctor. !e died within that year due to jaundice. (he

insurer repudiated the claim on this account. (he court did not approve of the repudiation as

the insurer did not establish by clear and cogent evidence that the ;uestion was properly

e7plained to the insured and that he was told that illness included such casual disturbances to

health and medicines included tablets that could be purchased at the nearest coffee store.

2. B-ag"ani Bai v. LIC * India1-

(he insurer cannot avoid or repudiate an insurance policy on the ground of non


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the assured must disclose every material circumstance he knows. (hus the knowledge of the

insured is more important than the actual happening of the event. &.221B says that the

representation made by the insured must be true which is again dependent on the capacity of

the insured to know the truth and is hence subjective. inally &.22 also says that whether the

assured failed to disclose intentionally or innocently or inadvertently is immaterial.

Activ! an" Pa&&iv! Dut3 of Di&clo&u!Activ! an" Pa&&iv! Dut3 of Di&clo&u!

(he ;uestion here is what method is used to ac;uire the material information. (wo different

approaches are used in this respect. (he first < an JactiveK duty of disclosure and the second

approach is characteriGed as a JpassiveK duty of disclosure. (he former argues that the duty to

assess what information is material for the insurer rests with the person affecting the

insurance. )n the other hand a passive duty of disclosure implies that the insurer will have to

define what information is material through a ;uestionnaire. A passive duty of disclosure

implies that information not asked for is not material. (he common law systems seem mainly

to apply an active duty of disclosure but elements of a passive duty of disclosure is found in

some countries in the form of proposals.

E4!ct Of Non5Di&clo&u!6Mi&!%!&!ntationE4!ct Of Non5Di&clo&u!6Mi&!%!&!ntationMisrepresentation which again may be either innocent or intentional. If intentional

then they are fraudulent.

9here there has been non (his occurs when a person states a fact in the belief or e7pectation that it is right

but it turns out to be wrong. 9hile taking out a Marine Insurance olicy the owner states that

the ship will leave on a specific date but in fact the ship leaves on a different date.

Intentional> *eliberate misrepresentation arises when the proposer intentionally distorts the

known information to defraud the insurer. (he selfish objective is somehow to enter the

contract or to get a reduction in the premium e.g. If an applicant for motor Insurance stated


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that no one under 1@ would drive the vehicle when in fact his 1? years old son

drives fre;uently. &uch a misrepresentation would be material as it would affect the decision

of the insurer.

Non5Di&clo&u!Non5Di&clo&u!Innocent> (his arises when a person is not aware of the facts or when even though being

aware of fact does not appreciate its significance e.g. A proposer at the time of effecting the

contract has undetected cancer therefore does not disclose it or A proposer had

suffered from $heumatic fever in his childhood but he does not disclose this not knowing

that people who have this are susceptible to heart diseases at a later age.

Deliberate> (his is done with a deliberate intention to defraud the insurer entering into a

contract which he would not have done had he been aware of that fact. A proposer for fire

Insurance hides the fact knowingly by not disclosing that he has an outhouse ne7t to

his building which is used as a store for highly inflammable material.

Ho$ to D!al )it' B!ac'!&Ho$ to D!al )it' B!ac'!&

!ow breaches are dealt with depends upon whether the breaches are

1B Innocent

2B *eliberate

#B Material to the risk

-B Immaterial to the risk

9hen 0reach of 3tmost +ood aith occurs the aggrieved party gets the right to avoid the

contract. (he contract does not become automatically void and it must decide on the course

to be taken. (he options available are on case


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governed with the terms of the contract agreed upon in covering the risk. In case the breach

is discovered at the time of claim he will refuse to honour his promise and will not pay the

claim. (his again occurs when there has been a deliberate breach.

#B 9hen the breach is innocent but it is material to the fact then the insurer may impose a

penalty in the form of additional remium.

-B 9here the breach is found to be innocent and is not material the insurer can choose to

ignore the breach or waive off the breach.

R!%!&!ntation&R!%!&!ntation&

$epresentations are statements made during the negotiations with the object of inducing the

other party to enter into the contract> they must be distinguished from statements which are

introduced into the contract and upon the truth of which the validity of the contract is made

to depend. $epresentations may be as to a matter of fact and if material must be

substantially correct. 9here there has been misrepresentation it is necessary to decide

whether it was fraudulent or innocent. A fraudulent misrepresentation is one which was

known to be false D or which was made without belief in its truth or recklessly careless

whether it was true or false. raudulent misrepresentation of a material fact entitles the

insurer to avoid the policy. %very material fact which the insured ought to know in the

ordinary course of business must be statedD an innocent misrepresentation of such a fact

would entitle the insurer to avoid the policy. (his must be so otherwise the duty to disclose

material facts and to state them accurately would not be correlative.

Conclu&ionConclu&ion


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(hus this principle forms an integral part of insurance law. It gives a fair chance of risk

assessment to the insurer and also ensures that the assured fully understands all the terms and

conditions of the contract. 0ut this principle is more favourable to the insurer as it is the

assured who has to generally make all the disclosures. (his is primarily because when this

doctrine was evolved in the 1@thcentury the insurance market was in its infancy and thus

re;uired protection. !owever the enactment of the %nglish 3nfair ontract (erms Act 16??

has considerably alleviated the position of the assured who is now protected against unfair

contractual terms. urther the Insurance Act lays down that an insurance policy cannot be

called in ;uestion two years after it has been in force. (his was done to obviate the hardships

of the insured when the insurance company tried to avoid a policy which has been in force

for a long time on the ground of misrepresentation. !owever this provision is not applicable

when the statement was made

fraudulently. /ever the less technological advancements have further made it possible for

both parties to see to it that their interest is taken care of. 0ut there are several other grey

areas to this doctrine as well. (here is still no clear cut distinction between as to what is

material or immaterial and the same is largely dependent on the whims of the insurers and the

terms of the contract. It is still very easy for an insurer to repudiate the contract on the

slightest point of non


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2. Dra3e Insurance $lc. v. +rvident Insurance $lc.15

It was held that the remedy of avoidance of a contract is a self help remedy and could not be

overturned by the court by the e7ercise of its e;uitable jurisdiction.

BIBLIOGRAPHYBIBLIOGRAPHYB3s

1. Murthy H F & &arma Modern "aw of Insurance -th %dn. 0utterworthCs 9adhwa

ublications 2886 /agpurB.

2. & oga $ao M/ &rinivasanCs rinciples of Insurance "aw /inth %dition "e7is /e7is

0utterworths 9adhwa /agpur 2886

#. M. /. &reenivasan "aw and the "ife Insurance ontract 6th %dn 0utterworthCs 9adhwa

/agpur 288-B

-. Mishra M./. "aw of Insurance rinciples and ractice 288@ $adhakrishan rakashan

4. 0.. Mitra "aw $elating to Marine Insurance. Asia "aw !ouse !yderabad.

/tatutes

1. (he Insurance Act 16#@D

2. (he Marine Insurance Act 165#

'EFE'ENCE/

15 288#B %9! 186 ommB


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Duty of Disclosure