INDIA Law and Practice Contributed by: Neeraj Tuli, Celia Jenkins and Rajat Taimni, Tuli & Co
6.2 Failure to Comply With Obligations of an Insurance Contract An insurer is entitled to receive a fair presentation of the risk. As mentioned in 6.1 Obligations of the Insured and Insurer , if there is a misrepresentation or non-disclosure of a material fact, the insurer has the right to void the policy ab initio. Unless the mis- representation or non-disclosure was fraudulent, the premium must be returned to the policyholder. In the case of life insurance policies, the policy cannot be called into question on any grounds (including fraud) after more than three years from the date of issuance or the policy’s revival. Similarly, insurers are restricted from contesting health insurance policies (issued by general/health insurers) after five years of continuous coverage on the grounds of non-disclosure and mis- representation (except for established fraud). 6.3 Intermediary Involvement in an Insurance Contract An insurance intermediary involved in contract nego- tiation is required to consider a prospect’s needs when recommending insurance. Intermediaries are expected to act in the interest of policyholders. 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract Insurance is a contract of indemnity. In addition to the requirements of a valid contract as per the Indian Con- tract Act 1872, the person entering into the contract of insurance must also have an insurable interest in the subject matter of the contract. The element of insur- able interest must be present in all types of insurance – failing which, it would simply be a wagering contract that would be void. An insurance contract is required to contain certain mandatory clauses, as enumerated in 6.1 Obligations of the Insured and Insurer . 6.5 Multiple Insured or Potential Beneficiaries The present regulatory framework does not set out express norms on the payment of claims to unnamed insureds. Typically, therefore, coverage of such parties largely depends on the terms and conditions of the underlying insurance policy.
ings, except for four standardised products: two life insurance and two health insurance policies. Good Faith and Other Obligations It is a fundamental principle of insurance law that utmost good faith (uberrimae fide) must be observed by the contracting parties. The duty of utmost good faith places an obligation on the insured to voluntarily disclose all material facts that are relevant to the risk being insured. If there has been a misrepresentation or non-disclosure of a material fact, an insurer can avoid the policy from the beginning. Even though a policy may not expressly say so, all insurance policies are based on this principle. Further, the Indian Marine Insurance Act 1963 and the Policyholders Regulations mandate that an insured is under an obligation to disclose all material information sought by the insurer in the proposal before the incep- tion of the policy. An insurer is therefore entitled to receive full and fair disclosure of the material informa- tion that would influence the judgment of the insurer in determining whether to accept or reject the risk. The Supreme Court of India has stated that this is to be done through the proposal form and through the rep- resentation made during the course of negotiations. The Policyholders Regulations also impose an obliga- tion on the insured to disclose all material information in the proposal form. This forbids the insured from concealing what they privately know with a view to drawing the insurer into a bargain based on their igno- rance of that fact. The insured’s duty to disclose is not confined to the facts that are within its knowledge but, rather, extends to all material information that the insured ought to have known. The duty of good faith is a continuing obligation that applies to both the insured and the insurer, and it continues throughout the policy period and even thereafter. Recently, the Supreme Court of India reiterated the law that the insured cannot make a profit. Once the insured has been paid by one insurer, it cannot claim for the same loss from another insurer.
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