Report No. 190

Chapter V

Legal Issues Requiring Reform in Insurance Laws: Repudiation of Life Insurance Policy

The existing law

5.1.1 Section 45 of the Insurance Act, 1938 provides that a policy of life insurance cannot be called in question by an insurer after the expiry of two years from the date on which it was effected on the ground that a statement made in the proposal for insurance 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 policyholder and that the policyholder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose".

5.1.2 The position, therefore, is that at any time up to two years after the date on which a life insurance policy is effected, an insurer can repudiate the policy if any material facts contained in the proposal or document on the basis of which the policy was issued was inaccurate or false; this can be done unilaterally by the insurer without having to prove the basis for repudiating the policy.

However, after the expiry of a period of two years after the date on which a life insurance policy is effected such policy can be repudiated by the insurer on the ground that a statement made in the proposal for insurance or in any other document leading to the issue of the policy was inaccurate or false only if all the three conditions enumerated in the second part of section 45 are satisfied conjointly, i.e., (a) the statement must be on a material matter, or it suppresses facts which it was material to disclose; (b) the suppression must have been fraudulently made by the policy-holder; and (c) the policy-holder must have known that it was false or it suppressed facts which it was material to disclose. (See Mithoolal Nayak v. LIC of India, AIR 1962 SC 814)

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