Contracts Memo

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

IN THEHONBLE 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 DWIVEDIRoll No.-47Sem-1Section-A

CONTENTLIST OF ABBREVIATIONS..................................................................................................iINDEX OF AUTHORITIES...iiLIST OF CASES.iii

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

WRITTEN SUBMISSIONS.8-15

PRAYER FOR RELIEF..16

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

LIST OF ABBREVIATION

AIR - All India Reporter& - AndAnr. - AnotherCo. - CorporationEdn - Edition LIC - Life Insurance CorporationLtd. - Limited Ors - OthersP. - Page number S. - SectionSC - Supreme CourtSCC - Supreme Court Casesv. - versusvol. - Volume

INDEX OF AUTHORITIES

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

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. 484INDIAN CASES

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

LIC of India v. Smt. Asha Goel1989 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 India1962 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, 18722. 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 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 6th july, 1987, policy having being taken on 21st 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.

ISSUES RAISED

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

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.

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 abenign tumourof thethyroidgland. 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. [footnoteRef:2] [2: Farlax Medical Dictionary]

(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." .(ii) The Supreme Court considered the ambit of S. 45 of the Insurance Act in the case ofMithoolal Nayak v. LIC of India[footnoteRef:3]laid down that the three conditions for the application of the second part of S. 45 are: [3: AIR 1962 SC 814]

(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[footnoteRef:4], 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. [4: (1884) 9 AC 671]

(iv) In the case titled as LIC of India v. Smt. Asha Goel and Anr.[footnoteRef:5] 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. [5: 1989 65 CompCas 710 Bom]

Similar provision was laid down in the case Allianz Und Stuttgarter Life Insurance Bank Ltd v. Hemanta Kumar Das.[footnoteRef:6] [6: AIR 1938 Cal 641]

(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 :"..... 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[footnoteRef:7] ) made honestly, that is, with belief in its truth, will not affect the validity of the contract (Anderson v. Fitzgerald[footnoteRef:8]), unless there is an express condition that it shall do so". [7: (1858) 8 E and B 232] [8: (1853) 4 H.L. Cas. 484]

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 [footnoteRef:9] highlighted the distinction between Representation & Warranty. [9: AIR 1960 Madras 484]

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 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 necessary to refer to any confidential channels of information to which an insurer or his agents may have access.[footnoteRef:10] [10: C. Kameswara Rao Treatise on the Law of Insurance (1957) (Law Book Co.)]

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[footnoteRef:11] it was held that: [11: AIR 1959 Pat 413]

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.

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-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.[footnoteRef:12] 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. [12: Sunrise Associates v. Govt of Nct of Delhi,(2006) 5 SCC 603;AIR 2006 SC 1908]

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.

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 FILING: 26th October, 2013 COUNSEL ON BEHALF OF APPELLANTS PLACE: DELHI AYUSHI DWIVEDI