INTRODUCTION
Today, I will talk about the case of Life
Insurance Corporation of India & Another v. Sunita, 2021 SCC OnLine
SC 1013, wherein the Hon’ble Supreme Court discussed the importance of good faith
in a Contract of Insurance.
IMPORTANT DEFINITIONS
Before adverting any further, let us understand
the plain meaning of ‘insurance’. It is defined as “a contract by which
one party undertakes to indemnify another party/insured against risk of loss,
damage, or liability arising from the occurrence of some specified contingency,
and usually to defend the insured or to pay for a defence regardless of whether
the insured is ultimately found liable.”
In the same manner, ‘life insurance’ is generally
understood as “an agreement between an insurance company and the
policyholder to pay a specified amount to a designated beneficiary on the
insured’s death.”
Thus, I hope that the meaning of a contract of
insurance is clear by now. Now, let us understand the meaning of ‘good faith’
or bona fide or uberimma fides. ‘Good faith’ has been defined as “a
state of mind consisting in: -
1. Honesty in belief or purpose;
2. Faithfulness to one’s duty or obligation;
3. Observance of reasonable commercial standards
of fair dealing in a given trade or business; or
4. Absence of intent to defraud or to seek unconscionable
advantage.”
Hence, in this context, let us understand the
importance of ‘good faith’ in a contract of insurance, with the help of the observations
by the Court.
OBSERVATIONS BY THE COURT
Firstly, the Court cited the case of Vikram
Greentech Ltd. v. New India Assurance Co. Ltd., (2009) 5 SCC 599,
wherein it was observed that “an insurance contract, is a species of
commercial transactions and must be construed like any other contract to its
own terms and by itself. In a contract of insurance, there is requirement of
uberrima fides i.e., good faith on the part of the insured. Except that, in
other respects, there is no difference between a contract of insurance and any
other contract.”
Secondly, the Court laid down the four essentials
of a contract of insurance as follows: -
a. The definition of the risk.
b. The duration of the risk.
c. The premium.
d. The amount of insurance.
According to the Court, “since upon issuance
of the insurance policy, the insurer undertakes to indemnify the loss suffered
by the insured on account of the risks covered by the insurance policy, its
terms have to be strictly construed to determine the extent of liability of the
insurer.”
And lastly, the Court explained that “the endeavour
of the court must always be to interpret the words in which the contract is
expressed by the parties. The court while construing the terms of policy is not
expected to venture into extra liberalism that may result in rewriting the
contract of substituting the terms which were not intended by the parties. The
insured cannot claim anything more than what is covered by the insurance
policy.”
HELD BY THE COURT
Therefore, in light of the above-stated
enunciation of law, the Court held that “it is clear that the terms of
insurance policy have to be strictly construed, and it is not permissible to
rewrite the contract while interpreting the terms of the Policy.”
Those were the observations by the Court. So, what
are my concluding remarks?
CONCLUDING REMARKS
We see that a Contract of Insurance is not much
different from a General Contract, the only difference is that the
interpretation of an insurance contract has to be made strictly and liberal
interpretation that adds or subtracts something in the contract that was not
originally intended is impermissible.
Book Referred To: Black's Law Dictionary, Eighth Edition.
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