Any Fact Affecting Insurer's Decision Is Material, Failure To Disclose Allows Policy Rejection: NCDRC

Brief Facts of the Case

The complainant's husband, who had obtained an insurance policy with Life Insurance Corporation/insurer for Rs. 30,00,000, died of septic shock while the policy was active. The complainant filed a claim, but the insurer rejected it, citing non-disclosure of material health information by the deceased. After the insurer denied the complainant's appeal, she took the matter to the Ombudsman, which remains unresolved. Dissatisfied, the complainant filed a case with the State Commission of Maharashtra, seeking Rs. 30,00,000 as the policy amount, Rs. 12,000 for financial loss, and Rs. 5,00,000 for mental anguish, with 14% interest from the claim rejection date. The State Commission dismissed the complaint following which the complainant filed an appeal before the National Commission.

Contentions of the Insurer

The insurer, through an affidavit by its Manager, contested the complaint, arguing that the deceased insured failed to disclose his hospitalization for Pleural effusion in the proposal form, justifying the claim's rejection. The insurer also claimed the complaint was time-barred and stated that he was still responsible for providing accurate information despite the deceased being examined by the insurer's panel doctor. They argued that the policy was obtained fraudulently, making the doctrine of estoppel inapplicable, and thus, the complaint should be dismissed.

Observations by the National Commission

The National Commission observed that under Section 45 of the Insurance Act 1938, the insurer can challenge a policy after two years if it proves that the policyholder fraudulently suppressed material inaccuracies. The commission highlighted that, as a doctor, the deceased insured knew that omitting information about his previous ailments was a significant and deliberate omission. The medical examination by the insurer's doctor does not remove the insured's responsibility to disclose such material facts. The commission agreed with the State Commission's finding that this omission was deliberate and fraudulent, citing Satwant Kaur Sandhu vs. New India Assurance Company Ltd. and Reliance Life Insurance Company Ltd. vs. Rekhaben Nareshbhai Rathod, which held that suppressing material health information invalidates the insurance contract. Furthermore, the Supreme Court in Reliance Life Insurance Company Ltd. vs. Rekhaben Nareshbhai Rathod emphasized that material facts are crucial for the insurer to determine the risk and terms of the insurance contract. Any fact influencing a prudent insurer's decision is material, and failure to disclose it allows the insurer to repudiate the policy. Furthermore, the argument that the insurer is estopped from denying the claim due to payment on another policy was also rejected due to lack of evidence.

The National Commission dismissed the appeal and upheld the State Commission's decision, finding no legal or factual error.

Case Title: Indumati Vs. Senior Divisional Manager, Life Insurance Corporation

Case Number: F.A. No. 206/2017

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