Insurance Claim Can Be Rejected On Non-Disclosure Of Material Facts, NCDRC Dismisses Appeal Against Birla Sun Life Insurance Co. Ltd.

Brief Facts:

Sushila Singh’s (“Complainant”) husband had a life insurance policy with an annual premium of Rs. 25,524, covering him for a death benefit of Rs. 50,00,000 with Birla Sun Life Insurance Co. Ltd. (“Insurance Company”). The policy lapsed in 2012 due to non-payment of the premium, but it was reinstated in 2013 when the Complainant’s husband was diagnosed with a kidney ailment. The insurance advisor failed to record this health information during reinstatement. Unfortunately, the complainant’s husband passed away in 2013, and the claim was denied by the insurance company.

Aggrieved, the Complainant filed a consumer complaint in the Bihar State Consumer Disputes Redressal Commission (“State Commission”), seeking the insured amount of Rs. 50,00,000 with interest and compensation for mental agony. The insurance company argued that the policy was reinstated based on a Certificate of Insurability (COI) signed by the deceased husband, which indicated no illness or injury. However, he had kidney problems before the reinstatement. The insurance company further contended that a lapsed policy reinstatement is treated as a new contract, and the deceased husband should have provided accurate health information. They also emphasized that agents cannot promise beyond the insurance company’s terms and conditions. The claim was repudiated, and the premium was refunded to the Complainant.

The State Commission dismissed the complaint, stating that the insured's kidney problem was not included in the revival form despite being disclosed to the advisor. They found the insurance company’s decision justified, as the correctness of health information during policy reinstatement is crucial. Aggrieved again, the Complainant appealed against this decision in the National Consumer Disputes Redressal Commission (“NCDRC”).

Observations by the Commission:

The NCDRC observed that the case involved a dispute regarding the repudiation of a life insurance claim where the Appellant/Complainant, who is the nominee of her deceased husband, claimed that the insurance company wrongfully rejected the claim. The primary issue pertained to the alleged non-disclosure of the husband’s health information during the policy reinstatement process and whether the insurance company’s decision to repudiate the claim was fair and by the law.

The deceased husband had initially obtained a life insurance policy with a coverage of Rs. 50 lakhs in 2010, which lapsed in 2012 due to non-payment of premiums. The policy was reinstated in 2013. It is acknowledged that the husband had a kidney ailment and was undergoing dialysis during the revival process. The Complainant argued that this information was conveyed to the insurance advisor, who failed to include it in the revival form. However, there was no concrete evidence to support her claim.

On the other hand, the insurance company contended that the policy reinstatement was a separate contract, and the insured was obligated to provide complete and accurate information, including his medical condition. It referred to legal precedents that highlight the duty of the proposer to disclose pre-existing ailments to the insurance company.

The NCDRC further perused the State Commission’s order which had dismissed the complainant's complaint, stating that her husband failed to disclose his medical condition during the policy reinstatement process, and his death was due to a condition he did not disclose. As a result, the NCDRC found the insurance company’s decision to be justified.

The NCDRC upheld the State Commission's decision, emphasizing the principle of utmost good faith in insurance contracts. It further emphasized the insurance company’s right to repudiate a claim when material information is not disclosed. The NCDRC found no impropriety in the insurance company’s repudiation of the claim and dismissed the appeal.

Case Title: Sushila Singh vs. Birla Sun Life Insurance Co. Ltd. and Anr.

Case No.: FIRST APPEAL NO. 2280 OF 2018

Advocate for the Appellant: Mr Mithilesh Kumar

Advocate for the Respondents: Miss Meenakshi Midha and Mr Garv Singh

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