Insurance Contracts Based On 'Utmost Good Faith', Suppression Of Material Facts May Lead To Repudiation: Madhya Pradesh State Commission

Brief Facts:

The Complainant's deceased wife had obtained an insurance policy from Life Insurance Corporation of India (“LIC”), for a sum insured of Rs. 1,00,000/-. The Complainant was named the nominee under the policy. During the policy term, she passed away. The Complainant filed a claim with LIC along with all necessary documents for the insured sum. However, LIC repudiated the claim, stating that the deceased wife had not disclosed correct facts regarding her previous medical history and had suppressed material facts at the time of reviving the policy. The Complainant argued that the deceased wife had no disease and was merely in shock due to her son's death. Alleging deficiency in service by LIC, he filed a complaint with the District Consumer Disputes Redressal Commission, Morena, Madhya Pradesh (“District Commission”).

In response, LIC contended that although the deceased wife had obtained the policy, premiums due from May 2013 to November 2014 were unpaid, leading to a policy lapse. The policy was revived on 01.12.2014, with the deceased wife declaring herself healthy, despite suffering from Sinus Polycardia Right Axis and receiving treatment at Rathi Hospital, Morena. LIC argued that by declaring herself healthy at the time of revival, the deceased wife had suppressed material facts about her illness, rendering the revival null and void.

The District Commission dismissed the complaint. Dissatisfied by the decision, the Complainant filed an appeal before the State Consumer Disputes Redressal Commission, Madhya Pradesh (“State Commission”)

Observations by the Commission:

The State Commission reviewed the record and the impugned order. The Complainant had included the repudiation letter and death certificates of his deceased wife and son. The repudiation letter indicated that the deceased wife failed to disclose her previous medical history when she revived her insurance policy. In the proposal form for the policy's revival, the deceased wife answered "No" to having suffered from any disease and "Yes" to being healthy at present.

LIC presented documents to demonstrate that the deceased wife received treatment from 24.11.2014 to 02.12.2014 and was diagnosed with Sinus Polycardia Rt. Axis. The Complainant did not dispute these documents. The State Commission concluded that the deceased wife was under treatment at Rathi Clinic and Nursing Home, Morena, during the policy revival on 01.12.2014, and had suppressed this information in the proposal form.

The State Commission observed that an insurance contract is based on the principle of 'utmost good faith'. It was held that suppressing material facts violates policy terms and conditions, disqualifying the claimant from receiving any relief. Therefore, the State Commission held that LIC had not erred or committed any deficiency in service by repudiating the claim. The State Commission upheld the District Commission's order and dismissed the appeal.

Case Title: Hariram Singh Kushwaha vs Life Insurance Corporation of India

Case No.: First Appeal No. 1442 of 2019

Advocate for the Appellant: Naresh Kumar Chourasia

Advocate for the Insurance Company: Deepesh Shukla

Date of Pronouncement: 23.07.2024

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