Insured Is Bound By Information Provided In Proposal Form: NCDRC

Brief Facts of the Case

The complainant's husband took out two life insurance policies from Life Insurance Corporation/insurer. During the application process, the agent, citing a year-end rush, had the husband sign blank proposal forms, promising to fill them out later based on the provided information. A senior medical examiner from the insurer conducted a full medical examination on the husband, and based on this report, the policies were issued. The husband later passed away due to acute abdominal pain, leaving behind his two daughters. The complainant, acting as the nominee for her minor daughters, informed the insurer of the death and submitted all necessary documents to claim the insured amount. However, after about three years, the insurer sent a repudiation letter, alleging suppression of material facts, specifically that the husband was suffering from chronic alcoholism, which was the cause of death. Aggrieved by this repudiation, the complainant filed a complaint before the District Forum. The District Forum directed the insurer to pay the sum assured amount of Rs. 2,00,000 of both thePolicies with interest @9% p.a along with Rs.50,000 towards mental agony. The insurer appealed before the State Commission of Delhi which dismissed the appeal. Consequently, the insurer filed a revision petition before the National Commission.

Contentions of the Insurer

The insurer argued that the State Commission wrongly held that the Medical Officer should have reported the insured as a chronic alcoholic during the pre-issuance examination. Even if the insurer's doctor finds no issues during the examination, the proposer must disclose all material facts. It was argued that the insured died within 6-7 months of policy issuance, and per Section 45 of the Insurance Act, the policy can be questioned if death occurs within two years due to suppressed facts.

Observations by the National Commission

The National Commission observed that the deceased was a law graduate and former advocate, making it implausible that he signed blank proposal forms. The commission cited Reliance Life Insurance Co. Ltd. and Anr. v. Rekhaben Nareshbhai Rathod, wherein the Supreme Court held that ignorance of proposal form contents does not absolve the insured of responsibility. The Commission found the insurance company's repudiation of the claim justified due to the willful suppression of material facts, and both lower Fora erred in allowing the complaint, ignoring the principle of 'uberrima fides' (utmost good faith).

The National Commission allowed the revision petition and dismissed the State Commisison's order.

Case Title: Life Insurance Corporation Of India Vs. Reena Agarwal

Case Number: R.P. No. 849/2020