Medical Insurance | Once Insurer Accepts That Concealment Of Disease Was Not Material, Reimbursement & Renewal Can't Be Refused : Supreme Court

The Supreme Court on Tuesday held that once there is a valid insurance policy in favour of a person, the claim for reimbursement of the expenses incurred must be paid. It also observed that once the insurance company has accepted that concealment of a disease at the time of purchasing the policy was not material as it was not related to the disease that caused death, it cannot later refuse further claims or renewal of insurance policy on the same ground.

A division bench of Justice Abhay S Oka and Justice Rajesh Bindal was considering an appeal by a husband who had lost his wife to ovarian cancer. The grievance of the appellant was that the expenses incurred by him on treatment of his wife were not reimbursed by the insurance company. The renewal of insurance policy was also refused on the ground that while taking the initial policy, the appellant did not disclose that his wife was suffering from rheumatic heart disease, even though cause of her death was ovarian cancer.

The Apex Court set aside the order of the National Commission challenged by the appellant and restored the order passed by the District Forum and State Forum regarding direction to the Insurance Company to renew the policies. The Apex Court observed that the repudiation of claim had been earlier set aside by the lower forum and had already been accepted by the Insurance Company:

“..even the Insurance Company accepted the fact that non-mentioning of the disease from which the deceased wife of the appellant suffered at the time of purchasing the policy was not material, as the death was caused from a different disease all together. Both had no relation with each other. Now, the insurance company cannot be permitted to raise same plea to deny renewal of insurance policy to the appellant for the period from 07.07.2009 onwards.” The Court observed.

The claims for treatment of the appellant’s wife in 2008 were repudiated by the insurance company. Challenging this, the appellant had approached the district forum. The District Forum accepted the complaint and set aside the repudiation of claims by the insurance company. The District Forum held that there was no relation between the disease suffered by the wife that was claimed to be concealed and the disease for which treatment was taken. The insurance company was directed to renew the policies from the date they expired on payment of renewal charges.

The order of the district forum was challenged by the insurance company before the State Commission but was dismissed. The order of the State Commission was challenged by the insurance company before the National Commission. The challenge by the insurance company before the National Commission was against the direction for renewal of the insurance policy from 07.07.2009. The amount spent by the appellant for treatment was not disputed and was duly paid.

The insurance company argued that the renewal was denied based on the guidelines issued by the Insurance Regulatory and Development Authority on 31.03.2009 that renewal can be denied on grounds of fraud, moral hazard, or misrepresentation.

The National Commission passed an interim order directing the renewal of policy in terms of the direction issued by the District Forum, as upheld by the State Commission subject to the final outcome of the revision petition. In light of the interim order of the Commission, the insurance policy was renewed multiple times. The policy from 07.07.2009 onwards was renewed in October 2011.

Another complaint was filed by the Appellant in 2012 for reimbursement of the amount spent by the appellant on his wife’s treatment from 2009 to 2011 as this was rejected by the insurance company. The insurance company refused the claim on the ground that the renewal of insurance policies for the said period was sub judice before the National Commission. The District Forum however, directed reimbursement of expenses by the appellant and the State Commission upheld the order of the District Forum.

The order of the State Commission was also challenged by the insurance company before the National Commission and the Commission decided both the Revision petitions vide a common order.

The National Commission in its common order set aside the direction for renewal of the policies beyond 2009, due to concealment of facts by the appellant at the time of purchase of the policy. The claim for reimbursement of expenses incurred on treatment was also rejected by the commission on the ground that the appellant failed to reveal that his wife already suffered from rheumatic heart disease at the time of getting the policy. This was challenged by the Appellant before the Apex Court.

Setting aside the order of the National Commission and restoring the order passed by the District Forum and State Forum regarding direction to the Insurance Company to renew the policies, the Apex Court observed that the repudiation of claim by the insurance company was set aside & the order was already accepted by the Insurance Company. The insurance company cannot deny the appellant’s further claim or renewal after the insurance company paid the appellant’s dues on the direction of the lower authorities it was observed:

“The ground on which renewal of insurance policy to the appellant is sought to be refused is that while taking the initial policy, the appellant had failed to disclose that his wife (now deceased) was suffering from rheumatic heart disease. Though she expired of cancer. The fact remains that the first policy was taken by the appellant for the period from 07.07.2007 to 06.07.2008, which was renewed for another year. The claims even for the period, wherein valid policy was available with the appellant, were repudiated. Renewal of policy beyond 07.07.2009 onwards was refused relying upon the guidelines issued by the Insurance Regulatory and Development Authority vide communication dated March 31, 2009. The claim of the appellant was repudiated on that very ground namely non-disclosure of the disease by which the wife of the appellant (now deceased) suffered at the time of purchase of initial policy. The repudiation of claim by the insurance company was subject matter of consideration before the Fora at different levels under the Consumer Protection Act, 1986. The rejection of the claim on the ground that there was concealment of certain material facts by the appellant at the time of purchase of policy, was not found to be tenable and the insurance company was directed to reimburse the expenses incurred for the period from 07.07.2007 to 06.07.2009. The aforesaid amount was paid by the insurance company. The order passed by the National Commission was not challenged any further by the Insurance Company. From this, it is established that even the Insurance Company accepted the fact that non-mentioning of the disease from which the deceased wife of the appellant suffered at the time of purchasing the policy was not material, as the death was caused from a different disease all together. Both had no relation with each other. Now, the insurance company cannot be permitted to raise same plea to deny renewal of insurance policy to the appellant for the period from 07.07.2009 onwards.”

Case Title: Om Prakash Ahuja V. Reliance General Insurance Co. Ltd.| Civil Appeal No.s 2769-2770 of 2023 

Citation: 2023 LiveLaw (SC)  509

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