Life insurance: Total disclosure alone helps

I am seeking information on behalf of a friend who lost her husband last year. A year before his death, he had insured himself for Rs20 lakh. However, the insurance company has rejected her claim saying that her husband had not disclosed that he was suffering from a heart ailment at the time of buying the policy. My friend has two children to bring up and really needs that money. Can she go to the consumer court for help? What are her chances of winning?

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You must know that a contract of insurance is based on utmost good faith and it is expected of the consumer buying a policy to disclose all material facts pertaining to his health and answer all the questions in the policy application form, truthfully and honestly. Failure to do so can lead to the insurance company denying the benefits of the policy to the claimant.

However, under the Insurance Act, the insurance company has to prove that (a) the policyholder concealed information that was within his knowledge or that he was aware of what he was concealing and (b) that such information was material or crucial for the policy and had a direct bearing on the risk undertaken by the insurer.

The Insurance Act also gives insurance companies three years to call into question any policy on the basis of suppression of material facts. After the completion of three years from the date of the policy or the commencement of the risk, the insurance company cannot reject a claim on grounds of suppression of material facts. In your friend’s case, from what you say, the policy is only two years old, so that advantage will not be available here.

If your friend’s husband was not aware of the pre-existing disease at the time of purchasing the policy or the existing disease had not been detected or diagnosed, then she can get the insured amount through the intervention of the consumer court.

According to my friend, her husband was aware of the health issue and even informed the agent who filled the form about it. However, he did not check what information was filled in and just signed on the dotted line. Will this offer a line of defence?

Unfortunately, it may not. A policyholder is expected to fill the form himself or herself and even if someone else fills it, one has to read it carefully before signing (except in cases where the purchaser of the policy is illiterate). In fact in a case that seems to be more or less similar to yours, the apex consumer court recently upheld the rejection of the claim by the insurance company on grounds of suppression of material facts. In this case too, the policy in question was two years old (Rina Karmakar Vs LIC of India, RP No 3301 of 2018, order delivered on February 4, 2020).

While doing so, the National Consumer Disputes Redressal Commission referred to two judgments of the Supreme Court: One of them was Reliance Life Insurance Vs Rekhaben Nareshbhai Rathod, where the court had observed: “We are not impressed with the submission that the proposer was unaware of the contents of the form that he was required to fill up or that in assigning such a response to a third party, he was absolved of the consequence of appending his signatures to the proposal. The proposer duly appended his signature to the proposal form and the grant of the insurance cover was on the basis of the statements contained in the proposal form…”

The Commission here also quoted Life Insurance Corporation of India Vs Manish Gupta (CA NO 3944 of 2019, decided on 15-4-2019) wherein the Supreme Court recalled its decision in Satwant Kaur Sandhu Vs. New India Assurance Company Ltd., where it had said “…Thus, it needs little emphasis that when an information on a specific aspect is asked for in the proposal form, an assured is under a solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge. It is not for the proposer to determine whether the information sought for is material for the purpose of the policy or not. Of course, obligation to disclose extends only to facts which are known to the applicant and not to what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment.”

So, your friend has a tough battle ahead.