Concealment Of A Non-Life-Threatening Condition Not Causing Death Should Not Invalidate An Insurance Claim: NCDRC

Brief Facts of the Case

The deceased husband of the complainant purchased two life insurance policies from the Life Insurance Corporation/insurer: Jeevan Tarang Policy for Rs. 19,75,000 with a half-yearly premium of Rs. 74,923 and Samriddhi Plus Policy for Rs. 2,75,000 with a one-time premium of Rs. 2,00,000. He was diagnosed with right lung cancer and treated at Tata Memorial Hospital, Mumbai. Later, he was admitted to Fortis Hospital, where the carcinoma was confirmed again. He passed away, and the complainant filed a claim. The insurer rejected the claim for the Jeevan Tarang Policy on the grounds that the deceased had withheld health information when obtaining the policy, including his diabetes and a cholecystectomy in 2007. However, an ex gratia payment of Rs. 2,75,000 was made under the Samriddhi Plus policy. The Complainant filed a complaint with the State Commission of Maharastra, and the complaint was allowed. Aggrieved by this, the insurer filed an appeal against the State Commission's order in the National Commission.

Contentions of the Insurer

The counsel for the insurer argued that the deceased did not disclose his previous insurance policies, three of which were relinquished. They cited several Supreme Court judgments to support their case, including P.C. Chacko & Anr. Vs. Chairman, Life Insurance Corporation of India & Ors. (2008), Reliance Life Insurance Company Ltd. & Anr. Vs. Rekhaben Nareshbhai Rathod (2019). The primary reliance was on the Rekhaben case, arguing that the concealment of prior illness and existing policies constituted valid grounds for repudiation and that the State Commission had erred in its decision.

Observations by the Commission

The Commission observed that the deceased Life Assured (DLA) was believed to have diabetes and had undergone a cholecystectomy in 2007 but did not disclose these facts in his insurance proposal, providing false answers instead. The grounds for repudiation were withholding correct health information and evidence of diabetes and the 2007 cholecystectomy. The insurer cannot introduce new grounds for repudiation beyond those initially stated; thus, the concealment of previous policies cannot be considered at this stage. The insurer's reliance on the Supreme Court judgment in Reliance Life Insurance Company Ltd. & Anr. Vs. Rekhaben Nareshbhai Rathod (2019) was considered. In this case, repudiation was based on non-disclosure of good health, not previous policies. The DLA died within two years of the policy commencement, and there was no disclosure of previous policies or critical illnesses. Furthermore, in Satwant Kaur Sandhu Vs. New India Assurance Co. Ltd (2009), it was held that it was the insured's responsibility to prove that suppression of facts was not material, especially if the claim arose within two years of the policy. The Commission highlighted that in Rekhaben, it was established that failure to disclose earlier policies was material to the risk assessment, allowing the insurer to repudiate the claim. However, this ratio does not apply to the current case. In this scenario, the DLA died due to “septic shock with pneumonia” with “Carcinoma of the lung” as the antecedent cause. In Sulbha Prakash Motegaonkar (2020), the Supreme Court held that concealment of a non-life-threatening condition (lumbar spondylitis) that did not cause death should not bar an insurance claim. Similarly, the DLA in the present case, diagnosed with cancer after the policy approval, can not be disqualified from the claim based on non-disclosure of diabetes and an earlier gall bladder surgery. The commission emphasized that the DLA's death occurred within two years of the policy due to lung cancer complications. The policy repudiation was based on the nondisclosure of diabetes and a prior cholecystectomy. The Supreme Court's precedent in Sulbha Motegaonkar indicates that the DLA cannot be disqualified from the claim due to these nondisclosures. The Commission upheld the State Commission's order and directed the insurer to pay Rs 19,75,000, the sum assured under the policy, along with interest @ 9% p.a. and Rs. 10,000 as litigation costs.

Case Title: Life Insurance Corporation Of India Vs. Shubhalaxmi Shankar Shetty

Case Number: F.A. No. 2145/2019