Hidden medical history costs Mumbai widow Rs 78 lakh as NCDRC upholds ‘utmost good faith’ in insurance

“Life insurance contracts are based on uberrimae fidei, i.e. founded on the doctrine of utmost good faith, which impose a strict duty upon the proposer to make full, true and complete disclosure of all material facts within his knowledge,” the commission said on January 16.

Such medical history of the consumer, was neither minor nor trivial, but went to the root of risk assessment and underwriting, said the NCDRC. (Image enhanced using AI)

Doctrine of uberrimae fidei (utmost good faith)

• The doctrine of uberrimae fidei (utmost good faith) is a cornerstone of insurance law.
• It mandates that both the insurer and the insured act with total transparency by disclosing all material facts.
• This principle creates a higher standard of honesty; any failure to share relevant details can result in a voided policy or a denied claim.

Findings

• The commission elaborately discussed the doctrine of uberrimae fidei (utmost good faith).
• The deceased failed to disclose material facts while answering specific health-related questions in the proposal form.
• It amounted to suppression of material facts in breach of the doctrine of utmost good faith.
• The complainant failed to establish any deficiency in service or unfair trade practices against the opposite parties (ICICI Prudential Life Insurance Company Limited).
• The commission found that the deceased had suffered from serious and long-standing ailments involving cancer, repeated hospitalisations, major surgeries and prolonged treatment.
• Such medical history, it held, was neither minor nor trivial, but went to the root of risk assessment and underwriting.
• A proposer is under a duty to disclose to the insurer all material facts as are within his knowledge.
• The proposer is presumed to know all the facts and circumstances concerning the proposed insurance.
• The proposer’s duty of disclosure is not confined to his actual knowledge but also extends to those material facts which, in the ordinary course of business, he ought to know.
• However, the insured is not under a duty to disclose facts which he did not know and which he could not reasonably be expected to know at the time.
• The bench rejected the argument that the policy being a “wealth” or “non-medical” policy diluted the duty of disclosure.
• The duty of disclosure is assessed at the time of proposal and not with the benefit of hindsight or by examining whether the eventual cause of death was directly linked to the undisclosed ailment.
• The obligation flows from the proposal form and the contract itself, and is not dependent on whether the insurer chose to conduct a medical examination.
• Referring to the Supreme Court verdicts, the commission said that a proposer is under a duty to disclose to the insurer all material facts as are within his knowledge.

Background

• The complainant, Arati Dhananjay Deshmukh, widow of late Dhananjay Bhanudas Deshmukh approached the NCDRC under Section 21 of the Consumer Protection Act, 1986.
• She alleged deficiency in service and unfair trade practice by ICICI Prudential Life Insurance Company Limited after it rejected the death claim arising out of an ICICI Pru Elite Wealth-II Unit Linked Insurance Plan (ULIP).
• Her husband had purchased the policy on December 2, 2015, for a term of ten years with a sum assured of Rs 90 lakh.
• The annual premium of Rs 9 lakh was duly paid and acknowledged.
• The policy was issued on December 11, 2015, and was projected as a wealth-cum-life cover product, providing both investment benefits and risk cover from inception.
• Deshmukh died on August 15, 2016, at Lilavati Hospital, Mumbai, just eight months and four days after the policy commenced.
• The death certificate was issued on August 19, 2016.

Claim and rejection

• Following her husband’s death, the complainant submitted the claim along with hospital records, medical papers and other documents in March 2018.
• The insurer rejected the claim through a letter dated March 30, 2018, alleging non-disclosure of serious pre-existing medical conditions in the proposal form.
• Instead of settling the death claim, the insurer credited an amount of Rs 11.52 lakh to the complainant’s account, treating it as the surrender value of the policy.
• The complainant contended that this unilateral action had no contractual or legal basis.
• She issued a legal notice on April 23, 2018, demanding reconsideration and later approached the NCDRC.

Contentions of complainant

• The complainant argued that the policy was essentially a wealth policy and not a health or mediclaim policy, and therefore the strict disclosure standards applicable to health insurance should not be imposed.
• The deceased was medically stable at the time of taking the policy, actively employed, and had no intention to suppress any information.
• Even if there was any omission, it was inadvertent and not material to the cause of death.
• The insurer failed to conduct a fair inquiry and violated principles of natural justice by repudiating the claim without granting an effective opportunity of hearing.
• Since the policy carried life cover from inception and the death was natural, no exclusion clause was attracted.

Insurer’s defence

• The insurer, opposing the submissions submitted that the policy was issued solely on the basis of declarations made in the proposal form dated December 2, 2015.
• It said that the deceased had answered all health-related questions in the negative, declaring that he had never suffered from serious illness, undergone surgery, or received prolonged medical treatment.
• As the death occurred within three years of policy issuance, it was an early claim, permitting a detailed investigation under Section 45 of the Insurance Act, 1938.
• Investigation revealed that the deceased had been suffering from a neuroendocrine (carcinoid) tumour with liver metastasis since around 2004, had undergone multiple major surgeries, chemotherapy, radio-frequency ablation and other advanced treatments.
• He was also suffering from chronic kidney disease, hypertension since 2006, and had suffered a transient ischemic attack (TIA) in 2010.
• These facts were material to underwriting and would have led to rejection of the proposal at inception had they been disclosed.
• The insurer maintained that suppression of such material facts rendered the contract voidable and justified rejection of the claim.

Decision

• Concluding that the deceased life assured had suppressed material facts in breach of the doctrine of utmost good faith, the commission held that the insurer was justified in rejecting the claim.