NCDRC rejects Rs 25 lakh insurance claim for widow after husband hid ‘advanced’ cancer diagnosis

The bench of Air Vice Marshal J Rajendra (Retd) and Justice Anoop Kumar Mendiratta heard the appeal on February 4.

“A contract of insurance is one of utmost good faith. A proposer (consumer) who seeks to obtain a policy of life insurance is duty bound to disclose all material facts bearing upon the issue as to whether the insurer would consider it appropriate to assume the risk which is proposed,” said the Commission, referring to a Supreme Court judgment.

Suppression of material facts: NCDRC

• The consumer, deceased life assured (DLA) was fully aware of his medical condition at the time of submitting the proposal form on October 10, 2013, the NCDRC noted.
• His failure to disclose the said material facts, despite specific questions in the proposal form by the consumer, constitutes suppression of material facts, vitiating the contract of insurance, it said.
• The proposal form requires a specific disclosure of pre-existing ailments by the consumer, so as to enable the insurer to arrive at a considered decision based on the actuarial risk.
• The consumer had undergone medical treatment at Rashtra Sant Tukdoji Regional Cancer Hospital, Manewada Road, Nagpur on May 27, 2013, and was diagnosed with “Liver Metastasis – Adenocarcinoma, Occult Primary.”
• The said diagnosis precedes the submission of the proposal form dated October 10, 2013, by several months.
• The consumer was aware of his medical condition at the time of completing the proposal form.
• The consumer failed to disclose the said ailment in response to specific queries in the proposal form which clearly amounts to suppression of material facts.
• In light of the findings and the binding precedents laid down by the Supreme Court, the order dated November 17, 2017, passed by the state commission suffers from legal infirmity and cannot be sustained.
• Accordingly, the appeal is allowed and the state commission’s order is set aside and the complaint by the consumer is dismissed.

Final decision

• Allowing the appeal, the NCDRC concluded that the state commission’s order suffered from serious legal infirmities and ignored binding precedent.
• Accordingly, the commission allowed the appeal, setting aside the order dated November 17, 2017.
• It dismissed the consumer complaint filed by the widow and made no order as to costs.
• “All pending applications also stand disposed of,” the bench ordered.

Doctrine of utmost good faith

• The doctrine of 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.

Insurance policy and timeline

• The consumer-insured, Vinodkumar Ghanshyamdas Agrawal, purchased a life insurance policy for a sum assured of Rs 25,00,000.
• On May 27, 2013, a medical consultation at Rashtrasant Tukdoji Regional Cancer Hospital, Nagpur took place where he was diagnosed with Liver Metastasis – Adenocarcinoma (Occult Primary).
• On October 10, 2013, the proposal form was submitted, declaring “No” to questions on cancer, hospitalisation and medical investigations.
• The policy was issued on December 24, 2013, after an insurer-conducted medical examination.
• On March 4, 2014, the insured person died in Nagpur.
• The insurance claim was denied by the insurer to the nominee on September 3, 2014.
• The policy was thus in force for less than three months at the time of death.

Rejection of claim, widow’s complaint

• Following the death of her husband, the nominee and widow, Meeradevi, submitted a claim with the insurer.
• While the death certificate issued by the Nagpur Municipal Corporation recorded the cause of death as cardiac arrest, the insurer sought additional medical records.
• Upon investigation, the insurer rejected the claim, alleging that the deceased had knowingly concealed a serious pre-existing illness- advanced-stage liver cancer, at the time of proposing for the policy.
• Challenging the rejection, the widow approached the state consumer commission, alleging deficiency in service and unfair trade practice, and sought payment of the full sum assured along with interest and compensation.

Findings of state commission in 2017

• The state consumer commission, in its order dated November 17, 2017, accepted the consumer’s plea.
• It directed the insurer to pay Rs 25 lakh as the sum assured, with interest at 6 per cent per annum from the date of complaint.
• An amount of Rs 5,000 was set as compensation for mental harassment, and a further Rs 5,000 towards litigation costs.
• The state consumer commission reasoned that the insurer had conducted its own medical examination before issuing the policy.
• No doctor’s affidavit conclusively established cancer as the cause of death.
• The death certificate recorded cardiac arrest as the cause.
• On this basis, rejection was held to be unjustified.

Grounds of appeal before NCDRC

• Opposing the 2017 order, the insurer argued that the state consumer commission failed to appreciate documentary hospital records showing a cancer diagnosis months before the proposal.
• The disclosure was required at the time of proposal, irrespective of the eventual cause of death.
• Section 45 of the Insurance Act permits repudiation within three years where material facts are suppressed.
• The deceased had answered “No” to specific health-related questions, despite having been diagnosed with an advanced, terminal illness.

Reliance on Supreme Court precedents

• The national consumer commission relied on settled law laid down by the Supreme Court, reiterating that insurance contracts demand complete candour.
• Suppression of material health information vitiates the contract.
• An insured cannot escape consequences by pleading ignorance after signing the proposal.
• The NCDRC noted that even if the death of the consumer occurred due to a different immediate cause, the non-disclosure itself was sufficient to invalidate the policy.