Supreme Court Rules on Insurance Claim Rejection Due to Non-Disclosure of Medical Condition

The case of Branch Manager, Bajaj Allianz Life Insurance Company Ltd. & Ors. vs. Dalbir Kaur is a crucial ruling by the Supreme Court of India that addresses the issue of repudiation of an insurance claim due to alleged non-disclosure of pre-existing medical conditions. The Court examined whether the insurer was justified in rejecting a claim based on the policyholder’s failure to disclose a past ailment.

The judgment reaffirms the principle that contracts of insurance are governed by the doctrine of uberrima fides (utmost good faith), requiring policyholders to disclose all material facts. However, the Court also balanced this principle with considerations of fairness and the circumstances surrounding the claim.

Background of the Case

The dispute arose when Kulwant Singh applied for a life insurance policy from Bajaj Allianz Life Insurance on 5 August 2014. He declared his mother, Dalbir Kaur, as the nominee. The policy was issued on 12 August 2014, covering an insured amount of Rs. 8.50 lakhs with a death benefit of Rs. 17 lakhs.

However, Kulwant Singh passed away on 12 September 2014, just over a month after the policy was issued. When the nominee filed a claim, Bajaj Allianz rejected it, citing non-disclosure of a pre-existing medical condition. The insurer argued that the policyholder had been suffering from Hepatitis C, which was not disclosed in the policy proposal form.

Legal Dispute and Consumer Forum Proceedings

Dalbir Kaur filed a complaint with the District Consumer Disputes Redressal Forum, which ruled in her favor, directing the insurer to pay the full death benefit with interest. The insurer appealed to the State Consumer Disputes Redressal Commission (SCDRC), which upheld the decision. A further appeal to the National Consumer Disputes Redressal Commission (NCDRC) was also dismissed.

The NCDRC, relying on the Supreme Court’s ruling in Sulbha Prakash Motegaonkar & Ors. vs. Life Insurance Corporation of India, held that:

• A disease must be distinguished from a mere illness.
• There was no reasonable nexus between the cause of death and the alleged non-disclosure.
• The insurer’s decision to repudiate the claim was unjustified.

Petitioner’s (Bajaj Allianz Life Insurance) Arguments

The insurer, represented by Amol Chitale, argued:

• The proposer failed to disclose that he had been hospitalized for vomiting blood due to Hepatitis C just a month before obtaining the policy.
• Medical records from Baba Budha Ji Charitable Hospital confirmed that the deceased was suffering from a serious pre-existing condition.
• Under Section 45 of the Insurance Act, 1938, an insurer can repudiate a policy within two years of issuance if material misrepresentations are discovered.
• Several Supreme Court judgments, including Life Insurance Corporation of India vs. Asha Goel and Satwant Kaur Sandhu vs. New India Assurance Company Ltd., have held that suppression of material facts justifies repudiation.

Respondent’s (Dalbir Kaur) Arguments

The respondent, represented by Aniket Jain, countered:

• The deceased’s death was due to natural causes and had no direct connection to the alleged non-disclosed ailment.
• The insurer failed to establish that the ailment was material enough to influence the decision to grant the policy.
• The NCDRC rightly applied the principle that a minor illness should not lead to claim rejection.

Supreme Court’s Observations and Judgment

The Supreme Court, led by Justices Dhananjaya Y. Chandrachud, Indu Malhotra, and Indira Banerjee, made the following key observations:

• Contracts of Insurance Require Full Disclosure: The Court reaffirmed that insurance contracts are governed by the principle of utmost good faith.
• Material Facts Must Be Disclosed: Failure to disclose hospitalizations and serious ailments, especially those occurring just before the policy was issued, is a valid ground for repudiation.
• Medical Records Confirmed Non-Disclosure: The deceased was hospitalized for a serious condition, and the insurer’s investigation established that this information was intentionally withheld.
• NCDRC Misapplied Precedents: The Court held that the decision in Sulbha Prakash Motegaonkar was inapplicable because, in that case, the concealed condition (lumbar spondylitis) was unrelated to the cause of death.

Final Judgment

The Supreme Court ruled:

• The judgment of the NCDRC was set aside.
• The insurer was justified in repudiating the claim due to suppression of material facts.
• No recovery would be made from the nominee since the insurance amount had already been paid.

Conclusion

The Supreme Court’s ruling upholds the importance of full disclosure in insurance contracts. While recognizing the hardship faced by the nominee, the Court reinforced the insurer’s right to repudiate claims when material facts are concealed. This decision serves as a critical precedent in determining the obligations of policyholders and insurers in life insurance contracts.

Petitioner Name: Branch Manager, Bajaj Allianz Life Insurance Company Ltd. & Ors..
Respondent Name: Dalbir Kaur.
Judgment By: Justice Dhananjaya Y. Chandrachud, Justice Indu Malhotra, Justice Indira Banerjee.
Place Of Incident: Punjab.
Judgment Date: 09-10-2020.

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