Supreme Court Clarifies Life Insurance Claim Rejection for Non-Disclosure of Other Policies
In a recent decision, the Supreme Court of India, consisting of Justice Satish Chandra Sharma and Justice B.V. Nagarathna, has clarified the circumstances under which a life insurance claim can be denied due to the non-disclosure of existing insurance policies. This ruling, issued in the case of Mahaveer Sharma v. Exide Life Insurance Company Limited & Anr. (SLP (Civil) No. 2136 of 2021), provides a critical interpretation of insurance law, aiming to ensure fair treatment for policyholders.
Case Background
The case arose from an insurance claim filed by Mahaveer Sharma following the death of his father, Ramkaran Sharma. Ramkaran Sharma had purchased a life insurance policy from Exide Life Insurance on June 9, 2014. Following his accidental death on August 19, 2015, Exide Life Insurance rejected the claim, citing the non-disclosure of other existing life insurance policies. Both the State Consumer Disputes Redressal Commission (Rajasthan) and the National Consumer Disputes Redressal Commission upheld the insurer’s decision, prompting an appeal to the Supreme Court.
Key Legal Issues
The Supreme Court considered several key legal questions:
- Whether the non-disclosure of all pre-existing policies constitutes material suppression.
- The significance of such omissions in determining an insurer’s risk exposure.
- Whether repudiating a claim on these grounds is legally justifiable.
Court’s Observations
The Supreme Court offered essential clarification regarding the interpretation of material suppression in insurance contracts. The key findings of the court include:
- The insured disclosed a policy from Aviva Life Insurance but failed to mention three additional policies from the Life Insurance Corporation of India.
- The Aviva policy was incorrectly listed with a sum assured of ₹4 lakh instead of the actual ₹40 lakh—significantly larger than the omitted policies.
- The insurer had access to information about the Aviva policy when issuing the new policy.
The Court’s ruling stated: “Failure to disclose existing insurance policies must be assessed in light of its materiality. If such non-disclosure does not affect the insurer’s risk assessment, repudiation of claims cannot be justified.”
Referring to earlier cases like Manmohan Nanda v. United India Assurance Co. Ltd. (2022) and Rekhaben Nareshbhai Rathod v. Reliance Life Insurance Co. Ltd. (2019), the Court distinguished between complete non-disclosure and minor omissions.
The judgment highlighted that, while insurance contracts are based on utmost good faith, insurers must determine whether non-disclosed information has a genuine impact on their decision to provide coverage. The court stressed that not every omission should be considered material suppression.
Supreme Court’s Decision
The Supreme Court ruled in favor of the appellant, overturning the previous decisions. The court’s findings were:
- Information from the disclosed Aviva policy provided the insurer with enough information to evaluate the risk.
- The undisclosed policies were of minor amounts compared to the Aviva policy.
- The omission did not materially affect the insurer’s risk assessment.
- Repudiation of the claim was unjustified.
The court asserted that: “A substantial disclosure of pre-existing policies by the insured should suffice for an insurer to assess risk. The failure to disclose additional smaller policies, when a significant policy has already been disclosed, does not amount to fraud or concealment.”
The court also noted that the insurer did not exercise due diligence, despite having information about the Aviva policy and its exact sum assured. Moreover, considering that the insured’s death was due to an accident rather than a health issue, the undisclosed policies had limited relevance to the risk assessment.
Order Issued by the Court
The Supreme Court directed Exide Life Insurance to honor the insurance claim and release the insured sum, including interest at 9% per annum from the due date until realized. This decision reversed the rulings of the State and National Consumer Commissions, ensuring the policyholder’s nominee received the rightful claim payment.
