A Delhi woman, whose late husband’s Rs 20 lakh life insurance claim was denied over alleged non-disclosure of diabetes and kidney diseases, has received significant relief from the Delhi State Consumer Disputes Redressal Commission.
The Commission determined that the insurer failed to produce proper documentary evidence proving that the deceased had deliberately concealed any serious pre-existing condition when he bought the policy.
Can insurance companies reject claims merely by citing common lifestyle diseases like diabetes or hypertension? Here’s a look at what happened in this case, what the Commission observed, and what lessons policyholders can learn from it.
What was the case about?
The case was about Ms Kain, whose husband had purchased a life insurance policy from India First Life Insurance Company under the “IndiaFirst Group Credit Life Plan” to cover a loan of Rs 20 lakh from the Bank of Baroda.
According to the case records:
- The policy started on June 20, 2012
- The sum assured was Rs 20 lakh
- Complainant’s husband paid premium of Rs. 56,011
- The insurance cover was linked to a loan taken from the Bank of Baroda
Such policies are commonly known as home loan-linked life insurance plans. They are designed to protect the borrower’s family from the burden of repaying the loan if the borrower dies during the loan tenure. In such cases, the insurer typically settles the outstanding loan amount with the bank, so that the family does not lose the house due to repayment issues.
After the policyholder passed away in February 2014, his wife submitted the claim and completed the required formalities with the insurer. However, the insurer rejected the claim.
The complainant argued that the insurer relied on policy terms and exclusions that were never properly supplied or explained to the family.
Why did the life insurance company reject the claim?
The insurer argued that the deceased had hidden important medical information while purchasing the policy.
According to the insurance company:
- The deceased allegedly suffered from Type-2 diabetes
- He was allegedly taking an insulin injection
- He allegedly suffered from chronic kidney disease
- He was on continuous cycling peritoneal dialysis since March 2012 before buying the policy
The insurer claimed that these medical conditions existed before the policy was issued but were not disclosed in the proposal form. It further argued that had these illnesses been disclosed, the policy would never have been issued. Based on this, the claim was repudiated.
What was the insurer’s response in this case?
“In this case, the policy was issued based on disclosures made in the proposal form. Upon receipt of the claim, a comprehensive assessment was undertaken, including an independent investigation in accordance with regulatory provisions. The findings established material non-disclosure of health conditions in the proposal form, for which the life assured had been undergoing regular treatment at a reputed government institute. Based on documentary evidence and facts on record, the Hon’ble District Consumer Disputes Redressal Commission upheld the Company’s position,” says IndiaFirst.
“We have taken note of the order passed by the Hon’ble State Commission. However, in view of the on record pre-policy issuance documentary evidence of material non-disclosure, the company has filed an appeal before the Hon’ble National Consumer Disputes Redressal Commission (NCDRC) and will pursue appropriate legal remedies in accordance with due process and principles of natural justice”, they added.
What did the Delhi Consumer Commission observe?
The commission examined whether the insurer had valid grounds to reject the claim based on alleged pre-existing diseases.
It referred to several Supreme Court and National Consumer Commission rulings dealing with insurance repudiation and pre-existing diseases.
The commission said that common lifestyle diseases such as diabetes and hypertension cannot automatically become grounds for rejecting insurance claims.
The commission said:
- The insurer failed to provide sufficient documentary proof of deliberate concealment
- No proper medical examination was conducted before issuing the policy
- The insurer issued the policy despite the insured being nearly 50 years old
- The claim rejection was delayed by 213 days, violating IRDAI timelines
The commission further said that insurers cannot later take advantage of their own failure to conduct proper medical verification before issuing a policy.
What was the court's judgment?
Accordingly, the commission directed the insurer to:
- Pay the Rs 20 lakh sum assured to the complainant
- Pay 6% annual interest from November 10, 2014 till April 24, 2026
- Pay Rs 1 lakh compensation for mental agony and harassment
- Pay Rs 50,000 towards litigation costs
The commission further ordered that if the insurer fails to comply within two months, the entire amount will attract 9% annual interest until actual payment.
Why did the Delhi State Consumer Commission rule in favour of the policyholder?
The Delhi State Consumer Commission ruled in favour of the policyholder because it found the repudiation of the claim by the insurance company legally unsustainable and procedurally unfair, according to Advocate Mayank Arora, Partner, The Chambers of Bharat Chugh.
The commission found that the insurer had failed to prove its allegation with cogent medical evidence. The investigation report was found to be largely based on hearsay. On one hand, the insurer alleged kidney disease and diabetes; on the other hand, its own investigation recorded that no medical history was found and that several doctors and chemists denied having treated or supplied medicines to the deceased, he adds.
Another important factor in this case was the absence of a clear nexus between the alleged pre-existing disease and the cause of death of the insured. The commission reiterated the principle that even if some ailment existed before the insurance, the insurer must show that the alleged suppression had a direct relationship with the death or the claim event, Arora pointed out.
Moreover, the insurer took 213 days to repudiate the claim, which is beyond the 90-day IRDA limit, and never supplied the policy's terms and conditions to the policyholder, explains Trinath Tadakamalla, partner at Solaris Legal.
What lessons should other consumers take away from this judgment?
Tadakamalla says, always insist on receiving the complete policy document at issuance. Where the Policyholder is aware of any health issues, it is best to make a full and frank disclosure.
Diabetes, hypertension and similar lifestyle conditions are extremely common nowadays, especially in middle-aged people, and the law recognises that such conditions cannot automatically become a weapon to defeat genuine claims by the insurance companies, says Arora.
Nominees should also ask the insurer to disclose the exact basis of repudiation and the documents relied upon by them for such an action.
Lastly, the broader message is that consumer law protects policyholders against any kind of unfair conduct. This judgment is also a reminder that insurance is not merely a contract but it is a contract of fairness, disclosure and good faith on both sides, he adds.
