SC: Duty of Proposer to Disclose All Pre-Existing Ailments to the Insurer

SC: Duty of Proposer to Disclose All Pre-Existing Ailments to the Insurer

The Supreme Court earlier this month in the case of Branch Manager, Bajaj Allianz Life Insurance Company Ltd and Ors, held that the impugned judgment of the National Consumer Disputes Redressal Commission (NCDRC) does not lay down the correct position in law and was set aside.

The District Consumer Forum allowed the complaint filed by the claimant. The First appeal filed by the Insurance Company was dismissed by the State Consumer Dispute Redressal Commission. The NCDRC, while dismissing the Revision Petition, held that the death had occurred due to natural causes and there was no reasonable nexus between the cause of death and non-disclosure of disease.

This appeal was filed from the judgment and order dated 20th March 2020 of the NCDRC.

On 5 August 2014, a proposal for obtaining a policy of insurance was submitted to the appellants. The proposal form indicated the name of the mother of the proposer, who is the respondent to the said proceedings as the nominee.

The Supreme Court, referred the case of Reliance Life Insurance Co. Ltd. vs Rekhaben Nareshbhai Rathod, which had set aside the judgement of the NCDRC, whereby the NCDRC had held that the failure of the insured to disclose a previous insurance policy as required under the policy proposal form would not influence the decision of a prudent insurer to issue the policy in question and therefore the insurer was disentitled from repudiating its liability.

The court after perusal of medical records obtained during the course of the investigation found that the deceased was suffering from a serious pre-existing medical condition which was not disclosed to the insurer.

The Court found that the deceased was hospitalized to undergo treatment for such condition in proximity to the date of his death, which was also not disclosed in spite of the specific queries relating to any ailment, hospitalization or treatment undergone by the proposer in Column 22 of the policy proposal form.

Therefore, the Court was of the view that the judgment of the NCDRC in the present case does not lay down the correct principle of law and would have to be set aside.

The bench of Justice Dr. D.Y. Chandrachud, Justice Indu Malhotra and Justice Indira Banerjee held, "A contract of insurance is one of utmost good faith. A proposer 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. It is with this principle in view that the proposal form requires a specific disclosure of pre-existing ailments, so as to enable the insurer to arrive at a considered decision based on the actuarial risk."

The Court felt appropriate to utilize its jurisdiction under Article 142 of the Constitution, by directing that no recoveries of the amount which has been paid shall be made from the respondent.

However, while doing so, they expressly held that the impugned judgment of the NCDRC does not lay down the correct position in law and was accordingly stood set aside. The appeal was accordingly dismissed by the Apex Court.