Supreme Court: Insurance Company cannot deny compensation and renewal after confirming concealment of disease was not material

Supreme Court: Insurance Company cannot deny compensation and renewal after confirming concealment of disease was not material

The appellant had not disclosed that his wife was suffering from rheumatic heart disease, though she died due to ovarian cancer

The Supreme Court has held that in a valid insurance policy, the claim for reimbursement of expenses incurred by the holder must be paid.

It observed that the insurance company had accepted that the concealment of disease at the time of purchasing the policy was not material. Since it was not related to the disease that caused the death of a person, it could not refuse claims or renewal of insurance policy on that basis.

A Division Bench comprising Justice Abhay S Oka and Justice Rajesh Bindal was considering an appeal by a husband who lost his wife to ovarian cancer.

The grievance of the appellant was that the expenses incurred by him on the treatment of his wife were not reimbursed by the insurance company. The policy renewal was also refused on the ground that while taking the initial policy, the appellant did not disclose that his wife was suffering from rheumatic heart disease. Though the cause of her death was ovarian cancer.

Setting aside the National Consumer Disputes Redressal Commission’s (NCDRC) order challenged by the appellant, the Apex Court restored the order passed by the district and state forum that directed the insurance company to renew the policies. The Court held that the repudiation of the claim had been earlier set aside by the lower forum and was accepted by the insurance company.

The bench stated, “Even the insurance company accepted the fact that non-mentioning of the disease from which the deceased wife of the appellant suffered at the time of purchasing the policy was not material, as the death was caused due to a different disease. Both had no relation with each other. Now, the insurance company cannot be permitted to raise the same plea to deny renewal of insurance policy to the appellant for the period from 07.07.2009 onwards.”

In 2008, the claims for treatment of the appellant’s wife were repudiated by the insurance company. The appellant challenged it before the district forum, which set aside the claims by the insurance company. The forum stated there was no relation between the disease suffered by the wife that was claimed to be concealed and the disease for which the treatment was taken. It directed the insurance company to renew the policies from the date they expired on payment of renewal charges.

However, the insurance company challenged the district forum’s order before the state commission, but it was dismissed. The insurance company then pleaded before NCDRC. It submitted that the order was against the direction for renewal of the insurance policy from 07.07.2009. The amount spent by the appellant for treatment was not disputed and was duly paid.

The insurance company argued that renewal was denied based on the guidelines issued by the Insurance Regulatory and Development Authority on 31.03.2009 that renewal could be denied on grounds of fraud, moral hazard, or misrepresentation.

The Commission passed an interim order directing the renewal of policy in terms of the direction issued by the district forum, as upheld by the state commission subject to the outcome of the revision petition. Considering the Commission’s interim order, the insurance policy was renewed multiple times. The policy from 07.07.2009 onwards was renewed in October 2011.

Meanwhile, in 2012, the appellant filed another complaint for reimbursement of the amount spent on his wife’s treatment from 2009 to 2011, as this was rejected by the insurance company.

The insurance company refused the claim on the ground that the renewal of insurance policies was sub judice before NCDRC. However, the district forum directed reimbursement of expenses by the appellant, and the state commission upheld that order.

The insurance company also challenged the order of the state commission before NCDRC, which ruled both the revision petitions vide a common order.

In the common order, the Commission set aside the direction for renewal of the policies beyond 2009, due to concealment of facts by the appellant at the time of the purchase of the policy. The claim for reimbursement of expenses incurred on treatment was also rejected stating that the appellant did not reveal that his wife already suffered from rheumatic heart disease at the time of getting the policy.

The appellant, therefore, appealed before the Top Court.

The Supreme Court set aside the order of the Commission and restored the order passed by the district forum and state forum directing the insurance company to renew the policies. The Court observed that the repudiation of the claim by the insurance company was set aside, and the order was already accepted by the insurance company. Therefore, it could not later deny the appellant’s further claim or renewal after paying the appellant’s dues on the direction of the lower authorities.

The Court stated, “The ground on which renewal of insurance policy to the appellant is sought to be refused is that while taking the initial policy, the appellant had failed to disclose that his wife (now deceased) was suffering from rheumatic heart disease. Though she expired of cancer. The fact remains that the first policy was taken by the appellant for the period from 07.07.2007 to 06.07.2008, which was renewed for another year. The claims even for the period, wherein valid policy was available with the appellant, were repudiated. Renewal of policy beyond 07.07.2009 onwards was refused relying upon the guidelines issued by the Insurance Regulatory and Development Authority vide communication dated March 31, 2009.

The Bench added, “The claim of the appellant was repudiated on that very ground namely non-disclosure of the disease by which the wife of the appellant (now deceased) suffered at the time of the purchase of initial policy. The repudiation of the claim by the insurance company was the subject matter of consideration before the Fora at different levels under the Consumer Protection Act, 1986. The rejection of the claim on the ground that there was concealment of certain material facts by the appellant at the time of purchase of the policy, was not found to be tenable and the insurance company was directed to reimburse the expenses incurred for the period from 07.07.2007 to 06.07.2009.

The Judges further stated, “The aforesaid amount was paid by the insurance company. The order passed by the National Commission was not challenged any further by the insurance company. From this, it is established that even the insurance company accepted the fact that non-mentioning of the disease from which the deceased wife of the appellant suffered at the time of purchasing the policy was not material, as the death was caused by a different disease altogether. Both had no relation with each other. Now, the insurance company cannot be permitted to raise the same plea to deny renewal of insurance policy to the appellant for the period from 07.07.2009 onwards.”