Policy Buyers Must Disclose Previous Policies
In a crucial ruling, the Supreme Court has issued a caution to life insurance policy buyers, stating that failure to disclose previously purchased policies in the proposal letter may lead to claim rejection. However, in a case under review, the apex court ruled in favor of the appellant, directing the insurance company to pay the assured sum with an annual interest of 9% and settle the claim.
Importance of Full Disclosure in Insurance Contracts
While presiding over the case, a bench comprising Justice BV Nagarathna and Justice Satish Chandra Sharma emphasized that insurance is a legally binding contract. Therefore, applicants must fully disclose all relevant details when purchasing a policy, as these facts are crucial for the insurer in assessing the risk. The bench noted that details provided in the proposal form play a critical role in the insurance agreement, and failure to disclose such information could lead to claim rejection. However, the court clarified that the significance of omitted details should be determined on a case-to-case basis.
Case Background and Legal Proceedings
According to Live Law, the case involved Ramkaran Sharma, who purchased a life insurance policy worth Rs 25 lakh from Exide Life Insurance Company on June 9, 2014. Tragically, he passed away in an accident on August 19, 2015. His son, Mahavir Sharma, subsequently filed a claim with the insurance company, but it was denied on the grounds that his father had not disclosed all previous policies. While one policy from Aviva Life Insurance was mentioned, other existing policies were not. After his claim was rejected, Mahavir Sharma sought redress from the State and National Consumer Commissions, but both denied his appeal. He then approached the Supreme Court for justice.
Initially, the Supreme Court observed that the disclosed policy amounted to Rs 40 lakh, while the concealed policies totaled just Rs 2.3 lakh. The bench acknowledged that this omission allowed the insurer to question why the policyholder had taken multiple life insurance policies within a short period.
Court’s Justification for Favoring the Appellant
Despite recognizing the insurance company’s suspicion as reasonable, the court ruled that the concealed policies in question were of negligible value. As a result, it determined that this particular case warranted a different perspective. The court concluded that the undisclosed policies did not materially impact the proposed insurance agreement, as the primary policy in question was for life insurance, not a mediclaim policy. Furthermore, the policyholder’s death was accidental, making the omission of other policies immaterial to the claim. Consequently, the insurance company was not justified in rejecting the claim.
Supreme Court’s Final Verdict
The bench further highlighted that the insurer was already aware of a significantly higher-value policy held by the deceased and still issued the new policy, indicating confidence in his ability to pay premiums. Given these factors, the court ruled that the claim rejection was unjustified. It directed the insurance company to fulfill all obligations under the policy and pay interest at a rate of 9% per annum. With this decision, the Supreme Court overturned the rulings of the consumer commissions and ruled in favor of the appellant, ensuring that the benefits of the policy were duly released.
