SC Rules On Insurance Non-Disclosure: Not Every Omission Warrants Claim Rejection

In a recent ruling, the Supreme Court of India reiterated that insurance contracts are based on uberrima fides-utmost good faith. While failure to disclose existing insurance policies could lead to claim repudiation, the Court emphasized that the materiality of such omissions must be evaluated on a case-by-case basis.

The Case At Hand

The ruling came in the case of Mahaveer Sharma v. Exide Life Insurance Company Limited & Anr., presided over by Justice B.V. Nagarathna and Justice Satish Chandra Sharma. The case centered on whether an insurer could reject a claim due to non-disclosure of multiple smaller policies.

The appellant's father, Ramkaran Sharma, had taken out a life insurance policy from Exide Life Insurance on June 9, 2014. Following his death on August 19, 2015, the appellant filed a claim for policy benefits.

However, Exide Life repudiated the claim, citing that Ramkaran had failed to disclose several smaller insurance policies, except for a Rs 40 lakh policy from Aviva Life Insurance. The insurance company argued that complete disclosure of existing policies was a material factor in assessing risk and was required under its terms and conditions.

Decisions Of Lower Courts

The appellant first approached the State Commission, which ruled against him, stating that the deceased had intentionally concealed policies from the Life Insurance Corporation of India while disclosing only the Aviva policy. The National Commission upheld this decision, leading the appellant to seek relief from the Supreme Court.

Before the Supreme Court, the appellant's counsel argued that there was no material suppression of facts. The omission of smaller policies was inadvertent, especially since the Aviva policy had been disclosed. He further contended that the application form had been filled out by the insurance agent, who was provided with all necessary details. Additionally, since the insured passed away due to an accident and not an illness, the undisclosed policies had no bearing on the risk assessment.

Supreme Court's Observations And Verdict

The Supreme Court distinguished this case from past rulings where complete non-disclosure had significantly influenced an insurer's decision. The Court reaffirmed that while insurance applicants have a duty to disclose all material facts, not every omission justifies claim repudiation.

Since the insured had already disclosed a major policy, and the omitted ones were of lower value, the Court found that the non-disclosure was not substantial enough to impact the insurer's risk evaluation. It further noted that Exide Life had issued the policy despite knowing about the Aviva policy, suggesting that the insured's financial capacity to pay premiums was not in question.

Consequently, the Supreme Court set aside the insurer's decision, ruling that the omission was not material enough to justify claim rejection. The Court directed Exide Life to honour the claim along with applicable interest.