Prior Knowledge About Disease Not Disclosed: NCDRC Allows LIC Appeal, Directs State Commission To Consider Afresh

Brief Facts of the Case

The wife/complainant of the deceased husband, nominee of the policy of life insurance, had approached Life Insurance Corporation with a claim. The insured, who was 38 years old and had entered into the policy in 2010, expired at the Sahara Hospital, Lucknow. LIC repudiated the claim and raised the charge of suppression of a pre-existing renal condition. The repudiation was resented by the complainant on the ground that her husband did not know of any such condition at the time of submitting the proposal form. She produced that for the first time, the kidney stones were detected by a homoeopathic doctor, four months prior to his demise, and symptoms were exhibited by the insured only then. She pointed out that the cause of death was established as cardio-respiratory arrest, and the kidney stones had nothing to do with it. She contended that the ailment of renal condition was not dangerous to life and had no connection with the cause of death. She questioned the hospital note of the past history of renal stones for “many years,” and contended that it was not an authenticated and reliable document. She contended that there was no material on record to establish any pre-existing ailment at the time of issuing the policy, and the insurance company had failed to prove the burden. The State Commission found merit in her submissions, granted Rs. 37 lakhs with 7% interest, and Rs. 10,000 as cost of litigation, which prompted LIC to appeal before the National Commission

Arguments of the Insurer

The insurer rejected the claim on the basis of material non-disclosure by the insured on the premise that he had suppressed the fact of a pre-existing renal condition. While submitting the proposal form, he had affirmed under question 11(4) that he had no ailment of the kidneys. They contended that the kidney stones diagnosed, which were 4mm and 3mm in diameter, must have crystallised long before the diagnosis, considering the duration of time taken in crystallisation, which could not have occurred within a period of months. LIC had placed reliance on a hospital record submitted by Sahara Hospital dated, which had mentioned the insured's history of renal stones “many years” and homoeopathic treatment and had recorded this as establishing the insured's prior knowledge and willful suppression. LIC had considered the complainant's production of this hospital record as justifying their stance. They argued that the insured's suppression of his condition had deprived LIC of an opportunity to evaluate the risk accordingly. LIC had contended the principle of uberrimae fidei (utmost good faith) was breached and had maintained the onus lay with the insured to make material disclosures, which he had not done. On these premises, LIC had prayed for the reversal of the State Commission's award.

Observations by the National Commission

According to the National Commission, the State Commission misapplied the uberrimae fidei standard, which applies to insurance contracts, and failed to comprehend the relevant circumstances. The Commission noted that no radiological report had been submitted by the complainant to explain the precise quantity of kidney stones that the homoeopathic physician had discovered, which suggested a probable pre-existing disease. As evidence of the insured's prior knowledge, the complainant's hospital report, which detailed a “many years” history of kidney stones and previous homoeopathic therapy, was deemed reliable. Although the expert assessment from Dr. Ram Manohar Lohia Hospital acknowledged that these stones might not cause any symptoms, it noted that only serial ultrasounds, which were not provided, would be able to determine how long they had formed.

The Commission cited Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod, (2019) 6 SCC 175, which supported an insurer's right to avoid contracts for material non-disclosure; Manmohan Nanda v. United India Assurance Co. Ltd., (2022) 4 SCC 582, which elaborated on the proposer's obligations under an insurance contract; and Mahakali Sujatha v. Branch Manager, Future Generali India Life Insurance Co. Ltd. (2024 SCC OnLine SC 525), which emphasised the proposer's duty of full disclosure and delineated the boundaries of materiality and burden of proof in insurance law. According to the Commission, the term “many years” meant that the condition existed before the proposal date, and because the insured had unique information, the burden of disclosure under Section 106 of the Evidence Act was not fulfilled.

Consequently, the State Commission's order was set aside, the appeal was allowed, and the case was remanded for fresh adjudication consistent with these findings.

Case Title: Life Insurance Corporation of India Vs. Smt. Reeta Srivastava

Case Number: NC/FA/13/2023

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