'Defeats Purpose Of Life Insurance': Kerala High Court Expresses Concern Over LIC's Denial Of Medical Claims On Trivial Grounds

Justice P.M. Manoj, delivered the judgment in two connected writ petitions, and quashed LIC's orders that had restricted and later rejected claims for the hospitalization and treatment of the petitioner's wife under LIC's Health Plus Plan (Table 901). The Court directed LIC to honour the claims without further delay, stressing that arbitrary repudiations defeat the very object of insurance.

"It is well settled that suppression of a pre-existing medical condition can justify repudiation of a claim only if the non disclosed ailment is material to the risk and has a direct nexus with the contingency for which the claim is preferred...Mere non-disclosure of an ailment that has no connection with the present medical condition for which the treatment has been taken cannot be treated as material suppression. To hold otherwise would mean that even trivial or unrelated past conditions could be used to deny coverage, thereby defeating the very purpose of health insurance"

The court also expressed its concern at a public sector body like LIC often repudiating medical claims on trivial and technical grounds adding that the object of life insurance is to secure unforseen incidents and it gets defeated when claims are rejected for unsubstantial reasons. 

“It is a matter of concern that insurers, particularly Public Sector Institutions like the Life Insurance Corporation of India, often repudiate claims on trivial or technical grounds. The object of life insurance is to provide security against unforeseen contingencies, which are defeated when claims are rejected for reasons neither substantial nor material. Insurance is a contract of utmost good faith, and the duty of fairness lies equally on the insurer, as contracts of adhesion policies must be construed in favour of the insured and repudiation for consequential inaccuracies or ambiguities cannot be justified” it added.

The writ petition was filed by the petitioner who is a policy holder under a policy valid upto 31.03.2024, which commenced on 31.08.2008 when the claim petition for the hospitalisation of his wife was rejected by the Insurer. His first claim in 2016 for hysterectomy of his wife for Rs. 60,093 was settled for only Rs.5,600 on the ground that policy benefits were linked to a pre-determined daily allowance rather than actual medical expenses. A subsequent claim of Rs. 1,80,000 was outrightly rejected on the ground of “pre-existing illness”, citing a hernia surgery his wife had undergone a decade earlier, in 2006.

LIC argued that health benefits were limited to enumerated surgical procedures under the policy terms and that suppression of past medical history justified repudiation. The insurer also relied on the principle of uberrima fides (utmost good faith), contending that the petitioner failed in his duty of disclosure.

The Court examined the maintainability of the writ petition since it is ordinarily dealt with within the jurisdiction of civil courts as insurance contracts are purely a contractual relationship between the insurer and the insured. Relying on Life Insurance Corporation of India and Others v Asha Goyal and Another [(2001) 2 SCC 160], the Court held that the writ jurisdiction under Article 226 is available when claim repudiation results in miscarriage of justice, violation of fundamental rights, or breach of natural justice.

The Court emphasised that under the Section 45 (Policy not to be called in question on ground of mis-statement after two years) of the Insurance Act, 1938, prior to amendment, no insurance policy could be questioned after two years from issuance of policy, except in cases of proven fraud. As the policy was issued in 2008 and claims arose in 2016, LIC was barred from invoking alleged non-disclosure of a 2006 surgery.

“Here, in this case, the repudiation of the claim on the alleged reason of pre-existing disease cannot be raised after the completion of a two-year period, as the case of the petitioner is prior to the amendment.” the court noted.

The Court further noted that the intent of the legislation behind Section 45 is to balance the duty of disclosure cast upon the insured with the need for certainty and security in insurance contracts.

“The object is to prevent insurers from avoiding liability on technical grounds after having accepted premiums for years” the Court noted.

The repudiation based on an earlier hernia repair was found unjustified because it bore no medical nexus with the treatment for vesicovaginal fistula. The Court clarified that non-disclosure is material only if it directly influences the risk undertaken. The Court observed that in the present case, there was no nexus between vesicovaginal fistula, which is the present treatment undergone by the wife of the insured and the Hernia repair done in 2006.

The judgment applied contra proferentem, which provides that an ambiguous term in a contract is to be interpreted against the party who drafted it and held that to permit repudiation on the basis of inconsequential or ambiguous disclosure would not only run contrary to the principle of contra proferentem but would also undermine the element of trust which forms the foundation of insurance.

The Court has also reaffirmed that denial of medical claim amounts to denial of treatment, violating the right to life under Article 21. Citing Paschim Banga Khet Mazdoor Samithi [1996 (4) SCC 37] and Consumer Education and Research Centre [1995 (3) SCC 42], the Court held that arbitrary claim repudiations infringe fundamental rights.

The Court thus quashed the claim rejection and directed the respondent to allow the claim of the petitioner.

Case Title: Dr. A M Muraleedharan v The Senior Divisional Manager, LIC and Another and connected case

Case No: WP(C) 4088/ 2017 and connected case

Citation: 2025 LiveLaw (Ker) 620

Counsel for Petitioner: R Parthasarathy, B Krishnan

Counsel for Respondents: L Lakshmy