Insurance Company Can’t Repudiate Claim At Subsequent Stage; Must Verify Details Of Previous Policy: Allahabad High Court Summarizes Principles
The Allahabad High Court was deciding a Writ Petition seeking to issue a Writ of Certiorari quashing the Order of the Assistant Secretary/Deputy Secretary/Secretary, Insurance Ombudsman, Lucknow.
The Supreme Court has summarized certain principles with respect to the duty or obligation of the insured and the insurer i.e., Insurance Company.
The Court was deciding a Writ Petition seeking to issue a Writ of Certiorari quashing the Order of the Assistant Secretary/Deputy Secretary/Secretary, Insurance Ombudsman, Lucknow.
A Division Bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit culled out the following principles –
A. There is a duty or obligation of disclosure by the insured regarding any material fact at the time of making the proposal and what constitutes a material fact would depend upon the nature of insurance policy taken, the risk covered, as well as the queries raised in the proposal form.
B. The test is whether the facts in question would influence the prudent insurer or not. If the mind of a prudent insurer would be affected, either in deciding whether to take the risk at all or in fixing the premium by knowledge of a particular fact then the fact will be a material fact.
C. A material fact would also depend upon health and medical condition of the proposer.
D. The contra proferentem rule has an ancient genesis. When words are to be construed, resulting in two alternative interpretations then, the interpretation which is against the person using or drafting the words or expressions which have given rise to the difficulty in construction, applies. When such standard form contracts ordinarily contain exception clauses, they are invariably construed contra proferentem rule against the person who has drafted the same.
E. If specific queries are made in the proposal form then it is the duty of the insured to answer that specific queries, but if any query or column in a proposal form is left blank then the insurance company must ask the insured to fill it up. If in spite of any column being left the insurance company accepts the premium, and thereafter, issued policy bond, it cannot at a subsequent stage repudiate the claim of the insured. It is the duty of the insurer to verify the details of previous policy which is already on record with them.
Advocate Hari Bans Singh appeared for the Petitioner while Advocate Shruti Malviya appeared for the Respondents.
Factual Background
In 2018, the Petitioner’s wife (insured) obtained a life insurance policy from the Life Insurance Corporation of India (LIC) for a sum of Rs. 15 lakhs through an agent. The Petitioner being the insured’s husband was duly nominated as the nominee in the said policy. While applying for the policy, the insured allegedly furnished all the requisite details in the application form in accordance with terms and conditions prescribed by LIC as instructed by the agent. Moreover, it was affirmed that no material information was concealed or misrepresented.
In 2019, the insured passed away due to heart attack and thereafter, the Petitioner submitted a representation before the Branch Manager, LIC seeking disbursement of the insurance claim arising out of the death of his wife. However, the Insurance Company repudiated the Petitioner’s claim stating that the insured had withheld correct information regarding her previous policy. The Petitioner’s claim was also rejected by the Regional Manager, LIC. He then approached the Insurance Ombudsman-Respondent but his claim was again rejected. Being aggrieved, he moved to the High Court.
Reasoning
The High Court after hearing the contentions of the counsel, observed, “Upon examining the facts of the present case, it is to be noted that the petitioner had taken four policies from the LIC. For three of the said policies, the LIC has made payment with regard to the claims made by the Petitioner. However for the last policy that was taken on August 16, 2018, for the sum assured of Rs.15 lakh, the same was rejected by the LIC on the ground that the ‘column 9’ of the proposal form was left blank by the petitioner.”
The Court noted that the said clause 9 specifically sought for details of policies that have been taken by the Petitioner within the past three years and it was not mentioned that the Petitioner had previously taken a policy from LIC itself for a sum assured of Rs. 3,70,000 on less than three months before taking the present policy.
“In our view, this is not suppression of a ‘material fact’ and accordingly the LIC cannot shrug away from the responsibility by merely taking the ground that the previous policy was not disclosed. The petitioner has pleaded that he had disclosed the information to the agent of the LIC and as per the agent the said previous policy is not required to be filled-up in the form as it was already within the records of LIC. The insured had also given copy of his PAN card and Aadhar card to the respondents while filling up the proposal form”, it added.
The Court further said that issuance of policy bond imputes verification of proposal form along with financial documents like Aadhar and PAN with which all the previous policies are linked and the earlier policies all being purchased from LIC, one would expect that minimum due diligence would be carried out by LIC also.
“… it is to be noted that if in spite of any column being left blank, the insurance company accepts the premium and issues a policy bond, it is presumed to have waived of its right to repudiate the policy on ground of suppression or non disclosure of a material fact at a later stage. Thus, it is the burden of the respondents to verify the details provided by the insured available with the office of the LIC before issuance of policy bond”, it emphasised.
The Court also observed that mere shifting of their burden upon the Petitioner from his rightful claim would not help the Respondents in any manner specially when the previous policy as well as the present policy are given by the same insurer.
“… any non-disclosure in the present case, was not with regard to health of the petitioner and the petitioner died of a sudden heart attack that was not connected to any previous ailments. In light of the same, the particular action in the instant case of repudiating the contract by the LIC is arbitrary and against the principles of law established by the Supreme Court”, it concluded.
Accordingly, the High Court disposed of the Writ Petition and quashed the impugned Orders.
Cause Title- Santosh Kumar v. Assistant Secretary/Deputy Secretary/Secretary, Insurance Ombudsman, Lucknow and Others (Neutral Citation: 2025:AHC:66456-DB)
