In a significant judgment, the Allahabad High Court addressed the issue of insurance claim repudiation based on alleged suppression of material facts by the insured. The case revolved around the Life Insurance Corporation of India's (LIC) denial of a claim, asserting that the insured had failed to disclose a prior hospitalization for Enteric Fever and Urinary Tract Infection. The court's decision emphasized the responsibilities of both insurers and policyholders in the disclosure process and the interpretation of what constitutes a "material fact" in insurance contracts.
The insured individual had been hospitalized for five days in October 2011 due to Enteric Fever and Urinary Tract Infection. Approximately a year later, he passed away from sudden chest pain. Following his death, his brother, the nominee, filed a claim under the life insurance policy. LIC repudiated the claim, citing non-disclosure of the previous hospitalization as suppression of material facts. The nominee challenged this decision before the Permanent Lok Adalat (PLA), which ruled in his favor, directing LIC to pay the insured amount along with interest.
LIC contested the PLA's decision in the Allahabad High Court, raising two primary arguments: first, that the PLA lacked jurisdiction due to the claim amount exceeding its pecuniary limits, and second, that the insured's non-disclosure constituted suppression of material facts, justifying claim denial. The High Court addressed both contentions in its judgment.
Regarding the jurisdictional issue, the court noted that LIC had not raised any objection to the PLA's jurisdiction during the proceedings. The court emphasized that objections related to jurisdiction should be raised at the earliest opportunity. Failure to do so implies a waiver of such objections. Consequently, LIC could not challenge the PLA's jurisdiction at this stage, and the court upheld the PLA's authority to adjudicate the matter.
On the substantive issue of alleged suppression, the court examined the nature of the ailment and its relevance to the cause of death. It observed that Enteric Fever and Urinary Tract Infection are not life-threatening conditions and that the insured had recovered from them a year prior to his death. The court highlighted that the cause of death was sudden chest pain, unrelated to the earlier illness. Therefore, the prior hospitalization did not have a direct bearing on the risk covered by the insurance policy.
The court further elaborated on the concept of "material fact" in insurance contracts. It stated that a material fact is one that would influence the judgment of a prudent insurer in deciding whether to accept the risk or determine the premium. In this context, the court concluded that the non-disclosure of a past, non-life-threatening illness, which had no connection to the cause of death, did not amount to suppression of a material fact.
Additionally, the court addressed the responsibilities of insurance companies in the proposal process. It emphasized that if insurers require specific information, they must explicitly seek it in the proposal form. If certain queries are left unanswered, it is incumbent upon the insurer to follow up and obtain the necessary details before issuing the policy. Accepting a proposal with incomplete information and later repudiating a claim on grounds of non-disclosure is not permissible.
In conclusion, the Allahabad High Court upheld the PLA's decision, directing LIC to honor the insurance claim. The judgment underscores the importance of clear communication and due diligence by insurers during the policy issuance process. It also clarifies that not all non-disclosures constitute suppression of material facts, especially when the undisclosed information is unrelated to the cause of death and does not influence the insurer's decision-making process.
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