Bombay High Court Slams Insurer's "Baseless" Claim Denial, Orders Payout for Cancer Treatment

Mumbai : The Bombay High Court, in a significant ruling, has set aside an award by the Insurance Ombudsman and directed Care Health Insurance Ltd. to pay Rs. 17,77,151 to a policyholder whose claim for cancer treatment was repudiated. Justice Sandeep V. Marne found the insurer's grounds for denial—alleged non-disclosure of alcohol consumption and pre-existing hypertension—to be untenable, particularly given the lack of nexus to the diagnosed illness and the insurer's subsequent conduct in offering policy renewal.

The judgment, delivered on May 9, 2025, in the case of Prakash Mehta vs. The Insurance Ombudsman & Anr. (Writ Petition No. 18745 of 2024), emphasized that an insurer cannot arbitrarily reject claims without establishing the materiality of non-disclosures and a clear link to the medical condition for which the claim is made.

Case Background: Ported Policy , Cancer Diagnosis, and Claim Repudiation

Prakash Mehta , the petitioner, had his health insurance policy with Royal Sundaram since 2003. In 2021, he was persuaded to port this policy to Care Health Insurance Ltd. (Respondent No.2), which provided a base cover of Rs. 5,00,000 and a top-up of Rs. 50,00,000, for a total cover of Rs. 55,00,000. He paid an aggregate premium of Rs. 13,23,634 for a three-year policy.

In July 2022, Mr. Mehta was diagnosed with Non-Hodgkin’s Lymphoma (cancer) and underwent chemotherapy and radiation. He submitted seven claims totaling Rs. 17,77,147. The insurer repudiated these claims, citing: 1. Non-disclosure of a habit of daily alcohol consumption at policy inception. 2. Non-disclosure of material facts/pre-existing ailments (later revealed in court to be hypertension).

Mr. Mehta 's complaint to the Insurance Ombudsman was rejected on June 10, 2024, primarily upholding the insurer's stance on non-disclosure of alcohol consumption. This led him to file a writ petition in the High Court.

Arguments Before the Court

Petitioner's Contentions (Argued by Mr. Akshay Patil): * The policy was merely ported after 17 years of continuous coverage. * Alleged alcohol consumption was not a material non-disclosure and had no nexus with Non-Hodgkin's Lymphoma. * The ground of pre-existing hypertension was not argued before the Ombudsman and, in any case, hypertension (a lifestyle disease) had no connection to the cancer. * The insurer only rejected the claims, not the policy itself. Crucially, the insurer repeatedly offered to renew the policy even after becoming aware of the alleged non-disclosures and Mr. Mehta 's cancer treatment, indicating these factors were not truly material to them. * Reliance was placed on Manmohan Nanda vs. United India Assurance Co. Ltd. regarding materiality and nexus.

Insurer's Defence (Argued by Mr. Rajesh Kanojia ): * Mr. Mehta suppressed material information: daily alcohol consumption and pre-existing hypertension. * Disclosure of these facts would have affected the insurer's decision to issue the policy or determine the premium. * The policyholder has a duty of utmost good faith to disclose all material facts. * Reliance was placed on Branch Manager, Bajaj Allianz Life Insurance Company Ltd. vs. Dalbir Kaur on the duty of disclosure.

High Court's Scrutiny and Findings

Justice Marne meticulously examined the insurer's conduct and the Ombudsman's award, finding several flaws.

Inconsistent Grounds and Failure to Argue Before Ombudsman

The Court noted that the insurer was inconsistent in citing reasons for claim denial. The specific pre-existing ailment (hypertension) was not always mentioned, and critically, "ground of non-disclosure of pre-existing ailment of hypertension was never argued by the second Respondent-Insurance Company before the Insurance Ombudsman." (Para 18). The Ombudsman's decision, therefore, only considered the alcohol consumption aspect.

On Non-Disclosure of Alcohol Consumption

The Court found "absence of concrete material to arrive at a finding that the Petitioner was in the habit of consuming alcohol every day." (Para 23). The proposal form was left blank regarding alcohol, not marked 'No'. Furthermore, the Ombudsman's report itself showed contradictory evidence, citing an ICP document for "daily" consumption but a tele-call recording for "occasional" consumption.

Crucially, the Court emphasized the lack of nexus: > "There is absolutely no evidence on record to indicate that Petitioner’s occasional consumption of alcohol has contributed to cancer... The Insurance Ombudsman has not even made an attempt to establish nexus between Petitioner’s occasional consumption of alcohol and the disease suffered by him." (Para 24) > "Mere occasional consumption of alcohol cannot be a ground for rejection of insurance claim where there is absolutely no nexus between alcohol consumption and cancer suffered by the Petitioner." (Para 27)

On Non-Disclosure of Hypertension

Although not argued before the Ombudsman, the Court addressed this ground. It highlighted that the insurer solicited the porting of the policy for Mr. Mehta , then 79 years old, offering a substantial cover for a hefty premium of Rs. 13,23,634. The insurer even made representations like "No waiting period on any pre-existing condition" (Para 30).

The Court found it "difficult to believe that non-disclosure of ailment of hypertension by the Petitioner would have affected the mind of the insurer," (Para 33) given they consciously insured an elderly person. It stated: > "There is absolutely zero nexus between the disease of cancer suffered by the Petitioner that of pre-existing ailment of hypertension." (Para 33)

Insurer's Contradictory Conduct: The Clincher

The Court found the insurer's subsequent actions particularly telling. Even after repudiating the claims and acquiring full knowledge of the alleged alcohol habit, hypertension, and Mr. Mehta 's cancer treatment, Care Health Insurance sent multiple notices offering to renew the policy for another three years, even at a reduced premium (Rs. 9,10,467 for Rs. 55 lakh cover). > "This conduct on the part of the insurer would leave no manner of doubt that the pre-existing ailment of hypertension had absolutely no nexus with the disease suffered by the Petitioner nor disclosure thereof would have materially affected its mind while offering the insurance policy." (Para 35)

The Court also noted that the insurer threatened to cancel the policy and forfeit the premium (under Clause 7.1 for misrepresentation) but never actually did so. Instead, they continued the policy and sought its renewal, contradicting the claim that the non-disclosures were material enough to void the contract.

Application of Legal Principles

Citing Manmohan Nanda (supra) , the Court reiterated that a fact is material if it would influence a prudent insurer. It found that the alleged non-disclosures in this case did not meet this test, especially given the insurer's readiness to continue and renew the policy.

Judgment and Implications

The High Court set aside the Insurance Ombudsman's award dated June 10, 2024, deeming it "indefensible." Justice Marne stated: > "In my view, therefore rejection of insurance claim by the second Respondent is clearly baseless." (Para 48)

The Court directed Care Health Insurance Ltd. to: > "(II) ...pay to the Petitioner sum of Rs. 17,77,151/- together with interest at the rate of 8% p.a. from the date of filing of the complaint i.e. w.e.f. 14 July 2023." (Para 49)

This judgment serves as a strong reminder to insurance companies that claim repudiation based on non-disclosure requires clear proof of materiality and a direct nexus to the claimed illness. The insurer's own conduct post-discovery of alleged non-disclosures can significantly undermine their defence. It also underscores the judiciary's role in protecting policyholders from arbitrary and inconsistent actions by insurers.