Insurer Can't Repudiate Claim Based on Unrelated 'Pre-Existing' Ailment After Two Years Under S.45 of Insurance Act: Kerala High Court - 2025-09-08

Insurers Cannot Repudiate Claims on Trivial Grounds; Unrelated Past Ailments Not 'Material Suppression': Kerala High Court

KOCHI: In a significant ruling reinforcing the rights of policyholders, the Kerala High Court, presided over by Justice P.M. Manoj, has quashed the decision of the Life Insurance Corporation of India (LIC) to deny a health insurance claim, holding that an insurer cannot repudiate a policy based on an alleged non-disclosure of a pre-existing condition that is unrelated to the current claim, especially after the statutory limitation period has expired. The court emphasized that the principle of 'utmost good faith' is a two-way street, binding the insurer as much as the insured.

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Case Background

The case was brought forward by Dr. A.M. Muraleedharan, who held an 'LIC Health Plus' policy since March 2008, covering himself and his family. In 2016, his wife underwent treatment for a vesicovaginal fistula, a complication arising from a hysterectomy.

Dr. Muraleedharan filed two claims:

1. A claim for ₹60,093 for hospitalization in April 2016, which LIC partially paid, sanctioning only ₹5,600.

2. A subsequent claim for ₹1,80,000 for continued treatment in August 2016, which LIC rejected entirely.

The dispute culminated in two writ petitions challenging LIC's decisions.

Arguments from Both Sides

Petitioner's Stance: Dr. Muraleedharan argued that LIC's actions were arbitrary and unjust. He contended that the reason for the complete rejection of the second claim—the non-disclosure of his wife's hernia repair surgery from 2006—was baseless. He asserted that the decade-old, unrelated surgery had no medical connection to the vesicovaginal fistula for which treatment was sought and, therefore, did not constitute a 'material' suppression of facts.

Respondent's (LIC) Defence: LIC defended its decision by stating that the policy was not a reimbursement plan but offered pre-determined benefits. For the first claim, it argued that the amount paid was calculated based on the daily cash benefit and the specific surgery was not listed under the covered 'major surgical procedures'.

For the second claim, LIC contended that the petitioner had suppressed a material fact by not disclosing his wife's 2006 hernia surgery in the 2008 proposal form. It invoked the doctrine of uberrima fides (utmost good faith), arguing this non-disclosure voided the contract and justified the repudiation of the claim.

Court's Rulings and Legal Principles Applied

Justice Manoj, after a thorough examination, sided firmly with the petitioner, making several critical observations on insurance law.

1. Invocation of Section 45 of the Insurance Act, 1938: The Court heavily relied on the unamended Section 45 of the Insurance Act (as the policy predated the 2015 amendment). This provision states that an insurer cannot question a policy on grounds of misstatement after two years unless the suppression was of a material fact and was made fraudulently .

The judgment noted, "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... the recalling of the policy or reconsideration of the conditions of the policy is much beyond the period of two years."

2. The Test of 'Materiality': The Court ruled that the alleged non-disclosed fact must be 'material' to the risk undertaken. A trivial or unrelated ailment cannot be used to deny a claim.

"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... Here, in this case, there is no nexus between vesicovaginal fistula, the present treatment undergone by the wife of the insured and the Hernia repair, which was done in the year 2006."

3. Insurer's Duty of Good Faith and the Contra Proferentem Rule: The Court highlighted that the duty of 'utmost good faith' is equally applicable to the insurer. It also invoked the principle of contra proferentem , which dictates that any ambiguity in a contract should be interpreted against the party that drafted it—in this case, the insurer.

"Accepting premiums year after year and later evading liability on technicalities undermines the public trust... A clause which restricts coverage only to an exhaustive list of surgeries, without regard to the actual medical necessities faced by the insured cannot be said to be just, fair or reasonable."

4. Violation of Constitutional Rights: The court elevated the issue from a mere contractual dispute to a violation of fundamental rights, stating that the arbitrary denial of a medical claim impinges upon the Right to Health, which is an integral part of the Right to Life under Article 21 of the Constitution.

Final Decision and Implications

The High Court quashed LIC's orders that had limited and rejected the petitioner's claims. It directed the insurance giant to allow the full claim without further delay.

This judgment serves as a strong precedent against the practice of insurance companies rejecting claims on flimsy or technical grounds. It reinforces that insurers cannot use unrelated past medical history to evade their liability, particularly after years of accepting premiums, thereby protecting the legitimate expectations of policyholders who rely on insurance for financial security during medical crises.