Non-Disclosure Of Prior Policies In Proposal Form Is A Valid Ground For Repudiation Of Insurance Claim: Rajasthan State Consumer Commission - 2025-07-26

Non-Disclosure of Prior Policies is a Valid Ground for Repudiation, Upholds Rajasthan State Consumer Commission

Jodhpur: The Rajasthan State Consumer Disputes Redressal Commission, in a significant ruling on insurance law, has upheld the repudiation of a life insurance claim on the grounds of non-disclosure of previous policies by the insured. The Commission affirmed that failing to mention existing policies in a new proposal form constitutes the suppression of a material fact, breaching the principle of utmost good faith central to insurance contracts.

The bench, comprising President Justice Devendra Kachhawaha, Judicial Member Ms. Urmila Verma, and Member Mr. Liyakat Ali , dismissed cross-appeals filed by the claimant, Kamla Kanwar, and the Life Insurance Corporation of India (LIC), thereby confirming the decision of the Jaisalmer District Consumer Commission.

Background of the Case

The case stemmed from a complaint filed by Kamla Kanwar, the widow of the deceased policyholder, Babu Singh. Mr. Singh had purchased four separate life insurance policies from the Jaisalmer branch of LIC in 2017: -

Two policies in January 2017, for which claims were duly paid by LIC after his death. - A third policy for ₹2,00,000 on June 8, 2017. -

A fourth policy for ₹5,00,000 on June 15, 2017.

Mr. Singh passed away on December 28, 2017. When his widow, Ms. Kanwar, filed claims for all policies, LIC paid the claims for the first two but rejected the claims for the third and fourth policies taken in June 2017. The rejection was based on the allegation that Mr. Singh had concealed information about his existing policies when applying for the later ones.

The District Consumer Commission, Jaisalmer, partially allowed Ms. Kanwar's complaint, directing LIC to pay the sum assured for the third policy (₹2,00,000) but upheld the repudiation of the fourth policy (₹5,00,000). Both LIC and Ms. Kanwar, aggrieved by this partial decision, filed appeals before the State Commission.

Arguments of the Parties

Life Insurance Corporation of India (LIC) argued that the non-disclosure was a material fact. When applying for the fourth policy of ₹5,00,000, the deceased had failed to mention his three prior policies in the proposal form. LIC contended that had this information been available, it would have mandated stricter medical examinations and potentially altered the terms of the risk cover, as per its internal underwriting rules. This suppression, LIC argued, was a violation of the insured's duty of utmost good faith and justified repudiation under Section 45 of the Insurance Act.

Kamla Kanwar (the Complainant) contended that the rejection of the claims was arbitrary and amounted to a deficiency in service. She argued that the policies were issued after due diligence by LIC and its agents, and the non-disclosure, if any, was not a deliberate act to defraud the insurer. She sought payment for both repudiated policies.

Commission's Reasoning and Judgment

The State Commission meticulously examined the arguments and evidence, particularly the proposal forms for the policies in question.

In a key observation, the Commission highlighted the difference in the proposal forms for the third and fourth policies:

"For the third policy, the agent had marked ‘NA’ (Not Applicable/Available) in the column for previous policies. However, for the fourth policy proposal, the column was explicitly marked with a cross (X), indicating a clear denial of any existing policies."

The Commission reasoned that while an "NA" could be ambiguous, a cross mark was an unequivocal statement. This act of non-disclosure for the fourth, high-value policy was deemed a material suppression.

The Commission cited a Supreme Court precedent, Reliance Life Insurance Co. Ltd. & Anr. vs Rekhaben Nareshbhai Rathod (2019) , which established that the insured has a solemn duty to disclose all material facts accurately, and failure to do so allows the insurer to repudiate the contract.

The Commission noted:

"In our humble opinion, the deceased husband of the complainant, by not mentioning the three previously obtained policies in column number 9 of the proposal form for the fourth policy of ₹5 lakh, has breached the insurance contract. Therefore, the learned District Consumer Commission has committed no error in fact or law by not awarding the sum assured for the said policy to the complainant."

Regarding LIC's appeal against the order to pay for the third policy, the Commission found that LIC's own pleadings before the District Commission had primarily focused on the non-disclosure related to the fourth policy. Given the ambiguity of the "NA" marking on the third policy's form and LIC's failure to specifically challenge it, the State Commission found no reason to overturn the District Commission's order awarding the ₹2,00,000 claim.

Final Decision

The State Commission dismissed both appeals, thereby affirming the District Commission's order dated May 1, 2024.

1. LIC's appeal (127/2024) was dismissed, confirming the direction to pay the ₹2,00,000 for the third policy with interest and compensation.

2. Kamla Kanwar's appeal (159/2024) was dismissed, upholding the repudiation of the ₹5,00,000 claim for the fourth policy due to material suppression of facts.

The decision reinforces the critical legal principle that an insurance contract is based on utmost good faith, and applicants are obligated to provide complete and accurate information, failing which the insurer is within its rights to repudiate the claim.