While upholding an order passed by the state commission, the national consumer disputes redressal commission (NCDRC) noted that there is suppression of material facts by the insured and, thus, the insurance company is not liable to pay the sum assured on home loan insurance.
In an order issued earlier this month, the bench of justice RK Agrawal (president) and Dr SM Kantikar (member) says, "...it cannot be said that at the time of taking the insurance coverage, the insured was not aware about his diseases (liver cirrhosis). It is evident from the material on record that the insured was suffering with the aforesaid disease and was also taking treatment therefor before taking the insurance cover and, therefore, the contention of the complainant that the insured was hale and hearty at the time of taking the insurance cover is of no significance."
"Had the insured given correct declaration or answers to the aforesaid questions, SBI Life Insurance Co Ltd may have taken an informed decision as to whether he should be enrolled as a member under the group insurance scheme of the master policy, taken by State Bank of Hyderabad (SBH), or not and if he has to be enrolled what should be the altered terms and premium therefor. However, in the present case, on account of suppression of material information by the insured, the insurance company has been deprived from taking an informed decision," NCDRC says.
Hyderabad-based D Padma, the wife of D Sai Kumar, had filed the complaint against SBI Life Insurance to claim insurance money for the home loan her husband obtained from SBH. Mr Kumar had obtained a home loan from SBH and paid Rs1.02 lakh to SBI Life Insurance for risk cover of his life as a member of a group insurance scheme. The risk coverage for Rs15.85 lakh commenced on 17 August 2010. Before granting the policy, doctors appointed by SBI Life Insurance medically examined Mr Kumar.
However, on 24 November 2012, Mr Kumar died, leaving his wife and three daughters with an outstanding loan of Rs14.46 lakh. Ms Padma, the nominee in the insurance policy, then filed an insurance claim. However, on 28 February 2013, SBI Life Insurance rejected her claim stating that Mr Kumar had not disclosed material facts about his health.
Ms Padma then filed an appeal before the insurance ombudsman. However, it was rejected. She then filed a complaint before the district forum seeking direction to pay an insurance claim of Rs15.85 lakh with interest and compensation of Rs4 lakh for physical pain, mental agony and trauma caused to her and her three daughters.
In its written submission, SBH contended that it had no liability to pay any compensation, and Ms Padma had to approach SBI Life Insurance, as there was no deficiency in service on the part of the Bank.
SBI Life Insurance, in its submission before the district forum, stated that, as per the terms and conditions of the group insurance policy, it has a liability to pay only the outstanding loan amount of Rs14.46 lakh since Mr Kumar had died on 24 November 2012.
In the present case, the insurer contended that Mr Kumar had committed breach of the principle of utmost good faith by suppressing the material fact that he was suffering from liver disease prior to the enrolment into the insurance cover.
The policy resulted in a claim in two years three months and seven days and, hence, SBI Life Insurance says it enquired into the matter and found that Mr Kumar was suffering from liver disease prior to the issuance of the insurance cover.
"In the discharge summary of Yashoda Hospital, Secunderabad, it was noted that the insured was admitted in the Hospital on 18 July 2009 for cirrhosis with portal hypertension. In the past history, it was also noted that the insured was a known case of chronic liver disease with portal hypertension on regular treatment. Prior to the enrolment into the scheme, the insured was suffering from liver disease and had suppressed his past medical history and gave a false declaration at the time of applying for insurance cover and, therefore, the claim was repudiated," SBI Life Insurance submitted.
In its order, the district forum noted, "the Insurance company failed to discharge its burden to show that the deceased must have known at the time of making the declaration that it was false or that he suppressed facts which it was material to disclose. Therefore, we hold that there was no justification in rejecting the claim of the complainant who is the widow of the deceased borrower. For the reasons stated above, we find 'deficiency in service' on the part of the insurance company when they repudiated the claim of the complainant illegally."
SBI Life Insurance challenged the order before the state commission, which set aside the order passed by the district forum.
Ms Padma then challenged the order before NCDRC.
After hearing both sides, the bench noted that the main issue, in this case, is whether there is suppression of material facts or not by the insured (Sai Kumar). "It is true that before enrolling the Insured under the group insurance scheme taken by the SBH, he was subjected to thorough medical examination and pathological and diagnostic tests by the doctors of SBI Life Insurance, wherein he was found to be in good health and accordingly the insurance cover was given and the certificate of insurance was issued to him. But the said examination and tests do not ipso facto absolve a person, taking insurance, from making a true and correct declaration regarding his health habits, whether he suffered with the specified diseases or ailments and whether he had undergone any treatment therefor during the period specified, if any."
"In view of the insurance coverage to be extended by SBI Life Insurance to Sai Kumar, the questions, reproduced by the state commission in Para-15 of the order, were indeed relevant/ material, in respect of which the insured had answered in negative whereas he was required to correctly state about the diseases and ailments specified in the said questions and the treatment, if any, taken therefor as also health habits vis-à-vis consumption of alcohol," it observed.
Further, NCDRC says, "As per investigation carried out, information gathered by the SBI Life Insurance and from a perusal of medical record of Sai Kumar, it is evident that he was suffering with liver cirrhosis. Cirrhosis is usually a result of liver damage from conditions such as hepatitis-B or C or chronic alcohol use. In other words, constant consumption of alcohol is directly connected with the said disease or ailment. This fact is fortified from the 'personal history', as reflected in the death summary of Sai Kumar prepared by Yashoda Hospital (page 144 of the paper-book), wherein the word 'alcohol' has been written. In this view of the matter, there is possibility of a close nexus between chronic use of alcohol and the death of the Insured."
Citing a ruling by the Supreme Court in Satwant Kaur Sandhu vs New India Assurance Company Ltd. (2009) 8 SCC 316 case, NCDRC says, the expression 'material fact' is to be understood in general terms to mean any fact which would influence the judgment of a prudent insurer, in deciding whether to accept the risk or not. If the proposer has knowledge of such fact, he is obliged to disclose it, particularly while answering questions in the proposal form.
“Any inaccurate answer will entitle the insurer to repudiate their liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance, which is based on the principle of utmost faith – uberrima fides. Good faith forbids either party from non-disclosure of the facts which the party privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary.
"...we are of the opinion that there is suppression of material facts by the Insured and, for the reasons recorded in the impugned order, the state commission is justified in holding that SBI Life Insurance is not liable to pay the sum assured to the complainant or petitioner. Accordingly, the revision petition fails and is dismissed," the bench says.
(Revision Petition No3635 of 2017 Date: 1 March 2023)