Concealing material fact can lead to rejection
Amar Singh Bishnoi and his father Arvind had borrowed an amount of ~2,52,27,902 from HDB Financial Services as loan against property. To safeguard the repayment of the loan, they bought a policy to cover the life of the first named borrower (Amar Singh) under HDFC Life Group Credit Protect Plus Insurance Plan for a sum assured of ~99,90,249, for which they had to pay a yearly premium for ten years.
In addition to this loan, they also borrowed an additional amount of ~5 lakh for the purchase of a vehicle. To cover the repayment of this loan, they purchased another policy of ~5 lakh.
In addition, Amar Bishnoi and his wife Ritika purchased a Health Suraksha Policy, with coverage of ~2 lakh each.
During the tenure of the policies, Amar was admitted to Max Super Speciality Hospital in Dehradun on July 25, 2014, and expired on July 28, 2014. So, a claim was lodged under the two policies which had been issued to secure the loans.
The insurer settled the claim under the policy issued for the vehicle loan, by paying the outstanding loan amount to the financer and the balance to his widow who was named as the nominee.
The claim under the policy issued for the loan against property was repudiated on the ground that the insured Amar Singh had suppressed the material fact that he was suffering from cirrhosis, a chronic liver disease in January 2013. Amar's parents, Poonam and Arvind, then filed a complaint before the Uttaranchal State Commission for a direction to HDFC to clear the outstanding loan by making payment to HDB Finance.
The insurer contested the complaint, stating it had got the claim investigated by Saaransh Service Agency and had learned that Amar had failed to disclose pre‑existing cirrhosis of the liver. The medical reports and the death summary also attributed the cause of his death to cirrhosis. The insurer also questioned the right of the parents to file the complaint, as the amount was not payable to them, but to the financer. The insurer justified the repudiation of the claim and also stated that it was entitled to recover the claim inadvertently paid under the policy for the vehicle loan.
The Uttaranchal State Commission directed the insurer to pay the entire insured sum of ~99,90,249 to the financer. HDFC appealed against the order. It argued that the insurance contract was void as Amar had suppressed a material fact. The National Commission observed that Amar's clinical history revealed that he was an alcoholic and a smoker and a known case of liver cirrhosis since 2013.
The National Commission observed that the objective of a proposal form with various questions relating to health was to enable the insurer to assess its contractual liability, and either impose special conditions or refuse to underwrite the risk. When truthful answers are not given, it constitutes a breach of good faith, entitling the insurer to treat the policy as void, as laid down by the Supreme Court in Reliance Life Insurance Co. Ltd. v/s Rekhaben Nareshbhai Rathod.
Accordingly, by its order of June 14, 2021, delivered by S.M. Kantikar, the National Commission set aside the order of the State Commission and dismissed the complaint, holding that the claim had been rightly repudiated.
When truthful answers are not given, it constitutes a breach of good faith, entitling the insurer to treat the policy as void