What happens when insurance proposal form conceals material facts?

Non-disclosure of other policies cannot be a ground for repudiation of an insured person's claim

It is generally found that insurance agents fill up the proposal form on behalf of policyholders. But what happens when the proposal form conceals material facts?
 
Ramjibhai Parmar was approached by Anishbhai Dhirajbhai Vyas, an insurance agent, who persuaded him to take an insurance policy. Parmar took Aviva’s LifeLong Unit-Linked Insurance Policy of Rs 15 lakh. The proposal form was filled up in English by the agent and Parmar merely signed it in Gujarati.
 
A fortnight later, Parmar developed breathing problem and fever. He was diagnosed to be suffering from pneumonia and expired a day later. His widow Rekhaben lodged a claim. It was repudiated by the on the ground that Parmar had not disclosed in the proposal that he held insurance policies of over Rs 20 lakh obtained through other insurers.

 

Parmar’s wife filed a complaint before the district forum against the insurer and the agent as the claim was not settled despite repeated requests. The insurer argued that the claim had been rightly repudiated as Parmar had failure to disclose the other policies. The agent admitted that he had filled up the proposal form and had obtained Parmar’s signature. He also admitted that he had not inquired about the existence of any other policy, as there was no necessity to do since the coverage was for life insurance and not for mediclaim.
 
The district forum considered the rival contentions and dismissed the complaint. Rekhaben appealed to the Delhi State Commission, which observed that a claim can be repudiated only if a false statement is fraudulently made in respect of something that is of significant importance. It was held that non-disclosure of other policies cannot be a ground for repudiation of the claim. So the State Commission set aside the forum’s order and held that Rekhaben was entitled to the insurance benefits of Rs 15 lakh along with 6 per cent interest. Aviva challenged this order.

 
The National Commission observed that alleged suppression was, neither in respect of the insured’s health nor his income, but only with regard to the existence of other policies. The original proposal did not have any question pertaining to other insurance policies. Even the agent had mentioned this in his reply, and had explained this as the reason for not having inquired about the existence of other policies. Besides, the proposal form was filled in English but signed in Gujarati.
 
The National Commission relied on the judgement of the Supreme Court in Sahara India Life Insurance Company vs Rayani Ramayanjneyulu decided on  November 21, 2014 where the legal position had been reiterated and settled that an insured or his legal representative could not be made to suffer a denial of a claim for the a fault of the agent. Besides, the existence of other insurance policies would be a material fact as it would not influence the insurance company’s decision in respect of undertaking the risk and fixing the premium.

 
Accordingly, in its order of April 12, 2017 delivered by M Shreesha for the Bench, headed by Justice D K Jain, the National Commission concluded that the non-disclosure of the policies was neither material nor wilful nor fraudulent. Hence, the order to settle the claim was confirmed. The author is a consumer activist