Suppression of key facts can lead to claim rejection

The National Commission concluded the claim had been rightly rejected on grounds of misrepresentation in the proposal form and breach of duty to maintain good faith

Jaswinder Singh had taken a Reliance Life Long Savings Policy from Reliance Nippon Life Insurance in March 2018 with a basic sum assured of Rs 16,94,504. He paid a premium of Rs 39,999. The coverage was for a period of 25 years. His wife, Manjeet Kaur, was named as the nominee.

Jaswinder died on July 20, 2018, within a few months of having taken the policy. Manjeet Kaur lodged a claim along with all the required documents. The insurer rejected the claim on April 20, 2019.

Manjeet Kaur challenged the rejection by filing a consumer complaint before the Ferozepur District Commission. She alleged that the appointed investigator demanded money to pass her claim. Since she did not comply, the claim was wrongly rejected.

The insurer contested the complaint, arguing that the claim was rightfully rejected because Jaswinder had suppressed material facts while applying for the policy. It stated that Jaswinder had declared himself as a contractor with an annual income of Rs 4 lakh, both of which were found to be false upon scrutiny of his unverified income-tax returns.

The company also pointed out that Jaswinder was a resident of Ferozepur but had taken the policy from Panchkula in Haryana, and that he died within four months and 11 days of taking the policy. The insurer stated that the Haryana Police Special Task Force had unearthed a syndicated insurance fraud at the time the policy was issued, in which insurance policies were taken in the name of cancer and critically ill patients, and their death was shown as an accident in connivance with doctors and police officials. It claimed that the modus operandi used in Jaswinder’s case was identical.

However, the District Commission observed that the insurer should have ascertained the income before issuing the policy and could not use this as an excuse to reject the claim. It ordered the company to pay the benefit under the policy. Reliance challenged this order, but its appeal was dismissed by the Punjab State Commission.

Reliance then filed a revision petition before the National Commission. It pointed out that Jaswinder had originally filed his income-tax return stating his income to be Rs 2,65,000, and that the amount was revised to Rs 2,99,000 just one day prior to submitting the proposal for insurance, and that these amounts were much lower than the Rs 4 lakh declared for the purpose of insurance.

It also pointed out that the Insurance Regulatory and Development Authority of India (IRDAI) regulations did not make it mandatory to verify income for policies with premium of less than Rs 1 lakh. Since the premium in Jaswinder’s case was merely Rs 39,999, the insurer could not be faulted for not ascertaining the income prior to issuance of the policy.

In its order of April 26, 2023, delivered by Justice Sudip Ahluwalia, the National Commission agreed with the arguments of the insurer and held that the orders of the District and State Commissions were incorrectly passed without properly appreciating the facts. It concluded that the claim had been rightly rejected on grounds of misrepresentation in the proposal form and breach of duty to maintain utmost good faith while applying for insurance coverage. The insurer’s revision was allowed, the orders of the District and State Commissions were set aside, and the complaint was dismissed.

The writer is a consumer activist