Failure to Disclose an Existing Insurance Policy Valid Ground to Repudiate Claim Under New Policy

Posted On - 9 May, 2019 • By - Simran Tandon

Through a bench comprising of Justice Dhananjaya Y. Chandrachud and Justice Hemant Gupta, the Hon’ble Supreme Court recently on 24th April, 2019 in the case of Reliance Life Insurance Co. Ltd. & Anr  v. Rekhaben Nareshbhai Rathod[1] has held that Failure to Disclose Existing Insurance Policy is considered to be a material fact and the same would be the sufficient ground for repudiation of the claim by the Insurance Company.

Facts of the case

the present case, claimants before the hon’ble Supreme Court filed the appeal
to set aside the impugned judgment and order of the National Consumer Disputes
Redressal Commission (“NCDRC”) dated 20th February, 2015.

appellant issued a policy of life insurance to the spouse of the respondent on
22 September, 2009 based on the disclosures contained in the proposal form. The
respondent’s spouse died on 8 February, 2010. Nearly fifteen months after the
date of death on 24 May, 2011 the respondent nominee under the policy issued by
the appellant submitted a claim of Rs. 10 lakhs under the terms of the policy.
The claim was even supported by the medical certificates stating that the
deceased suffered a sudden chest pain prior to his death. On 7 June, 2011, the
appellant sought copies of medical reports along with previous medical records
of the deceased. On 14 July, 2011, in response to the appellant’s e-mail dated
29 June, 2011, Max New York Life Insurance Co. Ltd. informed the appellant that
the spouse of the respondent had been insured with them for a sum of Rs. 11
lakhs and that the claim had been settled. Thus, the appellant i.e., Reliance
Life Insurance Co repudiated the claim of the respondent stating that “in the light of suppression of material
fact, omission to answer especially the question relating to the details of the
life insurance policies held by the life assured, we are constrained to
repudiate the claim under the policy in terms of Section 45 of the Insurance
Act, 1938.”
The District Forum dismissed the complaint on the ground that
there was non-disclosure of the fact that the insured had held a previous
policy in the proposal form filled up by the proposer. However, the appeal
filed by the insured before the State Consumer Disputes Redressal Commission
was allowed and this decision was upheld in revision by the NCDRC. Thus, being
aggrieved by the decision of the NCDRC, the Claimants preferred an appeal
before the Hon’ble Supreme Court.

Issue involved – Failure to Disclose Existing Insurance Policy, whether a valid ground?

 Whether suppression or non-disclosure of
pre-existing policies held by the policy holder in the proposal form filled by
him amounts to material fact and whether it is a valid ground for repudiating
the claim by the Insurance Companies.

of the Hon’ble Supreme Court

deciding the present appeal filed by the appellants, the Hon’ble Supreme Court
observed that the repudiation of the claim by the insurance company was well
within the period of two years from the commencement of the insurance cover.
Section 45 of the Insurance Act, 1932 curtails the common law rights of the
insurer after two years have elapsed since the cover for life insurance was
affected. Thus, the insurer’s right to repudiate the claim was untrammelled and
was not subjected to conditions which would have applied beyond two years.

with respect to non- disclosure of a material fact on the part of the insured
that he held a prior insurance policy, the Hon’ble Supreme Court observed that
the fundamental principle of insurance is governed by the of the doctrine of uberrima fidei which means that there
must be a complete good faith on the part of the insured. This principle has
been formulated in MacGillivray on
Insurance Law.[2]
Court made the reference to earlier judgment that the relationship between an
insurer and the insured is recognized as one where mutual obligation of trust
and good faith are paramount. The duty of full disclosure required that no
information of substance or of interest to the insurer be omitted or concealed.
The Apex Court observed that the proposal forms are a significant part of the
disclosure procedure and warrant accuracy of the statement and it also took
reference of the Regulation 2(d) & 4(3) of the Insurance Regulatory and
Development Authority (Protection of Policyholders’ Interests) Regulations

2(d)[3] specifically defines the
expression “proposal form” as a form which is filled by the proposer for
insurance to furnish all material information required by the insurer in
respect of a risk.  The Explanation
defines the expression “material” to mean and include “all important essential
and relevant information” for underwriting the risk to be covered by the
insurer. The purpose of the disclosure is to enable the insurer to decide
whether to accept or decline to undertake a risk. Regulation 4(3)[4] stipulates that while
filing up the proposal, the proposer is to be guided by the provisions of
section 45.

Apex Court also observed that the mere submission of the policyholder that he
was unaware of the contents of the proposal form and the same was filled up by
the third party such as agent and that the signature of the assured on the
proposal form were taken without explaining the details cannot be accepted. The
Court relied on the decision of the division bench of Mysore High Court in VK Srinivasa Setty versus M/s. Premier Life
and General Insurance Co. Ltd[5].

the appeal filed by the insurance company was allowed and it was held that the
failure of the insured to disclose the policy of insurance obtained earlier in
the proposal form entitled the insurer to repudiate the claim under the policy.


This is certainly a prudent judgment passed by the Hon’ble Supreme Court as it is a sigh of relief to the insurance companies who till now were suffering despite the concealment of the pre-existing policies by the policy holder. Thus, we can say that it is the welcome step and the lesson to the policy holders to not cause Failure to Disclose Existing Insurance Policy, conceal and suppress the material information asked in the proposal form or else the consequences are to be faced in the form of repudiation of claim of the insurance policy taken by the policy holder and  the utmost care must be exercised in filling up the proposal form as the system of adequate disclosure helps the buyers and sellers of insurance policies to meet at a common point and narrow down the gap of information asymmetries.

Contributed by – Simran Tandon

[1] Civil Appeal No.
4261 of 2019, Special Leave to Appeal (C) No. 14312 of 2015

Twelfth Edition, Sweet and Maxwell (2012)

Insurance Regulatory and Development Authority
(Protection of Policyholders’ Interests) Regulations 2002.

[4] Insurance
Regulatory and Development Authority (Protection of Policyholders’ Interests)
Regulations 2002

[5] AIR 1958 Mys 53

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