It is incumbent upon the insured to declare all active policies at the time of application, irrespective of their sum assured, and to carefully scrutinise the proposal form before affixing their signature
In a recent ruling, the Supreme Court (SC) addressed an insurance-related claim, stating that insurance is a contract of utmost good faith; therefore, it is the insured's duty to disclose all material facts. Non-disclosure of such facts may result in the repudiation of the claim. However, this will be determined on a case-by-case basis.
The case revolved around the repudiation of a life insurance claim by an insurer because the policyholder had failed to disclose other existing life insurance policies at the time of applying for a new policy.
“The insurer argued that this non-disclosure amounted to a breach of the principle of utmost good faith (uberrima fides) and warranted claim rejection. However, the Supreme Court granted in favour of the Policyholder on the aspect that the insured person did disclose a major life insurance policy, but omitted smaller ones which significantly alter the insurer’s risk assessment,” says Alay Razvi, Managing Partner, Accord Juris, a Hyderabad-based law firm.
“A claim cannot be rejected on the ground of non-disclosure unless omitted information would have materially affected the underwriting decision. The repudiation on technical ground would be unfair unless justified,” he adds.
However, as the SC has now clarified, the materiality of such non-disclosure is to be assessed on a case-by-case basis, and not every omission, particularly where it is trivial or does not alter the insurer’s risk assessment in any meaningful manner, can be deemed fatal to the claim.
“This ruling provides much-needed judicial clarity and prevents insurers from arbitrarily rejecting claims based on technical lapses that do not materially prejudice their underwriting decision,” says Tushar Kumar, advocate, Supreme Court of India.
What Policyholders Should Do
“To safeguard their rights and mitigate the risk of claim repudiation, policyholders must exercise due diligence in ensuring comprehensive disclosure of all relevant particulars at the proposal stage. It is incumbent upon the insured to declare all active policies at the time of application, irrespective of their sum assured, and to carefully scrutinise the proposal form before affixing their signature,” says Kumar.
Insurance intermediaries, in their eagerness to expedite policy issuance, may at times inadvertently omit such details, but the legal burden of ensuring accuracy in disclosures rests upon the policyholder.
Moreover, policyholders need to stay attentive when it comes to updating their insurers regarding any subsequent policies taken, where required by policy terms, to avoid potential conflicts at the claims stage.
Adds Shri Venkatesh, Managing Partner, SKV Law Offices, "To prevent claim repudiation, policyholders should ensure that all existing policies are explicitly listed in the proposal form, as required by insurers. The Supreme Court in Manmohan Nanda (Supra) emphasized that insurers rely on proposer disclosures to assess risk, and errors in disclosure may lead to policy voidance. Policyholders should also verify that details are correctly entered, particularly in agent-assisted applications, to avoid inadvertent omissions."
"Further, Mahakali Sujatha v. Future Generali India Life Insurance clarified that insurers bear the burden of proving both non-disclosure and its fraudulent intent. Keeping records of disclosures and obtaining written confirmation from insurers can strengthen a policyholder’s position in case of disputes," says Venkatesh.
What This Means
This ruling refines the approach to material non-disclosure, emphasizing that insurers cannot repudiate claims merely due to omission of smaller policies if a substantial policy has been disclosed.
“While it does not completely overturn past judgments on material suppression, it clarifies and narrows the scope of what constitutes “material” non-disclosure in life insurance contracts in as much only information that directly impacts risk assessment or claim eligibility qualifies as material,” says Razvi.
Future claim settlements may see greater scrutiny on whether non-disclosure truly influenced underwriting decisions, preventing arbitrary claim denials.