Can't Leave Blanks And Then Blame Buyer: High Court Raps Life Insurer Over Rejected Claim

In a significant ruling that reaffirms the responsibility insurers owe their policyholders, the Allahabad High Court has come down heavily on the Life Insurance Corporation (LIC) for rejecting a claim on the grounds of "non-disclosure", when it had failed to insist on the disclosure in the first place.

Santosh Kumar had approached the court after LIC declined to honour the Rs 15 lakh life insurance claim following his wife Meera Devi's death in 2019. LIC said Meera had failed to disclose a previous policy while applying for the new one. But the court made it clear, if an insurance company is serious about obtaining specific disclosures, it must ask for them and ensure they're filled.

"Once the insurance company has accepted the form, recovered the premium, and issued the policy bond — despite certain blanks — it cannot later repudiate the claim citing those same blanks," observed the division bench of Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit.

Where Was Insurer's Diligence?

The court has not just blamed LIC for being inattentive; it has also questioned the very basis of their process. Meera obtained the policy through an LIC agent and, according to the petitioner, shared all prior insurance details with the agent. The form, however, had a key column left blank, one that asked for more information on previous policies.

LIC later used this blank to deny the death claim. But the court found this unacceptable. 

Especially since the earlier policy, issued less than three months prior, was also from the same life insurer. "LIC should have had this on record," the court noted. After all, insurance documents are tied to Aadhaar and PAN details, both of which Meera had submitted.

"The burden of verifying information lies with the insurer, not the nominee," the bench said. It added that if a company finds any column left blank, it must follow up and get the details, not use the blank as a backdoor to deny a claim later.

"Blanks Don't Equal Fraud"

A key argument in the case also revolved around Section 45 of the Insurance Act, 1938 — which says a policy can be questioned within three years, but only on the grounds of fraud or deliberate suppression of material facts.

Here, the court held there was no such intent. "The insured had no reason to hide a policy from the same insurer. If she trusted LIC with one policy, why would she deceive them while applying for another?" the court asked.

In fact, the High Court pointed out that even the Insurance Ombudsman had "mechanically" rejected the complaint, citing rules that, in this case, didn't apply. It called the ombudsman's reasoning "vague, arbitrary, and without application of mind."

Not Every Omission Is Suppression

In reaching its verdict, the court leaned heavily on past Supreme Court judgments, including Manmohan Nanda v. United India Assurance Co. and Mahaveer Sharma v. Exide Life Insurance Co., both of which stress that insurance contracts should be interpreted against the drafter, in this case, the insurer, especially when the forms are filled through agents.

"If a column is left blank, and the company still issues a policy, it's presumed they've accepted it," the court noted. "They cannot later cry foul."

Verdict and Way Ahead

Calling LIC's actions "arbitrary," the Allahabad High Court set aside all previous rejection orders, including those of LIC and the Ombudsman. It directed LIC to release the full claim amount within six weeks.

The ruling has a broader message for the insurance sector: diligence must precede denial.

Companies cannot shrug off their responsibilities and shift the burden to grieving families who simply followed the agent's instructions. As the court summed up, "Minimum due diligence is expected from the insurer."