Do you indulge in alcohol drinking every now and then? This could impact your health insurance claim settlement in the hour of need. In a recent judgment, the Supreme Court ruled that insurers are only using their right if they repudiate a health claim if the policyholder has concealed their drinking habit at the time of buying health insurance.
This ruling came in the Life Insurance Corporation’s (LIC) case, where the life insurer had rejected a hospitalisation claim under its now dis-continued Jeevan Arogya scheme. LIC had cited ‘non-disclosure of chronic alcoholism’ by the deceased policyholder as the reason behind this rejection.
What was the case?
The policyholder, suffering from severe abdominal pain, faced hospitalisation for nearly a month before he succumbed to cardiac arrest. When the grieving family filed a claim they faced repudiation from LIC. The insurer rejected on the ground that the policyholder had falsely declared in the proposal form that he did not consume alcohol while hospital records proved that he was a chronic alcoholic.
Since Jeevan Arogya was issued to the policyholder under a Non-Medical General Scheme wherein policies are granted without prior medical examination, the apex court upheld LIC’s decision to deny the claim.
Why did SC side with LIC?
The judgment highlighted that the policyholder had provided false information in the application form.
The proposal had asked, “Does the life insured consume alcohol/cigarettes/bidis/or tobacco in any form?” and the policy buyer replied with a NO. However, medical evidence later confirmed that he had a history of chronic alcohol consumption which was a material fact that should have been disclosed.
The court, hence, noted that chronic liver disease caused by prolonged alcohol consumption does not develop overnight. Since the insured had knowingly hidden this information, the SC found LIC’s repudiation decision justifiable under the exclusion clause of the Jeevan Arogya plan.
What does this mean for policyholders?
This ruling has highlighted the principle that full disclosure is important while you are purchasing an insurance policy.
This is even more important for non-medical plans where no health check-ups are conducted. Why? Because insurers typically assess claims based on the ‘materiality’ of the information withheld, and if non-disclosure significantly impacts the insurer’s risk assessment, the claim could be denied.
However, the apex court’s decision also clarifies that not every instance of alcohol consumption warrants claim rejection. Only when a policyholder's drinking habit is directly linked to the medical condition leading to hospitalisation or death, then the insurer have the right to reject the claim.
