Introduction:
In Life Insurance Corporation vs Sunita and others [SLP(c) 15354/2020], the Supreme Court examined whether an insurance claim could be repudiated based on the concealment of material facts. The case arose from a dispute between the Life Insurance Corporation (LIC) and Sunita, the widow of Mahipal, who had purchased the “Jeevan Arogya” policy in 2013. The policy provided daily cash benefits for hospitalization. Almost a year after obtaining the policy, Mahipal was admitted to a hospital with severe abdominal pain. He remained hospitalized for nearly a month and later succumbed to a cardiac arrest. When Sunita filed a claim, LIC rejected it, citing that Mahipal had suppressed his chronic alcoholism, which was a material fact under the policy. The insurer relied on Clause 7(xi) of the policy, which explicitly excluded coverage for alcohol-related complications. The District Consumer Forum, State Commission, and NCDRC ruled in favor of Sunita, directing LIC to pay ₹5,21,650. However, LIC approached the Supreme Court, arguing that the claim was invalid due to the insured’s misrepresentation. The Supreme Court ruled in LIC’s favor, holding that suppression of material facts, especially those affecting risk assessment, justified repudiation of the claim.
Arguments of Both Sides:
Sunita, the claimant, argued that LIC wrongly rejected the claim despite her husband being entitled to hospital cash benefits under the policy. She contended that the policy was not a reimbursement-based scheme but one that provided predetermined daily allowances for hospitalization. Therefore, the insurer could not repudiate the claim based on the cause of hospitalization. She also argued that there was no evidence that her husband was a chronic alcoholic before purchasing the policy. The mention of “chronic alcohol intake” in medical records appeared only after hospitalization, which was over a year after the policy was issued. She contended that pre-existing conditions had to be disclosed only if they were diagnosed at the time of taking the policy, and since no such diagnosis was made, there was no suppression of material facts. Additionally, she relied on the Supreme Court’s judgment in Sulbha Prakash Motegaoneker & Ors. v. Life Insurance Corporation (2015), which held that mere suppression of pre-existing diseases should not be a ground for rejecting claims unless it was conclusively linked to the cause of death.
On the other hand, LIC defended its repudiation by arguing that Mahipal had deliberately misrepresented his health condition while purchasing the policy. The insurer pointed out that the proposal form specifically asked whether the insured consumed alcohol, cigarettes, or tobacco, to which Mahipal had answered “No.” However, his hospitalization records confirmed a history of chronic alcoholism, which contributed to his liver disease. LIC argued that chronic liver disease does not develop overnight but results from prolonged alcohol consumption. Therefore, the insured had suppressed material facts knowingly, which directly affected the risk assessment of the policy. LIC also cited the exclusion clause, which explicitly stated that ailments caused by alcohol consumption were not covered under the policy. Additionally, the insurer relied on Bajaj Allianz Life Insurance Co. Ltd. v. Balbir Kaur, where the Court held that if a pre-existing disease was the cause of death and was suppressed while purchasing the policy, repudiation was justified.
Court’s Judgment:
The Supreme Court analyzed the policy terms, the medical records, and past precedents to determine the validity of LIC’s repudiation. The bench comprising Justice Vikram Nath and Justice Sandeep Mehta first noted that the Consumer Fora erred in treating the “Jeevan Arogya” policy as a reimbursement-based policy instead of a hospital cash benefit plan. The Court clarified that even under such a plan, claims could be denied if they fell under the exclusion clauses. The Supreme Court also disagreed with the NCDRC’s approach in rejecting medical records that mentioned chronic alcoholism, stating that chronic liver disease caused by alcoholism does not manifest suddenly but develops over time due to prolonged alcohol consumption. The Court emphasized that the insured had falsely stated that he did not consume alcohol, whereas medical records established otherwise. This amounted to a deliberate suppression of material facts, warranting repudiation of the claim.
The Court also distinguished Sulbha Prakash Motegaoneker, which the NCDRC had relied upon. In that case, the pre-existing disease was not the cause of death, whereas in the present case, Mahipal’s chronic liver disease was directly linked to his hospitalization and subsequent death. The Court relied on its ruling in Bajaj Allianz Life Insurance Co. Ltd. v. Balbir Kaur, where it was held that if a concealed pre-existing condition directly caused hospitalization and death, repudiation was justified. The Supreme Court concluded that since Mahipal’s hospitalization was a direct consequence of chronic liver disease arising from alcohol consumption, LIC was justified in denying the claim.
Although the Supreme Court upheld LIC’s repudiation, it noted that ₹3 lakh had already been paid to Sunita as per the Consumer Commission’s order. Given her financial condition, the Court exercised its discretion and refrained from directing LIC to recover the amount. The appeal was thus allowed in favor of LIC, reinforcing the principle that insurance contracts require utmost good faith, and suppression of material facts can justify claim denial.