Supreme Court’s Eye-Opening Verdict: Does Hiding Existing Policies Lead to Insurance Claim Rejection?

Does Hiding Existing Policies Lead to Rejection? Yes, let us understand the importance of 25th February 2025 Supreme Court Judgement. This is an eye-opener for all of us.

Many of us while buying life insurance intentionally or unintentionally may hide the existing policies. In some cases, we rely on middlemen to fill in the data and we hardly take into look of what he or she is filling. We just need the policy to be issued (more than you the middlemen). This poses a huge risk for your claim settlement.

Supreme Court’s Eye-Opening Verdict: Does Hiding Existing Policies Lead to Insurance Claim Rejection?

Mahaveer Sharma vs Exide Life Insurance Company Limited on 25 February 2025

In a significant judgment on February 25, 2025, the Supreme Court of India addressed the implications of non-disclosure of existing insurance policies by policyholders in the case of Mahaveer Sharma vs. Exide Life Insurance Company Limited. This judgment provides clarity on the obligations of policyholders and the grounds on which insurers can repudiate claims based on such non-disclosures.?

Case Background

The appellant, Mahaveer Sharma, is the son of the deceased policyholder, Ramkaran Sharma. Ramkaran had obtained a life insurance policy from Exide Life Insurance Company Limited on June 9, 2014, with a sum assured of Rs.25 lakhs. Following Ramkaran’s accidental death on August 19, 2015, Mahaveer filed a claim under this policy. However, Exide Life Insurance repudiated the claim on March 3, 2016, citing the non-disclosure of existing insurance policies by Ramkaran at the time of applying for the policy.?

Specifically, while Ramkaran had disclosed a Rs.40 lakh policy from Aviva Life Insurance, he failed to mention three other policies from the Life Insurance Corporation of India (LIC) totaling Rs.2.3 lakhs. The insurer argued that this omission constituted material suppression of facts, justifying the repudiation of the claim. Both the State Consumer Disputes Redressal Commission and the National Consumer Disputes Redressal Commission upheld the insurer’s decision, leading Mahaveer to appeal to the Supreme Court.

Legal Issues

The primary legal question before the Supreme Court was whether the non-disclosure of existing insurance policies, particularly those with relatively small sums assured, constituted material suppression of facts sufficient to justify the repudiation of the insurance claim.?

Supreme Court’s Analysis

The Supreme Court emphasized that insurance contracts are founded on the principle of uberrima fides (utmost good faith), obligating the insured to disclose all material facts that could influence a prudent insurer’s decision to accept the risk. However, the Court also noted that not every omission warrants claim rejection; the materiality of the non-disclosed fact must be assessed on a case-by-case basis.?

In this case, the Court observed that Ramkaran had disclosed a significant policy from Aviva Life Insurance with a sum assured of Rs.40 lakhs, which was substantially higher than the combined value of the undisclosed LIC policies totaling Rs.2.3 lakhs. The Court reasoned that the disclosure of the larger Aviva policy indicated an intention to provide relevant information and that the omission of the smaller LIC policies was not a deliberate attempt to mislead the insurer.?

Furthermore, the Court distinguished this case from previous rulings where non-disclosure of existing policies led to claim repudiation. For instance, in Reliance Life Insurance Co. Ltd. & Anr. v. Rekhaben Nareshbhai Rathod, the insured had failed to disclose a recently obtained substantial policy, which was deemed material. In contrast, the non-disclosed policies in the present case were of relatively insignificant value and did not materially affect the insurer’s risk assessment.

The Court stressed that insurers must prove intentional fraud, not just mistakes. Exide failed to show that Ramkaran deliberately hid the LIC policies to deceive them.

What Does This Mean for Policyholders?

1. Disclose All Policies, But Minor Omissions May Not Sink Your Claim
   • Always mention existing policies, but the Court recognizes that small errors or omissions (like forgetting minor policies) may not justify claim denial. But I strongly suggest you no matter how much small the policy may be. It is better to disclose it to avoid the future battle.
2. Accidental Deaths Are Treated Differently
   • If death is due to an accident (not hidden health issues), insurers have less grounds to argue “material suppression.”
3. Agents’ Mistakes Matter
   • If an insurance agent fills your form incorrectly, the company can’t blame you for unintentional errors. However, I insist you fill out the form on your own rather than relying on an insurance agent. They may fill out the form to make sure that the policy must be issued at any cost. Hence, I strongly advocate that never allow an agent to fill out your proposal form.
4. Fight Unfair Denials
   • Insurers must prove deliberate fraud, not just technical mistakes. Don’t hesitate to appeal to higher courts.

The Supreme Court’s decision is a win for ordinary policyholders. It reminds insurers that claim rejections must be based on real fraud, not minor mistakes. But at the same time, it does not mean that while buying life insurance we ignore the small policy details or material facts.

Share all the facts properly, especially regarding your health, income, and existing policy details. Avoid future complications or the situation of your family members fighting for the claim amount in the future.

What existing policyholders can do?

• Check your life insurance policies. If you accidentally missed to disclose the earlier policies (at the time of buying but not policies which you purchased after buying the policy), then better to disclose with the insurer through email and in whatever way you feel comfortable (but not orally) and keep the records of the same for future usage.
• Do remember that you have to inform the existing insurance only at the time of buying but not the future buying with old insurers. Hence, let us say Mr.A purchased one LIC policy in 2020 for a sum assured of Rs.2 lakh. In 2021 he applied to buy a term life insurance of Rs.1 Cr with HDFC Life, then he has to disclose the existing Rs.2 lakh with HDFC Life. Now, assume that in 2024, he bought one new term life insurance with ICICI Life. At that point in time, he has to inform HDFC and LIC life insurance details with ICICI Life. But he has no need to disclose the ICICI Life insurance details with HDFC or LIC.