Health Insurance Claim rejected due to Non-disclosure? Read this Supreme Court Judgement

Health Insurance Claim rejected due to Non-disclosure of material facts? Do you know one Supreme Court Judgement creating a huge impact on your health insurance claim settlement? Considering this case as a reference, Insurance Ombudsman settling the cases in favor of the insured.

Health Insurance Claim rejected due to Non-disclosure

Health Insurance Claim rejected due to Non-disclosure? Read this Supreme Court Judgement

This case refers to 2009 between Satwant Kaur Sandhu vs. The New India Assurance Co. Ltd. However, considering this case as reference, if health insurance companies denying the claim, then Insurance Ombudsman settling the cases based on this supreme court judge’s findings.

You can refer the whole case details here. In this post, I am just posting the judge’s findings in this case.

10. The core question for consideration is whether the fact that at the time of taking out the mediclaim policy, the policyholder was suffering from chronic Diabetes and Renal failure was a material fact and, therefore, on account of non-disclosure of this fact in the proposal form, the respondent – Insurance Company was justified in law in repudiating the claim of the appellant?

11. Having bestowed our anxious consideration to the matter, we are of the opinion that in the light of the material on record, answer to the question posed has to be in the affirmative.

12. There is no dispute that Section 45 of the Insurance Act, 1938 (for short “the Act”), which places restrictions on the right of the insurer to call in question a life insurance policy on the ground of mis-statement after a particular period, has no application on facts at hand, in as much as the said provision applies only in a case of life insurance policy. The present case relates to a mediclaim policy, which is entirely different from a life insurance policy. A mediclaim policy is a non-life insurance policy meant to assure the policy holder in respect of certain expenses pertaining to injury, accidents or hospitalizations. Nonetheless, it is a contract of insurance  falling in the category of contract uberrimae fidei, meaning a contract of utmost good faith on the part of the assured. Thus, it needs little emphasis that when information on a specific aspect is asked for in the proposal form, an assured is under a solemn obligation to make a true and full disclosure of the information on the subject which is within his knowledge. It is not for the proposer to determine whether the information sought for is material for the purpose of the policy or not. Of course, obligation to disclose extends only to facts which are known to the applicant and not to what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment. (See: Joel Vs. Law Union & Crown Ins. Co.1)

13. In United India Insurance Co. Ltd. Vs. M.K.J. Corporation2, this Court has observed that it is a fundamental principle of insurance law that utmost faith must be observed by the contracting parties. Good faith forbids either party from non- disclosure of the facts which the party privately knows, to draw the other into a bargain, from his ignorance of that fact and his [1908] 2 K.B. 863 (1996) 6 SCC 428  believing the contrary. (Also see: Modern Insulators Ltd. Vs. Oriental Insurance Co. Ltd.3).

14. MacGillivray on Insurance Law (Tenth Edition) has summarised the assured’s duty to disclose as under: “…the assured must disclose to the insurer all facts material to an insurer’s appraisal of the risk which are known or deemed to be known by the assured but neither known nor deemed to be known by the insurer. Breach of this duty by the assured entitles the insurer to avoid the contract of insurance so long as he can show that the non-disclosure induced the making of the contract on the relevant terms.

15. Over three centuries ago, in Carter Vs. Boehm4, Lord Mansfield had succinctly summarised the principles necessitating a duty of disclosure by the assured, in the following words:-

“Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured only; the underwriter trusts to his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge to mislead the underwriter into a belief that the circumstance does not exist. The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void; because the risqui run is really different from the risqui understood and intended to be run at the time of the agreement…The policy (2000) 2 SCC 734 (1766) 3 Burr. 1905  would be equally void against the underwriter if he concealed…Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary.”

16. Having said so, as noted above, the next question for consideration would be as to whether factum of the said illness was a “material” fact for the purpose of a mediclaim policy and its non-disclosure was tantamount to suppression of material facts enabling the Insurance Company to repudiate its liability under the policy?

17. The term “material fact” is not defined in the Act and, therefore, it has been understood and explained by the Courts in general terms to mean as any fact which would influence the judgment of a prudent insurer in fixing the premium or determining whether he would like to accept the risk. Any fact which goes to the root of the Contract of Insurance and has a bearing on the risk involved would be “material”.

Note down the lines which I bolded and underlined. I am stressing this line “the disclosure of material facts extends only to facts which are known to the applicant and not to what he ought to have known. The obligation to disclose necessarily depends upon the knowledge one possesses. His opinion of the materiality of that knowledge is of no moment.”.

Based on these findings, many insurance claims getting accepted if the insurance company has not established with documentary evidence that the complainant had the knowledge of the existing ailments.

Conclusion:-It is evident from the above findings that if you are unaware of existing ailments at the time of buying the health insurance, then it is not considered as you not disclosed it. It is not your duty that you must know about your ailments before buying health insurance. However, you took the treatment or knew about your ailments but not disclosed means a breach of trust and not disclosing the material facts. Leading to the rejection of the claim. Also, Sec.45 of the Insurance Act applies to Life Insurance but not to health insurance. These two are important things which each and every one of us must understand.

To choose the best health insurance for you, refer our earlier post “Top 5 Best Health Insurance Plans in India 2020“.

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10 thoughts on “Health Insurance Claim rejected due to Non-disclosure? Read this Supreme Court Judgement”

  1. Hi, I too had a problem similar, I ported 5 years old policy and while porting disclosed hypertension which I encountered approx 7 years before, after a mild vascular disease for which I was just given some dilators.
    And not treated as a heart disease or so.
    And for years I am not on my medication except for hypertension.
    I had almost forgotten.
    But late when I underwent a surgery the co picked some random past history from my opd few years back that I had said.
    I informed the doc then to avoid any complication and also was just random years given and also for the discontinuation of the medicine.
    I never thought that I have to give the right date which was even older
    The doc also did not want any verification
    Now the insurance co uses the detail to
    Deny the claim.
    The sickness was much before the policy was ported.
    And the claim was shoulder surgery and not any Heart sickness.
    I was never admitted for any procedure nor claimed with any policy for the same.
    My surgery and my vitals were all Christal clear and normal.
    As layman, I did not know that I had to give details from my birth time.
    What is the outcome?
    How can I fight the case

  2. Raghavendra Kamath

    At last, the supreme court dismissed the appeal of Satwant Kaur and upheld the decision of NCDRC National forum in toto. To make reference of this case, the judgement should be in favour of the insured. Inspite of taking circular reference of the things what you narrated, Supreme court happened to upheld the decision of NCDRC in favour of insurer.

  3. Dear Mr. Basavaraj, many thanks for this post. This information is very valuable. Just want to take your opinion on something related to my wife’s health insurance. We have recently purchased a super top up plan from National Insurance. My wife is a cancer survivor. Her base policy is also from National Insurance. We had declared her per-existing conditions completely to National Insurance in the proposal form. Additionally National Insurance only covered the cost of surgery for my wife when she was initially diagnosed with cancer, so they have copies of all her medical records. However, the super top up policy issued to us has no mention of my wife’s pre-existing disease. The pre-existing disease column is blank in the policy. Do you have any advise for us please?

    Many thanks for your time and I commend the great work you are doing.

    Regards,
    G. S. Bhat

      1. Mahalakshmi r

        Dear sir
        I got my first medical insurance from star health in the year 2010 continued every yearly renewal on time for 11 years without break and mine was a no claim and so my cover was for 40 lakhs.
        In 2022 I opted to port my health policy with niva bupa through an agent who lied that Tata was not in health insurance since I was interested . When I came to know Tata had a health insurance policy I again ported this march during my renewal period to Tata AIG .Tata’s sales guys spent almost 5 hours in my residence and asked me several questions .
        1.does you or your family member have any ailment
        2.has any of your family member diagnosed of any disease for which you are any of your family member are on continuous medication.
        3.have you or any of your family member admitted to hospital.

        Well I answered these question without any intention of misappropriation that none other than my husband who is a diabetic and is on medication .
        And I have had few surgeries like appendix and piles that took place 30 years back and had 2 c section and was not on any treatment or medication .
        Now the new portability was signed on 16/3/2023 .
        I had mild back pain in the year 2019 and had taken an mri which showed mild disc bulge but dr advised excercise and that was all.
        When I renewed my policy little did I have knowledge that this was considered as a PED nor had intention of hiding the same since I disclosed my husbands condition and also paid additional coverage of 14000 plus for day one coverage and also had I know this fact I would not have ported at all from star insurance .
        Now Tata AIG had declined my cashless for non disclosure of material fact ,…little did I know nor the sales person concerned briefed me of other PED conditions than the chronic ones .
        What is my position ….they have told me that this will lead to cancellation of my policy and I have to restart from scratch for both of us ne and my husband .what happens to my position of having paid insurance for all these years without a break if portability means this

        Kindly advice

        1. Dear Mahalakshmi,
          Sad to hear this. But sadly, it is a wrong thing from your side to rely on those guys while buying.

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