In a significant ruling, the Supreme Court of India, led by a bench comprising Justice Satish Chandra Sharma and Justice B.V. Nagarathna, has clarified the circumstances under which a life insurance claim can be rejected for non-disclosure of pre-existing insurance policies. The judgment, delivered in Mahaveer Sharma v. Exide Life Insurance Company Limited & Anr. (SLP (Civil) No. 2136 of 2021), provides a critical interpretation of insurance law and ensures fair treatment of policyholders.
Case Background
The case revolved around the insurance claim of Mahaveer Sharma, whose father, Ramkaran Sharma, had obtained a life insurance policy from Exide Life Insurance on June 9, 2014. Following his accidental death on August 19, 2015, Exide Life Insurance repudiated the claim, citing non-disclosure of existing insurance policies.
Both the State Consumer Disputes Redressal Commission (Rajasthan) and the National Consumer Disputes Redressal Commission upheld the insurer’s decision, leading to an appeal before the Supreme Court.
Key Legal Issues
The Supreme Court examined:
Whether the non-disclosure of all pre-existing policies constitutes material suppression.
The relevance of such omissions in determining an insurer’s risk exposure.
Whether repudiation of a claim on such grounds is legally justified.
Court’s Observations
The Supreme Court provided crucial clarity on the interpretation of material suppression in insurance contracts. The key findings include:
The insured had disclosed one policy from Aviva Life Insurance but failed to mention three other policies from the Life Insurance Corporation of India.
The Aviva policy was mistakenly listed with a sum assured of ₹4 lakh instead of the actual ₹40 lakh—significantly larger than the omitted policies.
The insurer had access to this Aviva policy at the time of issuing the new policy.
The Court ruled:
“Failure to disclose existing insurance policies must be assessed in light of its materiality. If such non-disclosure does not affect the insurer’s risk assessment, repudiation of claims cannot be justified.”
Referring to past cases like Manmohan Nanda v. United India Assurance Co. Ltd. (2022) and Rekhaben Nareshbhai Rathod v. Reliance Life Insurance Co. Ltd. (2019), the Court distinguished between complete non-disclosure and minor omissions.
The judgment highlighted that while insurance contracts are based on utmost good faith, insurers must determine whether non-disclosed information actually impacts their decision to provide coverage. The Court stressed that not every omission amounts to material suppression.
Supreme Court’s Decision
The Supreme Court ruled in favor of the appellant, setting aside the previous decisions. The Court held:
The insurer had enough information to evaluate risk based on the disclosed Aviva policy.
The undisclosed policies were of minor amounts compared to the Aviva policy.
The omission did not materially affect the insurer’s risk assessment.
Repudiation of the claim was unjustified.
The Court stated that:
“A substantial disclosure of pre-existing policies by the insured should suffice for an insurer to assess risk. The failure to disclose additional smaller policies, when a significant policy has already been disclosed, does not amount to fraud or concealment.”
Furthermore, the Court noted that the insurer had not conducted due diligence despite having information about the Aviva policy and its actual sum assured. Given that the insured’s death was due to an accident rather than a health-related issue, the undisclosed policies had little bearing on the risk assessment.
Order Issued by the Court:
The Supreme Court directed Exide Life Insurance to honor the claim and release the insured sum, including an interest of 9% per annum from the due date until realization. This decision overturned the rulings of the State and National Consumer Commissions, ensuring the rightful claim payment to the policyholder’s nominee.
