Duty of Full Disclosure Requires that No Information of Substance or of Interest to the Insurer be Omitted or Concealed: NCDRC Overturns State Commission’s Ruling on Insurance Claim

In a pivotal decision, the National Consumer Disputes Redressal Commission (NCDRC) has set aside the Karnataka State Consumer Commission’s order compelling Aviva Life Insurance Co. India Ltd. To pay ₹30,00,000 along with interest for a claim previously dismissed due to non-disclosure of a pre-existing condition.

The appeal was centered on the fundamental insurance principle of ‘Uberrima Fides’ (utmost good faith), which obligates full and honest disclosure of all relevant facts by the insured at the time of policy inception.

The deceased, insured under a policy by Aviva Life Insurance, had concealed his ongoing treatment for Chronic Kidney Disease and hemodialysis at the time of applying for the insurance. The State Commission had initially ruled in favor of the complainant, directing the insurance company to pay the policy sum and interest, despite the insurance company’s argument of breach of the duty of disclosure.

The NCDRC thoroughly reviewed legal precedents and the obligations of the insured under the doctrine of utmost good faith. The court emphasized several key rulings that supported the insurer’s position to repudiate the claim when there is material non-disclosure by the insured.

P C Chacko & Anr. Vs. Chairman, LIC of India & Ors. – Highlighted the essence of insurance contracts being contracts of utmost good faith.

Reliance Life Insurance Co. Ltd. Vs. Rekhaben Nareshbhai Rathod – Reinforced the insurer’s right to reject claims if critical information that could influence the underwriting decision is withheld.

“The investigations of the respondent have revealed facts which were admittedly not disclosed at the time of the DLA’s proposal for the policy. These have not been controverted by the appellant.”

The NCDRC concluded that the insured’s failure to disclose crucial health information breached the contract’s trust, warranting the repudiation of the claim. Thus, the appeal by Aviva Life Insurance was allowed, reversing the State Commission’s earlier order.

Date of Decision: 8th April 2024

AVIVA LIFE INSURANCE CO. INDIA LTD. VS KARIYAPPA