National Consumer Commission Upholds Insurance Payout in Landmark Health Disclosure Case
In a significant ruling that reinforces consumer rights in insurance disputes, the National Consumer Disputes Redressal Commission (NCDRC) has dismissed a revision petition filed by the Life Insurance Corporation of India (LIC), upholding concurrent orders from lower consumer fora directing payment of Rs 10 lakh with interest and compensation to the nominee of a deceased policyholder.
Case Background and Key Facts
The case originated from a complaint filed by M. Charan Reddy, son of the late Shri Dharmendra Reddy, against LIC's Palamaner Branch and Divisional Manager in Nellore. The deceased had purchased five life insurance policies, each worth Rs 2,00,000, with the complainant nominated as beneficiary. Following the insured's death on December 20, 2010, while all policies were active, claims submitted by the complainant's mother as guardian were repudiated by LIC.
The insurer cited grounds of alleged suppression of material facts regarding the insured's health, specifically pointing to pre-existing disease and chronic alcoholism. LIC claimed the policyholder had undergone treatment for alcohol dependence syndrome prior to policy issuance and failed to disclose this information in proposal forms dated August 24, 2009.
Legal Proceedings and Findings
The District Consumer Forum partly allowed the complaint, directing LIC to pay Rs 10,00,000 with 9% annual interest from March 31, 2011, along with Rs 50,000 compensation and Rs 2,000 litigation costs. This order was subsequently affirmed by the State Consumer Commission.
In its detailed analysis, the National Commission noted several critical deficiencies in the insurer's case:
- The medical documents relied upon by LIC contained significant discrepancies regarding dates
- Key documents including an out-patient card from NIMHANS indicating alcoholism were unsupported by affidavits from their authors
- The insured had not signed the declaration column in crucial documents
- LIC failed to produce complete proposal forms before the consumer fora
- The insurer did not adequately explain how certain medical documents were obtained
Legal Reasoning and Final Decision
The National Commission, comprising Presiding Member AVM Jonnalagadda Rajendra and Member Justice Anoop Kumar Mendiratta, emphasized that revisional jurisdiction under Section 21(b) of the Consumer Protection Act cannot be invoked merely for re-appreciation of evidence. The bench found no illegality, perversity, or material irregularity in the concurrent findings of the lower fora.
Key legal determinations included:
- The insurer failed to prove that the insured had knowledge of any pre-existing disease at the time of policy proposal
- LIC could not establish deliberate and material suppression of facts when the proposal forms were submitted
- Medical records indicating illness at a later stage were insufficient to prove conscious suppression at the proposal date
- The insurer did not follow IRDA guidelines in policy issuance procedures
- The burden of proving suppression of material facts rests with the insurer, which LIC failed to discharge
The Commission specifically noted that the life assured had not given any declaration in the proposal forms regarding health conditions, and the insurer's plea of suppression of material facts was therefore rejected.
Broader Implications for Insurance Sector
This ruling reinforces several important principles in insurance law and consumer protection:
- Insurers must maintain rigorous documentation standards when alleging non-disclosure
- Medical evidence must be properly authenticated through affidavits or examination of authors
- Procedural compliance with IRDA guidelines is essential for valid claim repudiation
- The burden of proving material suppression rests squarely on insurers
- Consumer fora will scrutinize the timing of medical evidence relative to policy issuance dates
The National Commission's dismissal of Revision Petition No. 176 of 2020 brings finality to this protracted legal battle, with the total payout including interest and compensation amounting to approximately Rs 10.52 lakh. All pending applications were disposed of accordingly, with no order as to costs in the final proceedings.
