Reliance Life Insurance Co. Ltd. & Anr. v. Rekhaben Nareshbhai Rathod
Background
The respondent's husband took a life insurance policy from Max New York Life Insurance for Rs 11 lakh in July 2009, and barely two months later, in September 2009, applied for a separate term life policy from Reliance Life Insurance for Rs 10 lakh, but in the proposal form for the second policy, he answered "no" when asked if he was already insured or had applied for other insurance, and left the disclosure fields blank. After his death, Reliance Life Insurance repudiated the claim on his second policy, citing this non-disclosure as a breach of the policy's basis-of-contract clause. The State and National consumer disputes redressal commissions ruled in the widow's favour, holding the non-disclosure was not material, prompting the insurer's appeal to the Supreme Court.
Decision Breakdown
The Supreme Court held that the failure to disclose an existing life insurance policy on the proposal form was a material non-disclosure that entitled the insurer to repudiate the claim, since the proposal form's declaration made the insured's statements the very basis of the contract (the "utmost good faith" principle governing insurance contracts). The Court found the NCDRC had taken an inconsistent view compared to its own earlier precedents on the same point and had not even tried to distinguish them, which it disapproved of. It rejected the argument that the insured's signature on an unread/unexplained form could excuse the misstatement, holding a signatory adopts the statements as his own regardless of whether he read them. The Court therefore allowed the insurer's appeal, set aside the NCDRC's order, and dismissed the consumer complaint, but, invoking Article 142, directed that the 50% of the claim amount already withdrawn by the widow under an earlier interim order not be recovered from her, balancing the legal outcome with equitable relief.
Lesson Learnt
When filling out an insurance proposal form, disclose all existing or recently-applied-for insurance policies accurately, even an innocent-seeming omission can be treated as a material non-disclosure that lets the insurer validly deny a claim later, since the insured's declarations form the very basis of the insurance contract.