“A prudent insurer has to gauge possible risks”; Insurer can’t repudiate mediclaim alleging pre-existing illness where policy was issued after considering necessary medical records: SC

Supreme Court: The Division Bench of Dhananjaya Y Chandrachud and B.V. Nagarathna*, JJ., held that if on the consideration of the medical report, the insurance company gets satisfied about the medical condition of the proposer and that there was no risk of pre-existing illness, and on such satisfaction it issues the policy, it cannot thereafter, contend that there was a possible pre-existing illness or sickness which has led to the claim made by the insured and for that reason repudiate the claim.

The facts in a nutshell were that the appellant had sought an overseas mediclaim policy B as he intended to travel to USA. On reaching at San Francisco airport he got a heart attack and was admitted in the hospital where angioplasty was performed on the appellant and three stents were inserted to remove the blockage from the heart vessels. Later on, the appellant claimed treatment expenses from the respondent-insurer which was repudiated by the insurer stating that as the appellant had a history of hyperlipidaemia and diabetes, which fact was not disclosed while obtaining insurance, the policy did not cover pre-existing conditions and complications arising from that.

Findings of NCDRC

The National Consumer Dispute Redressal Commission concluded that since the complainant had been under statin medication which was not disclosed while obtaining mediclaim, the complainant failed to comply with his duty to make complete discloser of his health conditions in a manner contrary to the principle of ‘uberima fides’ between the insurer and the insured. Hence, the Commission held that the insured was not entitled to claim benefit under the policy and the repudiation of the insurance claim was valid.

Uberrimae Fidei

Insurance contracts are special contracts based on the general principles of full disclosure inasmuch as a person seeking insurance is bound to disclose all material facts relating to the risk involved. The contractual duty so imposed is that any suppression or falsity in the statements in the proposal form would result in a breach of duty of good faith and would render the policy voidable and consequently repudiate it at the instance of the insurer. Opining that in relation to the duty of disclosure on the insured, any fact which would influence the judgment of a prudent insurer and not a particular insurer is a material fact, the Bench stated that the fact must be one affecting the risk. If it has no bearing on the risk it need not be disclosed and if it would do no more than cause insurers to make inquiries delaying issue of the insurance, it is not material if the result of the inquiries would have no effect on a prudent insurer. The Bench added,

“The duty to make full disclosure continues to apply throughout negotiations for the contract but it comes to an end when the contract is concluded; therefore, material facts which come to the proposer’s knowledge subsequently need not be disclosed.”

However, clarifying the position, the Bench stated that the assured is not under a duty to disclose facts which he did not know and which he could not reasonably be expected to know at the material time. Further, in order to seek specific information from the insured, the proposal form must have specific questions so as obtain clarity as to the underlying risks in the policy, which are greater than the normal risks.

Contra Proferentem

“A prudent insurer has to gauge the possible risk that the policy would have to cover and accordingly decide to either accept the proposal form and issue a policy or decline to do so.”

As per the doctrine, when words are to be construed, resulting in two alternative interpretations then, the interpretation which is against the person using or drafting the words or expressions which have given rise to the difficulty in construction applies. The Bench opined that if, on the consideration of the medical report, the insurance company was satisfied about the medical condition of the proposer and that there was no risk of pre-existing illness, and on such satisfaction it had issued the policy, it could not thereafter, contend that there was a possible pre-existing illness or sickness which had led to the claim being made by the insured and for that reason repudiate the claim.

Factual Analysis

The respondent-insurer claimed that there was suppression of the fact that the appellant was suffering from a heart disease for which he was prescribed statins owing to a cholesterol problem and the said fact which was a riskfactor for cardiac disease was material fact was not disclosed in the proposal form. Rejecting the claim of the insurer, the Bench observed that statins was prescribed in order to reduce the risk of a cardiac ailment in future. The Bench expressed,

“Diabetes mellitusII is a risk factor for a cardiac ailment in a person, it is not a hard and fast rule that every person having diabetes mellitusII would necessarily suffer from a cardiac disease.”

Noticeably, statins is also prescribed for controlling hyperlipidaemia but the appellant did not suffer from any heart ailment or hyperlipidaemia. Therefore, the Bench was of the view that prescription of statins to the appellant could not be deduced to say that the appellant had a cardiac ailment or hyperlipidaemia.

Noticeably, the appellant was issued overseas mediclaim policy after undergoing the requisite medical tests namely: 1) Blood sugar test, 2) Urine examination 3) Electrocardiogram test and after being examined by the doctor who stated that the appellant had diabetes mellitusII (DM2) which was controlled on drugs. The doctor further noted that there was no current illness or disease which would possibly require medical treatment during the proposer’s (appellant’s) forthcoming trip.

Therefore, the Bench held that the insurer being appraised about the said medical condition, i.e. diabetes mellitusII of the appellant, issued policy to the appellant; which lead to the inference that the insurer did not consider the said medical condition as a risk factor for any possible cardiac ailment during the term of the policy so as to decline acceptance of the proposal form and issuance of the mediclaim policy.

Conclusion and Decision

“Treatment availed by the appellant for acute myocardial infraction in USA could not have been termed as a direct offshoot of hyperlipidaemia and diabetes mellitus so as to be labelled as a pre-existing disease or illness which the appellant suffered from and had not disclosed the same.”

In the light of the above, the Bench concluded that there was no suppression of any material fact by the appellant to the insurer. The Bench opined the act of insurer of issuing mediclaim policy to the appellant despite the aforesaid facts regarding his medical record had to be read against the insurer by applying the contra proferentem rule against it; otherwise, the very contract of insurance would become meaningless in the instant case.

Consequently, the Bench held that the insurance company was not right in repudiating the policy in question. The appellant was held entitled to be indemnified under the policy. The decision of the Commission was set aside with the following orders:

  1. The insurer was directed to indemnify the appellant regarding the expenses incurred by him towards his medical treatment with interest at the rate of 6% per annum from the date of filing the claim petition before the Commission till realisation.
  2. Since the expenses incurred by the appellant was in terms of US Dollars and the claim would be paid in terms of Indian 57 Rupees, the exchange rate as it existed on the date the claim petition was filed by the appellant herein before the Commission or at Rs.45 INR, whichever is lesser, shall be reckoned for the purpose of determining the conversion rate of US Dollars into Indian Rupees.
  3. The appellant was also entitled to Rs. 1,00,000 towards the cost of litigation.

[Manmohan Nanda v. United India Assurance Co. Ltd., 2021 SCC OnLine SC 1181, decided on 06-12-2021]


Kamini Sharma, Editorial Assistant has put this report together


Appearance by:

For the Appellant: Gopal Sankarnarayanan, Senior Counsel along with Zehra khan, Counsel

For the Respondents: Sunaina Phul, Counsel


*Judgment by: Justice B.V. Nagarathna

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