Consumer Protection | Absence of Nexus Between Cause of Death and Concealed Facts: Grounds for Life Insurance Claim Rejection

Introduction

When an individual seeks to obtain life insurance, they are required to make certain disclosures about their personal health and medical history.

Given that personal health information — critical to evaluating the risk — is very personal and known only to the proposer,¹ the law imposes a greater duty on the proposer to disclose all material information² fully and accurately.³ Insurance contracts are, therefore, governed by the principle of utmost good faith, imposing a solemn duty on the proposer to provide truthful and comprehensive answers to the questions posed in the proposal form as these disclosures are integral to the insurer’s decision-making process regarding the issuance of the policy.⁴ Any deliberate concealment of material facts at the proposal stage may render the insurance contract voidable at the insurer’s discretion.

This article examines whether an insurer must establish a nexus between the cause of death and a concealed illness, whilst analysing the principle of materiality of fact.

Judicial precedents: The nexus debate

In 2012, the National Consumer Disputes Redressal Commission (NCDRC) affirmed that the presence or absence of a nexus between the pre-insurance health status of the proposer and the cause of his post-insurance death are of no consequence.⁵ The insurer is not obligated to demonstrate a nexus between the cause of death and the suppressed illness.⁶

However, complications arose when the Supreme Court, in its 2015 judgment in Sulbha Prakash Motegaonkar v. LIC⁷, held that the death of the insured due to ischemic heart disease was unrelated to the concealed pre-existing condition of “lumbar spondylosis with prolapsed intervertebral disc (PID) with sciatica”, and thus, the insurer could not repudiate the claim. The relevant extract deserves to be reproduced for the sake of clarity:

5. It is not the case of the Insurance Company that the ailment that the deceased was suffering from was a life-threatening disease which could or did cause the death of the insured. In fact, the clear case is that the deceased died due to ischemic heart disease and also because of myocardial infarction. The concealment of lumbar spondylosis with PID with sciatica persuaded the respondent not to grant the insurance claim.

6. We are of the opinion that the National Commission was in error in denying to the appellants the insurance claim and accepting the repudiation of the claim by the respondent. The death of the insured due to ischemic heart disease and myocardial infarction had nothing to do with his lumbar spondylosis with PID with sciatica. In our considered opinion, since the alleged concealment was not of such a nature as would disentitle the deceased from getting his life insured, the repudiation of the claim was incorrect and not justified.⁸

The above ruling hinted at the necessity of establishing a nexus between the cause of death and the non-disclosure.

NCDRC’s interpretation post-sulbha

Following Sulbha case⁹, the NCDRC repeatedly emphasised the necessity of establishing a nexus between the cause of death and the concealed illness. In numerous cases, the NCDRC relied on the Supreme Court’s judgment in Sulbha case¹⁰ to overturn repudiations where insurance companies failed to demonstrate a causal connection between the concealed illness and the insured’s cause of death.

Following is a tabular summary of some notable rulings of the NCDRC (between 2018 to 2024) wherein a clear disconnect between the cause of death and the concealed illness was pivotal in disallowing repudiation of claims on the ground of concealment of material fact:

These judgments collectively underscore the NCDRC’s consistent stance that insurers must establish a direct causal link between the alleged concealed condition and the cause of death to justify claim repudiation.

A departure from the doctrine of uberrima fides

The emphasis on the need to establish a nexus between the cause of death and the concealed illness enables insurance proposers to misrepresent or omit material information, as they may, by a stroke of luck or chance, receive the insurance payout if their cause of death happens to be unrelated to the concealed illness. In allowing so, the NCDRC appears to have overlooked the foundational principle that life insurance contracts are governed by the doctrine of uberrima fides (utmost good faith) and, in effect, created an exception to this doctrine.

To comprehend the flaw in this mandate of establishing a nexus between the cause of death and alleged concealment, it is essential to first understand the doctrine of uberrima fides. The requirement for honest disclosures arises from the fundamental purpose of a life insurance contract — to safeguard the economic value of human life. This valuation is conducted through a process known as “underwriting”. Underwriting, in essence, is the method by which an insurance company determines whether to issue the requested insurance (selection process) and, if so, the terms, conditions, and pricing (classification process).²⁵

While underwriting, the insurer collects the proposer’s information vide a questionnaire-based document known as the “proposal form”.²⁶ A specific section of the proposal form seeks the following information pertaining to the proposer’s personal medical history:

(a) any past or existing medical conditions;

(b) information on previous surgeries, hospitalisations, or medical treatments;

(c) disclosure of any physical disabilities or impairments; and

(d) ongoing medications or therapies.

Thus, information pertaining to the personal medical history of the proposer is “material” as the same affects the prognosis. Based on this information, underwriters segregate lives and charge low premiums for healthy people and high premiums for people with ill-health.²⁷

For instance, consider two individuals, Person A and Person B:

(i) Person A is healthy with no prior illnesses.

(ii) Person B, diagnosed with cancer before applying for insurance but currently in remission, carries a higher risk due to their medical history.

Assuming both fully disclose their medical histories, insuring Person A poses significantly lower risk compared to Person B. Consequently, Person A is likely to receive a policy with higher benefits and lower premiums, reflecting their lower risk profile.

Thus, based on the personal medical history disclosed, the insurer underwrites the risk and determines whether to assume that risk.²⁸ It is not up to the proposer to nitpick which fact is material and which is not. That prerogative lies solely with the insurer. Understandably, if false information is provided to the insurer or material information is concealed, the risk assumed by the insurer will be different from the actual risk.²⁹

Materiality of fact: The key determinant

The Supreme Court’s ruling in Sulbha case³⁰did not require a direct link between the cause of death and the concealed illness. Instead, it emphasised the “materiality” of the fact, where illnesses significantly affecting mortality or life expectancy are deemed material, while those that do not impact death are not considered material.

The materiality of fact in the context of Sulbha ruling³¹ has been addressed multiple times. In 2019, the NCDRC stated that without evidence from the insurer proving viral hepatitis to be life-threatening, the claim cannot be denied for concealment.³² Similarly, in 2020, the NCDRC rejected jaundice as a valid ground for repudiating a life insurance claim, as it is curable and not permanent.³³ That same year, the Supreme Court distinguished Sulbha case³⁴, clarifying that the concealed Hepatitis C in the case was life-threatening, unlike the non-life threatening illness in Sulbha case³⁵, and thus material when assessing the value of human life.³⁶

The NCDRC, recently, upheld the repudiation of a claim involving concealed carcinoma of the stomach with liver metastasis, noting that Sulbha ruling³⁷ was context-specific and applied only to non-life threatening conditions. It clarified that Sulbha case³⁸ does not apply when the concealed condition is materially significant to the insurer’s risk assessment.³⁹

The ruling in Sulbha case⁴⁰ dealt specifically with a non-life threatening condition — lumbar spondylosis with PID with sciatica, which did not contribute to or cause the death of the insured. This limited precedent set by the Sulbha case⁴¹ applies narrowly to instances where the concealed illness does not significantly impact the insured’s life expectancy or cause of death. It does not extend to cases involving materially significant conditions that have a clear bearing on the risk assessment, such as cancers or chronic diseases that are directly related to mortality risk.

Conclusion

The requirement of establishing a nexus between the cause of death and concealed illnesses risks undermining the doctrine of utmost good faith, the bedrock of life insurance contracts. Courts should focus on the materiality of the concealed facts in assessing risk and underwriting policies. By doing so, the integrity of insurance contracts can be preserved, ensuring fairness for both insurers and policy-holders while safeguarding the long-term viability of the insurance ecosystem.