The Supreme Court has clarified that life insurance claims cannot be automatically rejected due to the non-disclosure of all existing policies, particularly when a substantial disclosure has already been made. The ruling emphasizes that insurance is a contract based on utmost good faith, requiring applicants to disclose material facts—but the significance of such omissions must be judged case by case.
In this case, the appellant’s father had taken a ₹25 lakh policy from Exide Life Insurance. After his passing, the insurer denied the claim, alleging that he had failed to disclose all his existing policies. While he had mentioned a ₹40 lakh policy with Aviva Life Insurance, he had not disclosed others worth ₹2.3 lakh in total. The claim rejection was upheld by both the State and National Consumer Commissions, prompting the appellant to approach the Supreme Court.
The Court distinguished this case from previous rulings, particularly a decision involving Reliance Life Insurance, where complete non-disclosure of multiple policies in a short time led to claim repudiation. Here, the insured had already revealed a major policy, and the omitted ones were of relatively insignificant value. The justices concluded that such non-disclosure would not have impacted a prudent insurer’s decision to issue the policy.
Furthermore, since the claim was based on accidental death, the undisclosed policies had no bearing on the insurer’s risk assessment. Noting that Exide Life had been aware of the substantial Aviva policy and still issued its own, the Court ruled that the rejection was unjustified. It directed the insurer to release the full policy benefits with 9% annual interest to the appellant, overturning the previous rulings.