Insurance agents often push a prospective customer into signing the proposal form, saying they will take care of everything else. To get the policy issued without any hassle, some of them make incorrect statements in the proposal, without the knowledge of the insured. Later, when a claim is filed, it is rejected on the ground of false declarations or suppression of material facts. It is possible to challenge such a repudiation.
Dhameshwar had taken an LIC policy on July 15, 1994, for Rs 50,000. He died of cardiac failure on August 12, 1995. His wife, Narmada Devi, the nominee, lodged a claim. LIC repudiated it, saying the insured had deliberately made false statements in the proposal form and had intentionally withheld material information to obtain the policy. The question whether the insured had remained absent from his place of work on health grounds, during the last five years had been answered in the negative, even as he had taken medical leave for 326 days due to sciatica pain during this period. In view of the misstatement, LIC cancelled the policy and repudiated the claim.
His wife filed a consumer complaint against LIC, as well as the agent. She blamed the agent for concealment of facts, as the proposal form was signed in Hindi, even as the entire form had been filled in English by the agent. She stated that the insured never suffered from sciatica pain, but had taken leave on this ground to avoid joining work at a remote place where he had been transferred. Also, there was no nexus between sciatica pain and heart attack and, hence, the claim ought to be paid.
The Himachal Pradesh State Commission considered various Indian as well as foreign judgements. It ruled that insurers who wanted to repudiate a policy on the ground of misstatement by the insured, must, to the satisfaction of the court, establish the fact that they acted fairly and honourably to the insured. This should be done by properly explaining the implication of the declaration to be signed by the insured, and the range or amplitude of the questions required to be answered. Otherwise, the claim cannot be rejected.
The commission also took judicial notice of the common experience of agents running after prospective customers to persuade them to take policies, saying, “You just sign on the dotted line, sir. I will take care of the rest.” Upholding Narmada Devi’s arguments, the commission held the repudiation of the claim was highly arbitrary, improper and unfair. It directed LIC to pay the claim amount with 18 per cent interest. [II (1998) CPJ 520].
A similar view was taken by the West Bengal State Commission in the case of LIC v/s Purnima Roy [IV (2008) CPJ 316]. Here, the commission held that a claim can be rejected only when it is satisfactorily proved that there was intentional misrepresentation with knowledge of perpetrating fraud. The onus of proving suppression of facts with fraudulent intent lies on the insurance company. If the company fails to prove suppression with fraudulent intent, the claim would have to be paid.
Thus, insurance agents must behave responsibly and guide the prospective customer. They should not fill a proposal form incorrectly, merely to increase their business.
(The author is a consumer activist)