Insurance and Lifestyle Diseases: Legal Consequences for Insured Arising from Non-Disclosure.
Lifestyle diseases which are also known as non-communicable diseases (NCDs),1 is becoming the significant health concern all over the world. Unhealthy lifestyle choices often lead to chronic conditions such as diabetes, obesity, hypertension, and heart disease. The World Health Organization’s 2005 report states that chronic diseases accounted for 61% of deaths (35 million) and 49% of the global disease burden, with projections indicating that this figure will rise to 70% by 2030.2 In the context of India, it has the around 77 million diagnosed cases leading to highest number of people suffering from diabetes globally.3 Around 100 million Indians are affected by high bold pressure, (hypertension). These common lifestyle diseases can develop at any stage of life, with symptoms often remaining undetected until they reach advanced stages.
In light of the global health crisis and the increasing trend among insurance companies to reject claims based on non-disclosure of lifestyle diseases, significant questions emerge regarding the responsibilities of policyholders and the implications for those affected by these
prevalent health conditions. Consequently, understanding the relationship between these lifestyle diseases and the grounds for insurance claim rejections has become essential.
In this article, we will analyse the impact of lifestyle diseases on insurance claims, exploring questions such as whether non-disclosure of these diseases can deprive the insured of their rightful claim, and whether an insurer can reject a claim based on non-disclosure of past medical history, even when it is unrelated to the cause of injury or death.
Non-disclosure of material facts and its Impact
The contract of insurance is based on the principle of “Uberrima fides” meaning “Utmost Good faith” where trust and disclosure of complete and true facts is considered as the most essential factor between the parties. This principle mandates the insurer and the policy holder to disclose to each other all the material facts related to the insurance policy, which are either directly or indirectly the subject matter of the insurance policy. If an applicant to the insurance policy fails to disclose all the material facts within his/her actual or presumed knowledge at the time of application then it is considered as non-disclosure of material facts (which means confiding the essential knowledge known by the applicant at the time of taking of the policy). The information provided by applicant becomes crucial for the insurer for underwriting assessment which involves identifying high-risk features and decision regarding whether to accept risk, and if so, at what premium and terms. Nowadays, with the increasing prevalence of lifestyle diseases, non-disclosure disputes often revolve around the medical history of policyholders, particularly conditions like hypertension, diabetes, and high cholesterol. Failure to disclose such conditions can have serious consequences, including policy repudiation and claim rejection.
If a pre-existing condition is not disclosed, the insurer may argue that they were deprived of the opportunity to make an informed decision. Submission of incorrect or incomplete information on the claim form is one of the primary reasons of claim rejection which also includes inability to disclose pre-existing lifestyle diseases at the time of purchasing the policy. For instance, if a policyholder with hypertension does not disclose this condition, and later files a claim for a heart-related issue, the insurer may reject the claim on the grounds of non-disclosure. The insurer could argue that had they known about the hypertension, they might have issued the policy under different terms or at a higher premium, or they might have excluded certain conditions from coverage.
Legal Framework and recent Judgements
Section 45 of the Insurance Act, 1938 can be read in the context of disputes relating to the non-disclosure of material facts, particularly when it comes to common lifestyle diseases such as diabetes and hypertension. This section provides that after the policy has been in force for Three years, the insurer cannot call it into question based on inaccurate or
incomplete information unless it can prove that the information was deliberately withheld or misrepresented by the insured, with the intent to deceive the insurer.
Additionally, there have been recent judgments that represent a progressive step in protecting the rights of policyholders who have been unfairly deprived of their claims. In Life Insurance Corporation of India vs. Sunita & Others LL 2021 SC 6171, the Supreme Court upheld the decision given by National Consumer Disputes Redressal Commission (NCDRC), where it was held that denying insurance claims based on non-disclosure of lifestyle diseases would render the policy meaningless. It was noted that although diseases like diabetes and hypertension can lead to various complications, they are common and may occur in individuals without necessarily causing death. Therefore, insurance claims cannot be denied solely on the basis of non-disclosure of such common lifestyle diseases. Further emphasizing this point, the NCDRC in Ms. Anita Gupta vs. HDFC Standard Life Insurance Company Limited C/696/20182, ruled that even if there is a pre-existing condition like diabetes, which is a common lifestyle disease, the rejection of the claim cannot be based solely on that fact unless it is directly linked to the cause of death. Similarly, in Reliance Life Insurance Co. Ltd. vs. Tarun Kumar Sudhir Halder, 2019 SCC OnLine NCDRC 8973, the court ruled that denying a claim solely on the grounds of non-disclosure of a lifestyle disease is unjustified without clear evidence of intentional fraud or material misrepresentation.
These rulings align with the principles established in Hari Om Agarwal vs. Oriental Insurance Co.Ltd.,2007 (98) DRJ 2464 where the Delhi High Court found that the insurer’s refusal to reimburse medical expenses due to a pre-existing condition was unreasonable. The court stressed that the presence of common lifestyle diseases should not automatically nullify coverage, particularly when the policy has been consistently renewed and premiums have been accepted.
One more important aspect of this dispute is the nexus between the non-disclosure of material fact and cause of injury or death. This issue was addressed in the case of Life Insurance Corporation of India vs. Smt. Sulbha Prakash Motegaonkar, (2021) 13 SCC5. where the Maharashtra State Consumer Dispute Redressal Commission addressed the repudiation of an insurance claim based on the alleged non-disclosure of lumbar spondylosis. The insurer denied the claim, despite the fact that the cause of death was ischemic heart disease, unrelated to the undisclosed condition.
The Commission emphasized that for an insurance claim to be justifiably denied, there must be a direct and clear connection between the non-disclosed condition and the cause of death. Repudiation should not be routine or mechanical; insurers must carefully assess whether the undisclosed condition significantly impacted the risk covered by the policy. Without this direct link, denying a claim based solely on non-disclosure is unjustified.
These judgments underscore that while Section 45 of the Insurance Act, 1938 allows insurers to contest claims based on non-disclosure, the mere existence of a lifestyle disease is not sufficient grounds for repudiation. The courts have consistently held that the insurance
companies must demonstrate a direct link between the non-disclosed condition and the cause of death to justify their denial of claim, thereby ensuring that policyholders are not unfairly deprived of their rightful claims. These cases highlight the episodes of potential misuse of non-disclosure as a blanket reason for claim rejection, leading to undue hardships for policyholders or beneficiaries. The ruling reinforces the need for fairness in claim assessments, ensuring that insurance policies provide the financial protection they are meant to deliver, especially in difficult times, this judgement was later ratified by National Consumer Dispute Redressal Commission, and Acknowledged by the Supreme Court of India in several instances. The Commission emphasized that for an insurance claim to be justifiably denied, there must be a direct and clear connection between the non-disclosed condition and the cause of death. Repudiation should not be routine or mechanical; insurers must carefully assess whether the undisclosed condition significantly impacted the risk covered by the policy. Without this direct link, denying a claim based solely on non-disclosure is unjustified.
This underscores the insurer’s legal obligation to conduct thorough investigations before rejecting a claim. This includes reviewing all relevant medical records and considering the circumstances surrounding the insured event. If an insurer fails to fulfil this duty and relies solely on non-disclosure without investigating the details, it may be acting in bad faith. The principle of good faith in insurance contracts requires insurers to exercise due diligence and not reject claims without proper investigation.
Conclusion
The interplay between lifestyle diseases and insurance claims highlights the complexities of non-disclosure and the need for fairness in claim assessments. While insurers are entitled to accurate information to assess risk, the blanket rejection of claims based on common, well-managed lifestyle conditions is increasingly being challenged in courts. Recent judicial trends emphasize the necessity of establishing a direct causal link between the non-disclosed condition and the insured event before denying claims. This evolving legal landscape underscores the importance of balanced, informed decision-making by insurers, ensuring that policyholders are not unjustly deprived of their rightful benefits.
(By Devyani Kapse)
Author is an intern at TruLex, A law firm in Pune.
1 Life Insurance Corporation of India vs. Sunita & Others, LL 2021 SC 67
2 Ms. Anita Gupta vs. HDFC Standard Life Insurance Company Limited, C/696/2018
3 Reliance Life Insurance Co. Ltd. vs. Tarun Kumar Sudhir Halder, 2019 SCC OnLine NCDRC 897
4 Hari Om Agarwal vs. Oriental Insurance Co.Ltd.,2007 (98) DRJ 246
5 Life Insurance Corporation of India vs. Smt. Sulbha Prakash Motegaonkar, (2021) 13 SCC
6 Noncommunicable diseases, who.int. https://www.who.int/news-room/fact-sheets/detail/noncommunicable-diseases last seen 05/09/2024
7 LIFESTYLE DISEASES: An Economic Burden on the Health Services, UN Chronicle, https://www.un.org/en/chronicle/article/lifestyle-diseases-economic-burden-health-services ,last
Seen 07/09/2024
8 “The burden of lifestyle diseases and their impact on health service in India”—A narrative review”, National Library of Medicine, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC11213448/ ,last seen 08/09/2024.
