Rejection of insurance claims – Insurance…the word itself says a lot. Insurance Policies whether it is life insurance, health insurance or motor vehicle insurance, they have become an indispensable element of our lives and we spend a substantial portion of our earnings on securing Insurance with the expectation to attain financial security. Rejection of Insurance Claim can be very devastating and most of the time the Insured is left clueless and is unaware about the steps that can be taken by him and what remedies are available in Law to protect insured against rejection of genuine claims. Hence, in this issue we discuss the law and remedies available against rejection of genuine insurance claims in India.
IRDA’s Advisory to Insurers
At the very outset it would be pertinent to mention that the Insurance Regulatory and Development Authority of India (IRDA) had published a Circular dated September 20, 2011, whereby it stated that insurer’s decision to reject a claim shall be based on sound logic and valid grounds. It also stated that rejection of claims on purely technical grounds in a mechanical fashion will result in policyholders losing confidence in the insurance industry giving rise to excessive litigation. The IRDA in its Circular advised that all insurers need to develop a sound mechanism of their own to handle such claims with utmost care and caution. It also advised that the Insurers shall not repudiate such claims unless and until the reasons of delay are specifically ascertained and recorded.
5 Reasons why Insurance Claim can be rejected
- Lack of Information in the Proposal Form- is one of the most common reasons on the grounds of which insurance claim is rejected as declarations in the proposal form the basis on which Insurers assess the risk and calculate the premium required to be paid. Hence, to avoid claim rejection, an honest proposal form is of vital importance.
- Concealment of Information– The principle of good faith reposes on the parties to disclose all material facts which a party to the contract is aware of. It is an active concealment of a material fact that is violation of the rule, therefore the rejection of insurance claims
What is material fact?
Any fact that may affect the rate of premium is a material fact. In the case of Banrasi Devi v. New India Assurance, the Court held that the test generally applied by the Court is whether it is a fact which increases the risk or whether the insurer would have rejected to give a policy on those terms if the fact had been disclosed.
Thus, here the duty of disclosure comes into play. It is advisable that all facts which one knows or ought to have known shall be disclosed to the Insurance agent/company. Such information may inter alia include factors like age, smoking habits, any pre-existing diseases, family history of any disease, other policies etc. A contract of insurance is based on utmost good faith and deliberate non-disclosure will empower the Insurer to avoid the contract and reject the claim.
- Pre-existing disease– Disclosure of pre-existing disease is one of the factors on the grounds of which the Insurer can repudiate the claim. The Judiciary has extensively dealt with the question as to what constitutes “pre-existing disease”.
What does pre-existing disease mean?
In the case of New India Assurance Co. Ltd. vs Shiv Kumar Rupramka, the State Consumer Dispute Redressal Forum enumerated guidelines which help in determining pre-existing disease:
- The Disease means a serious derangement of health or chronic deep-seated disease frequently one that is ultimately fatal for which an insured must have been hospitalized or operated upon in the near proximity of obtaining the mediclaim policy.
- Such a disease should not only be existing at the time of taking the policy but also should have existed in the near proximity. If the insured had been hospitalized or operated upon for the said disease in the near past, say, six months or a year he is supposed to disclose the said fact to rule out the failure of his claim on the ground of concealment of information as to pre-existing disease.
- Malaise of hypertension, diabetes, occasional pain, cold, headache, arthritis and the like in the body are normal wear and tear of modern day life which is full of tension at the place of work, in and out of the house and are controllable on day to day basis by standard medication and cannot be used as concealment of pre-existing disease for repudiation of the insurance claim unless an insured in the near proximity of taking of the policy is hospitalized or operated upon for the treatment of these diseases or any other disease.
- If insured had been even otherwise living normal and healthy life and attending to his duties and daily chores like any other person and is not declared as a diseased person as referred above he cannot be held guilty for concealment of any disease.
- Disease that can be easily detected by subjecting the insured to basic tests like blood test, ECG etc. the insured is not supposed to disclose such disease because of otherwise leading a normal and healthy life and cannot be branded as diseased person.
- Insurance Company cannot take advantage of its act of omission and commission as it is under obligation to ensure before issuing medi-claim policy whether a person is fit to be insured or not.
- Claim of any insured should not be and cannot be repudiated by taking a clue or remote reference to any so-called disease from the discharge summary of the insured by invoking the exclusion clause or non-disclosure of pre-existing disease unless the insured had concealed his hospitalization or operation for the said disease undertaken in the reasonable near proximity as referred above.
- Day to day history or history of several years of some or the other physical problem one may face occasionally without having landed for hospitalization or operation for the disease cannot be used for repudiating the claim.
- Non-disclosure of hospitalization/or operation for disease that too in the reasonable proximity of the date of mediclaim policy is the only ground on which insured claim can be repudiated and on no other ground.
Onus to prove pre-existing disease on Insurer
In the case of Tarlok Chand Khanna vs United India Insurance Co. Ltd., the National Consumer Dispute Redressl Forum stated that the onus to prove that the Petitioner was suffering from a pre-existing disease is on the Respondent.
- Lapse of Policy- A Policy lapses on non-payment of premium during the stipulated period of time. A general guideline for payment of premium was laid down by the Supreme Court in the case of Life Insurance Corporation of India & Anr. v. Dharam Vir Anand , wherein the Apex Court stated: “Payment of premium: A grace period of one month i.e. not less than 30 days will be allowed for payment of yearly, half-yearly, or quarterly premiums and 15 days for monthly premiums. If death occurs within this period and before the payment of the premium then due, the Policywill be valid and the sum assured paid after deduction of the premium as also the unpaid premium/s falling due before the next anniversary of this Policy. If the premium is not paid before the expiry of the days of grace, the Policy lapses. “
- Delay in Filing Insurance Claim– This is another major reason for rejection of insurance claim. In a recent case of October, 2017, the Supreme Court has held that if insurance claim is genuine then the same cannot be rejected on the grounds of delay. In the case, the truck of the Insured had been stolen and he filed a claim for insurance 8 days after the date of theft of vehicle. The Supreme Court in the case opined that that the owner has to intimate the insurer immediately after the theft of the vehicle. However, this condition should not bar settlement of genuine claims particularly when the delay in intimation or submission of documents is due to unavoidable circumstances. The Supreme Court also stated that Insurance Company shall reject claim on valid grounds. Rejection of the claims on purely technical grounds in a mechanical manner will result in loss of confidence of policy-holders in the insurance industry.
Rejection of insurance claim – What are the remedies when Insurance Claim is rejected?
- Approach Insurer’s Redressal of Grievance Mechanism– The Insurance Companies have their grievance redressal mechanism. Hence, on rejection of claim, the claimant shall approach the redressal machinery of the Insurance Company. For instance, LIC has Review Committees in its Zonal Offices and Central Office which can be approached by the claimant in case of repudiation of insurance contract.
- Approach the IRDA- Grievance Redressal Cell in the Consumer Affairs Department of the IRDA looks into complaints/grievances from policyholders. Before approaching the IRDA Cell, the complaints against insurers are required to be first registered with the Complaints/Grievance Redressal Cell of the concerned insurer. If any response from the insurer is not received within a reasonable period of time or are dissatisfied with the response of the company, the complainant can approach the Grievance Redressal Cell.
- Approach the Insurance Ombudsman- Insurance Ombudsman Scheme was created under the Redress of Public Grievances Rules, 1998 with the object to resolve all complaints relating to settlement of claim on the part of insurance companies in cost effective, efficient and impartial manner. Under this Scheme any person who has a grievance against an insurer can himself or through his legal heirs make a complaint in writing to the Ombudsman within whose jurisdiction the branch or office of the insurer complaint against is located. The address of Ombudsman Centers in various jurisdictions can be found here. An Insurance Ombudsman can award compensation upto Rs. 30 lakh.
- Remedy under the Consumer Protection Act, 1986– After exhausting all the aforesaid remedies, the complainant can approach the relevant Consumer Court. It would be relevant to mention here that the complainant can plead before the Consumer Court in person and the services of an Advocate is not required.
The Contract of Insurance is a standard form contract wherein the terms of the contract are standard and the parties through mutual consent create this contract. At the time of entering into contract of Insurance it is very essential to carefully read the terms and conditions of the contract. In order to mitigate chances of insurance claim rejection it is also advisable that the applicant himself or herself fills in the particulars of the Insurance Proposal form and does not wholly rely on the insurance agent. It cannot be denied that rejection of insurance claim aggravates the already distresses situation, hence the terms should be carefully read into and all material facts pertaining to the policy shall be disclosed.
 LIC v. Sakuntalabai (AIR 1975 AP 68)
 Om Prakash v. Reliance General Insurance