The thyroid surgery claim: non-disclosure, the agent's advice, and the moratorium
In March 2023 Rekha, then 38, buys an individual health policy with a sum insured of ₹5 lakh through the corporate agency desk of her bank. She pays about ₹18,000 a year. At the proposal stage she discloses nothing significant, although she had been diagnosed with hypothyroidism in 2021 and has been on 50 mcg thyroxine daily since. The agent told her: 'It is a minor thyroid problem, no need to mention it, otherwise the premium will go up or they will add an exclusion.' She signed the proposal form, as the form requires, declaring the answers to be true and complete. In June 2024, about 15 months into the policy, she undergoes a thyroidectomy costing ₹1.4 lakh and claims. The insurer repudiates, cites non-disclosure of a pre-existing condition, and cancels the policy. The policy wording has a three-year waiting period for pre-existing diseases. Rekha says the agent's advice should protect her.
1. Is the repudiation valid? Apply the duty of disclosure, Section 45 of the Insurance Act and the health-insurance moratorium.
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The repudiation is likely valid at 15 months, but the reasoning must be tested.
- Duty of utmost good faith. The proposer must disclose every fact material to the insurer's underwriting decision. A diagnosed, continuously medicated thyroid condition is material - it affects the risk and would at least have triggered loading or an exclusion.
- Section 45 of the Insurance Act, 1938 bars an insurer from questioning a life policy after three years on the ground of misstatement or fraud. For health policies the equivalent protection is the moratorium under IRDAI's 2024 health framework: after 60 months of continuous coverage, a claim cannot be contested except for proven fraud. Rekha is at 15 months, so the moratorium is not available to her.
- The waiting period clause also matters: the policy carries a three-year waiting period for pre-existing diseases, so even with full disclosure the surgery in year two would not have been payable - though the insurer would have had to honour the contract, not cancel it.
Nuance in Rekha's favour: the insurer should be able to demonstrate materiality, i.e. that it would actually have declined, loaded or excluded. A regulator increasingly frowns on a repudiation that is disproportionate to the condition. That is an argument for proportionate relief, not for overturning the settlement outright.
2. Does the agent's advice protect Rekha? What action does the agent's conduct attract?
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No. The duty of disclosure is personal to the proposer.
Rekha signed the proposal and declared the answers true and complete. An agent's oral assurance that a condition need not be mentioned does not override that declaration, and the insurer deals with the proposer, not with the agent. This is a hard answer, but it is the correct one.
But the agent's conduct is a separate, serious violation. Advising a customer to suppress a material fact is:
- a breach of the IRDAI code of conduct for insurance agents and corporate agents;
- a mis-selling issue for the bank acting as corporate agent, exposing it to a conduct complaint and to IRDAI action against the agency licence;
- potentially a fraud on the insurer, which can be reported.
What Rekha can do with it:
- Put the agent's advice in writing to the insurer's grievance cell - it will not usually reverse the repudiation, but it will often produce a commercial settlement and it triggers an inquiry into the agent.
- Complain to the bank's corporate agency compliance desk and to IRDAI's Bima Bharosa portal, naming the agent.
- Pursue the Ombudsman if the insurer's reply is unsatisfactory.
The lesson for the examiner's eye: the customer carries the disclosure duty, but the intermediary carries the conduct duty. Both can fail in the same case.
3. What should Rekha do now about her cover, and what should the bank's agency desk change so this does not recur?
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For Rekha:
- Do not cancel or abandon the claim quietly. File a written grievance, get the repudiation in writing with the specific clause, then approach the Insurance Ombudsman within the permitted window.
- The free-look period (30 days) is long gone - it only allows cancellation at the start, not after a claim.
- For future cover, she must disclose the thyroid history truthfully. She may get a policy with a waiting period and a loading, or a policy where the thyroid is permanently excluded. That is still better than a policy that can be cancelled when a claim arises.
- Portability is a right: if she changes insurer, the new insurer must give credit for the years already covered, subject to the waiting period carried forward. She should preserve the current policy record even after cancellation.
For the bank's corporate agency desk:
- Scripted, neutral proposal questioning - the customer's condition must be recorded in the customer's own words, not paraphrased by the seller.
- No coaching, ever. Written instruction and periodic certification for every agent that advising non-disclosure is a disciplinary offence.
- Explain the waiting period and the moratorium in the welcome call, which is recorded.
- Commission-linked incentives on health policies must be reviewed - the incentive structure, not just the individual agent, produced this outcome.