Smoking, a Hurried Agent and the Free-Look Clock
Anil, aged 45, buys a 20-year term plan with a critical illness rider from a life insurer through agent Farhan. The annual premium is ₹42,000. The proposal form asks, 'Have you smoked any tobacco product in the last five years?' Farhan, in a hurry, ticks 'No' without asking Anil, and Anil signs the form without reading it. Anil has smoked about ten cigarettes a day for 15 years. Nine months later he is diagnosed with lung cancer and claims the rider benefit. The insurer repudiates, saying the smoking was material non-disclosure. Anil says the agent filled the form and told him that 'smoking is not asked' and that the policy had 'guaranteed returns'. The policy document was delivered on 12 March; Anil first wrote to the insurer on 28 March demanding cancellation under the free-look period. He now wants both the claim and a full refund.
1. Can the insurer repudiate the claim for non-disclosure of smoking? Consider materiality, the agent's role and Section 45 of the Insurance Act.
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Materiality. Smoking is material to life and health underwriting. It affects mortality and morbidity, and the proposal form specifically asked about it. A 'No' answer was therefore a material misstatement.
But who made the statement? Farhan, the insurer's agent, filled the form. An agent acting within the scope of authority is the insurer's agent; his knowledge is imputed to the insurer. If Farhan knew Anil smoked, or failed to ask, the insurer cannot rely on the false answer as if Anil had deliberately concealed the fact. The insurer must show that Anil knowingly made a false statement. Anil signed without reading, which is careless, but the primary act was the agent's.
Section 45. Within three years of issuance, the insurer may call the policy in question only if the statement was material and fraudulently made. The insurer has to prove knowledge and fraud. On these facts, that burden is difficult because the agent completed the form. The 'guaranteed returns' statement is also a misrepresentation by the agent. My judgement is that the insurer should not mechanically repudiate; it should investigate, and if it persists, Anil has a strong case before the Insurance Ombudsman. The claim should be assessed on merits.
2. Is Anil entitled to cancel the policy under the free-look period? Calculate the relevant dates.
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Free-look period. The free-look period is 15 days from the date of receipt of the policy document; for distance marketing, it is 30 days. The policy was delivered on 12 March. Fifteen days from 12 March ends on 27 March. Anil wrote on 28 March - one day beyond the free-look period.
Distance marketing. If the policy was sold online or by telephone, the 30-day period applies, and 28 March would be within it. The facts do not say how it was sold, so the insurer must verify the mode of sale.
Mis-selling. Even outside the free-look period, mis-selling by an agent is a valid grievance. IRDAI requires insurers to redress mis-selling and to refund or cancel where the sale was induced by misrepresentation. Anil should file a written complaint with the insurer's grievance redressal officer and, if unsatisfied, with the Insurance Ombudsman. He should not rely only on the free-look clock.
3. What action can the regulator or insurer take against the agent? What should the insurer have done in the proposal process?
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Agent's breach. The IRDAI (Insurance Agents) Regulations, 2016 prescribe a code of conduct: an agent must not misrepresent the product, must not fill in false answers, must explain the policy, and must act in the customer's interest. Ticking 'No' on smoking and promising 'guaranteed returns' on a term plan are clear breaches.
Insurer's action. The insurer can terminate Farhan's agency, report the conduct to IRDAI, withhold renewal of the agency, and recover commission in appropriate cases. IRDAI can impose penalties, suspend or cancel the agent's licence, and require the insurer to strengthen its controls.
Process fix. The insurer should have verified the proposal through a customer confirmation call, a medical questionnaire and a check on the agent's declarations. It should also train agents and audit proposal forms. The insurer cannot escape liability by blaming the agent alone; it is responsible for the distribution channel it appoints.