Two Years and Six Months: The Section 45 Repudiation
In March 2021, Sunita, then 47, bought a ₹20 lakh term policy with a ₹5 lakh critical illness rider from Insurer X through agent Devendra. The proposal form was long. Sunita told Devendra that she had been on tablets for high blood pressure for three years and had an abnormal treadmill test in 2020, but asked him to 'adjust' the answers because she feared a higher premium or outright rejection. Devendra filled the form, answered 'No' to the questions on hypertension, heart disorders and any test abnormality, and asked Sunita only to sign at the bottom. The sum assured fell within the non-medical limit, so no medical tests were called. Sunita died of an acute myocardial infarction in September 2023. Insurer X repudiated the death claim on the ground of suppression of material facts and refunded the premiums paid. Her husband, the nominee, wants to know whether the insurer can do this, and whether Devendra bears any responsibility.
1. Is the insurer's repudiation lawful? Explain the rule in Section 45 of the Insurance Act, 1938 and apply it to these dates.
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The repudiation is within the law, subject to the insurer proving its case and communicating properly.
- The rule. Section 45, as amended in 2015, provides that a policy cannot be called in question after three years from the date of issuance, the date of commencement of risk, or the date of revival, whichever is later. Within that three-year window, the insurer may repudiate only on the ground of fraud or misstatement of a material fact, and must communicate the decision in writing, stating the ground and the evidence relied on.
- Applying the dates. Policy issued March 2021; death September 2023 - two years and six months. The claim falls inside the window, so the insurer is not barred from repudiating.
- Materiality. Three years of hypertension medication and an abnormal treadmill test are directly relevant to mortality from a heart attack. These are precisely the facts an underwriter would have used to load, exclude or decline the risk.
- Fraud or misstatement. The answers were factually false and Sunita knew the true position; the insurer must be able to evidence that (proposal form, agent's record, medical records).
- What the nominee can do. Ask for the written repudiation letter with grounds; escalate to the insurer's grievance redressal officer; then the Insurance Ombudsman within whose territorial and monetary jurisdiction the claim falls; and in parallel, civil remedies. Refund of premium is the usual consequence of a valid repudiation within three years, not the sum assured.
The exam point: the three-year clock is the whole case - three months later, the same facts would not have defeated the claim.
2. Assess Devendra's conduct. What would have happened if Sunita's full history had been disclosed at proposal?
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Devendra's conduct is a straightforward breach of the agent's code of conduct and probably an offence.
- The duties he breached. An agent must disclose to the insurer every material fact known to him about the risk, must bring to the proposer's notice the importance of full and accurate disclosure, and must not misrepresent or complete the proposal in a way that misstates the proposer's answers. Filling 'No' against known hypertension and test abnormality, then taking a bare signature, does all three.
- Consequences for him. Termination of appointment; report to the Authority and removal from the register of agents; forfeiture or claw-back of commission on the policy; and exposure under the Insurance Act for knowingly making a false statement in a proposal or related document. Civil liability to the family is also possible.
- Consequences for the client. He converted a manageable underwriting conversation into a claim dispute. The family receives premiums back after two and a half years of believing they were covered.
- Had the facts been disclosed. The insurer would have called for medicals or issued a rated policy, a postponement or an exclusion - or declined. A loading of, say, 50% on a ₹20 lakh term plan is a modest cost against the certainty of a paying claim. If Insurer X declined, a different insurer could have been approached on the same honest facts.
The lesson an examiner rewards: disclosure is not an obstacle to a sale, it is what makes the sale worth anything.
3. Suppose instead the policy had lapsed in 2022 and been revived in June 2022, with death occurring in April 2026. Would the answer change?
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Yes - the outcome would flip.
- Section 45 fixes the three-year period by reference to the date of issuance, commencement of risk or revival, whichever is later. A revival in June 2022 restarts the clock, so the protected date is June 2025.
- A death in April 2026 is therefore more than three years after the revival. After that date the policy cannot be called in question on the ground of misstatement or fraud at all, however clear the suppression.
- The insurer would still be entitled to check that the policy was genuinely in force - premiums paid, revival effected and documented - but not to reopen the disclosure.
- This is why revival is treated as fresh underwriting: the insurer asks health questions and may call for medicals precisely because it is re-accepting the risk and re-starting its contestability window.
- Practical implication for the family in the actual case: if a revival had occurred and the three-year period had run from it, the nominee would have had a strong claim. Agents should understand that the client's protection is measured from the last underwriting event, not from the original proposal.