The suppressed diabetes that had nothing to do with the accident
Mr. Raghav, aged 43, submitted a proposal on 12 March 2023 for a 20-year endowment plan with a sum assured of ₹25,00,000 and an annual premium of ₹1,14,600. In the proposal he answered 'No' to the questions on diabetes, hypertension and hospitalisation in the last five years. In fact he had been diagnosed with Type 2 diabetes in 2020 and had been hospitalised for diabetic ketoacidosis for nine days in 2021. The policy was issued on standard terms on 28 March 2023; no medical examination was called for because the sum assured was within the non-medical limit. On 2 November 2024, 19 months after commencement, Mr. Raghav died in a road accident; the post-mortem showed a skull fracture and no trace of chronic disease as a cause of death. His widow, the nominee, filed a claim with the death certificate and police report. The insurer's investigation wing obtained the hospital records and repudiated the claim, citing fraudulent suppression of material facts. The premiums paid total ₹2,29,200.
1. Can the insurer lawfully repudiate? Set out the test under Section 45 of the Insurance Act, 1938 and apply it to these facts.
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The policy was issued on 28 March 2023 and the claim arose on 2 November 2024, so the insurer is acting 19 months after issuance, inside the three-year window in Section 45 of the Insurance Act, 1938. Outside that window the insurer could not call the policy in question on any ground whatsoever. Inside it, the insurer may avoid the policy only if it proves three things: that the answers were false; that the facts suppressed were material; and that the false answers were fraudulently made, meaning made with knowledge of their falsity, since the Explanation to Section 45 adopts the meaning of fraud in Section 17 of the Indian Contract Act.
A diagnosis of Type 2 diabetes and a nine-day hospitalisation for ketoacidosis are plainly material to a life underwriter; the fact that the case fell within the non-medical limit does not make them immaterial, it only explains why the insurer did not detect them. The hospital admission record, discharge summary, prescription history and the signed proposal support knowledge on the insured's part. A repudiation resting only on the investigation officer's suspicion would not survive scrutiny. The insurer must also communicate the grounds and the materials in writing before repudiating.
2. The widow argues that the death was accidental and the suppressed illness played no part in it. Does the absence of a link between the concealed illness and the cause of death change the outcome?
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The widow's argument is that the non-disclosure did not affect the risk that actually matured, so the insurer lost nothing by it. Before the 2015 amendment, courts often looked for a connection between the concealed fact and the cause of death, and a claim could succeed where the death was from an unrelated accident. Section 45 as amended does not contain a nexus requirement: its test is materiality plus fraud.
The underwriter's question is whether disclosure would have altered the decision to issue, the premium charged, or the terms imposed. On these facts it would: a 43-year-old with diabetes and a history of ketoacidosis could have been declined, loaded, or issued with an exclusion, so the insurer's decision was made on a false picture. The counter-argument is that if the insurer would have issued the identical policy at the identical premium even after disclosure, materiality fails and the repudiation is not justified. The answer therefore turns on underwriting evidence, not on whether the death was accidental. A well-reasoned repudiation will state which of these grounds it relies on and annex the underwriting manual or chief underwriter's opinion.
3. If the repudiation is upheld, what is the financial consequence for the nominee? If it is set aside, what is payable?
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If the repudiation stands, the policy is void and the insurer must return the premiums it received, ₹2,29,200, usually without interest and sometimes after deducting the cost of the risk actually carried for the 19 months of cover; a forfeiture clause cannot be used to keep money for a risk the insurer says it never accepted on these terms. The nominee's remedies are a representation to the insurer's grievance redressal officer, then the Insurance Ombudsman within its monetary limit, a consumer commission, or a civil suit, all subject to limitation.
If the repudiation is set aside, the insurer pays the sum assured of ₹25,00,000 plus bonuses that had vested, and interest for any delay beyond the 30-day settlement period at the bank rate. The difference between the two outcomes is therefore about ₹22,70,000 plus bonuses. That gap is why the quality of the insurer's evidence of fraud, and not the cause of the accident, is the decisive issue in the file.