LIC rejects five life insurance claims saying policyholder hid diabetes: Court finds disease diagnosed only after buying the policies; orders over Rs 60 lakh payout

The National Consumer Disputes Redressal Commission has ordered LIC to pay a Mumbai woman over Rs 60 lakh in life insurance proceeds after finding that the corporation had wrongly rejected all five policies taken out by her son, who died of a cardiac arrest in 2013.

The ruling brings to a close a legal battle that has stretched over a decade, and lays down a clear position: an insurer cannot reject a death claim on the ground of non-disclosure of a disease the policyholder had no knowledge of at the time of taking the policy.

How it all began


In June 2010, Nitin Suresh Gambhir, a resident of Mahim in Mumbai, submitted proposals for five life insurance policies to LIC. LIC put him through a medical examination conducted by its own panel doctor, who certified him as fit. Based on that, all five policies were issued.

The first three policies came into force on 26 August 2010, with risk commencing on the same date. The sum assured under these three policies was Rs 10 lakh, Rs 15 lakh, and Rs 15 lakh respectively.

For the remaining two policies each carrying a sum assured of Rs 10 lakh, the family paid the first premium on 7 September 2010. LIC, however, would later claim it received the first premium only on 13 September 2010 and accordingly dated the commencement of risk from that date.

The hospitalisation that changed everything

On 11 September 2010, four days after the family says it paid the premium on the last two policies, Nitin was admitted to P.D. Hinduja National Hospital in Mumbai. The reason for admission was a non-healing wound on his right leg that had not healed for fifteen days.

During his stay, the hospital noted in its records that he was a known diabetic for two months and had been on a hypoglycaemic agent. He was treated and discharged on 13 September 2010.

Nitin died on 11 June 2013, nearly three years after the hospitalisation, due to a cardiac arrest.

LIC rejects all five claims

His mother, Jayshree Suresh Gambhir, filed death claims under all five policies. LIC rejected every single one of them through a repudiation letter dated 11 July 2014.

The insurer's position was that Nitin had withheld material information about his health when he submitted the proposal form. LIC pointed to the Hinduja Hospital discharge summary, which mentioned diabetes for two months as of September 2010, and argued that the condition would therefore have existed around the time the proposal form was submitted in June 2010. Since Nitin had answered no to questions about diabetes and prior hospitalisation in his proposal form, LIC said he had violated the principle of utmost good faith and the policies were void.

The family's fight

Jayshree approached the Maharashtra State Consumer Disputes Redressal Commission. After examining the records, the state commission drew a distinction between the five policies based on the dates involved.

For the first three policies, it found that risk had commenced on 26 August 2010 and the hospitalisation only took place on 11 September 2010, after the policies were already active. It allowed the claim on those three.

For the last two policies, the state commission accepted LIC's version that the first premium was received on 13 September 2010, the same day Nitin was discharged. Since the hospitalisation fell within the window between premium payment and the start of risk, the state commission upheld the rejection of those two policies.

Both sides were unhappy. LIC appealed the state commission's ruling on the first three policies. Jayshree appealed on the last two. Both appeals landed before the national commission.

What the national commission found

The bench, comprising Presiding Member Dr. Inderjit Singh and Member Shashi Nandkeolyar, examined the case from the beginning and ruled in the family's favour on all five counts.

On the core question of diabetes disclosure, the commission noted that no medical records were produced by LIC to show Nitin was suffering from or aware of diabetes before he signed the proposal form on 27 June 2010. The hospital discharge summary from September 2010 mentioned diabetes for two months, but the commission said that alone was not enough to conclude the condition was known to Nitin at the time he filled the form.

The commission also pointed to a second hospitalisation record from February 2013, just months before Nitin's death, which described him as non-diabetic. That document further weakened LIC's case.

On the cause of death, the commission noted that Nitin died of a cardiac arrest in June 2013, nearly three years after the leg wound hospitalisation. There was no medical nexus between cellulitis of the leg and a cardiac arrest, and LIC had not established any such link.

The dispute over the premium date

The most consequential finding concerned the last two policies and when the first premium was actually received.

LIC produced two documents titled First Premium Receipts, both dated 13 September 2010. However, the commission pointed out that these receipts did not clearly indicate when the premium money was actually received by LIC, only when the receipts were formally issued.

The family produced two documents titled Proposal Deposit Receipts, both dated 7 September 2010, which explicitly stated that Rs 40,100 had been received as premium in each case. The commission found these more credible and concluded that the first premium for both policies was received on 7 September 2010, four days before Nitin was even admitted to hospital.

Under the terms of the proposal form, a policyholder was required to inform LIC of any adverse change in health between the submission of the proposal and the receipt of the first premium. Since the first premium had already been received before the hospitalisation in all five cases, Nitin was under no such obligation for any of the policies. The commission held that the state commission had correctly allowed the first three claims but had gone wrong in rejecting the last two.

What LIC has been ordered to pay

LIC has been directed to pay a total of Rs 60 lakh in sum assured across all five policies. Rs 10 lakh each under three policies and Rs 15 lakh each under other two policies.

On top of that, the Rs 1 lakh compensation for mental agony awarded by the state commission has been maintained, and total litigation costs have been fixed at Rs 50,000, bringing the total ordered payout to Rs 61.5 lakh before interest.

All amounts carry interest at 9 per cent per annum from the date of repudiation in July 2014 until full payment is made, which means the actual amount Jayshree receives will be considerably higher given that over a decade has passed since LIC first turned down her claims.

LIC's appeal was dismissed. Jayshree's appeal was allowed.

Check the case judgement here: