The Supreme Court has once again emphasized the principle of utmost good faith in insurance contracts while clarifying when a life insurance claim can be repudiated due to the non-disclosure of existing policies. In the case of Mahaveer Sharma v. Exide Life Insurance Company Limited & Anr., the court provided critical insights into what constitutes material suppression in insurance claims.

The case revolved around the insurance claim of Mahaveer Sharma, whose father had taken a life insurance policy from Exide Life Insurance worth Rs. 25 Lakhs. Following his father's unfortunate demise due to an accident, Sharma applied for the policy benefits. However, his claim was rejected on the grounds that his father had failed to disclose all previously existing insurance policies.

The insurer pointed out that while the deceased had disclosed a Rs. 40 Lakh policy from Aviva Life Insurance, he had not mentioned other policies taken from Life Insurance Corporation of India (LIC). Based on this alleged non-disclosure, the insurer repudiated the claim, a decision that was upheld by both the State Commission and the National Consumer Disputes Redressal Commission (NCDRC).

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The Supreme Court carefully examined whether the non-disclosure of additional policies was material enough to warrant claim repudiation. The bench, comprising Justices B.V. Nagarathna and Satish Chandra Sharma, highlighted the principle of "uberrima fides" (utmost good faith) and reaffirmed that policyholders are obligated to disclose all relevant facts that a prudent insurer would consider while assessing risk.

The Court stated: "An insurance is a contract of utmost faith. It is the duty of the applicant to disclose all facts which may weigh with a prudent insurer in assuming the risk proposed. These facts are considered material to the contract of insurance, and its non-disclosure may result in repudiation of the claim. The materiality of a certain fact is to be determined on a case-to-case basis."

The Court distinguished this case from previous rulings such as Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod, where an insurance claim was rightfully denied due to complete failure to disclose previous policies.

While assessing material suppression, the Court noted that in this case, the deceased had already disclosed a significant Rs. 40 Lakh policy from Aviva. The undisclosed LIC policies collectively amounted to just Rs. 2.3 Lakhs, which was insignificant compared to the disclosed amount. The insurer knew about the higher policy amount from Aviva and still issued the new policy. The insurance policy in question was not a Mediclaim policy but a life insurance policy, where the cause of death (accident) was unrelated to any health condition. Thus, the Court held that this level of non-disclosure was not material enough to impact the insurer’s decision to issue the policy.

Concluding that the insurer had improperly repudiated the claim, the Supreme Court directed Exide Life Insurance to release all benefits under the policy along with an interest of 9% per annum. The Court ruled: "The policy in question is a life insurance cover, and the death of the deceased has taken place on account of an accident. Accordingly, failure to mention other policies does not amount to a material fact in relation to the policy availed. Consequently, the claim could not have been repudiated by the respondent company."

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The judgment reinforces that partial disclosure does not always amount to material suppression. If the disclosed policy is significantly higher in value than the undisclosed ones, the insurer cannot reject the claim. Non-disclosure must be examined on a case-to-case basis, and the insurer must prove that the non-disclosed information would have changed its decision to issue the policy. Insurance companies must act prudently; if an insurer issues a policy despite knowing of other high-value policies, it cannot later reject a claim based on minor non-disclosures. Life insurance and Mediclaim policies differ, as non-disclosure of medical conditions is crucial for Mediclaim policies, but may not always be material for life insurance policies.

The Mahaveer Sharma v. Exide Life Insurance case is a significant precedent in insurance law, reinforcing that non-disclosure must be material to justify repudiation. The ruling provides much-needed clarity and protection to policyholders, ensuring that insurance companies do not misuse technicalities to unfairly reject claims. Policyholders must, however, remain diligent and disclose all relevant information to avoid disputes in the future.

Case Name: MAHAVEER SHARMA v. EXIDE LIFE INSURANCE COMPANY LIMITED & ANR., Arising out of SLP (Civil) No. 2136 OF 2021