Bombay High Court Sets Aside Insurance Ombudsman’s Award Upholding Rejection of Cancer Claim: “Occasional Alcohol Consumption Not Ground for Repudiation, No Nexus with Ailment Proven — Insurer’s Conduct Demonstrates Non-Disclosure Did Not Affect the Contract” — Directs Insurer to Honour ₹17.77 Lakh Claim

Court’s Decision

The Bombay High Court quashed the Award dated 10 June 2024 passed by the Insurance Ombudsman that had upheld the rejection of the petitioner’s health insurance claim amounting to ₹17,77,147 by Care Health Insurance. The Court held that:

“Petitioner’s occasional consumption of alcohol could not have been a ground for repudiation of insurance claim,”

and further held that:

“There is absolutely no evidence on record to indicate that petitioner’s occasional consumption of alcohol or pre-existing hypertension had any nexus with the disease of cancer.”

Accordingly, the Court directed the insurance company to honour the claim, holding the Ombudsman’s decision as unsustainable.

Facts

• The petitioner had a long-standing health insurance policy with Royal Sundaram from 2003 to 2020, which was ported to Care Health Insurance Ltd. (respondent) in 2021 with a normal floater cover of ₹5,00,000 and a top-up cover of ₹50,00,000.
• Petitioner paid ₹13,23,634 as premium for a 3-year policy starting 29 September 2021.
• In July 2022, he was diagnosed with Non-Hodgkin’s Lymphoma (a form of cancer), and underwent chemotherapy and radiation.
• He submitted 7 claims totaling ₹17,77,147.
• The claims were denied citing (i) non-disclosure of daily alcohol consumption and (ii) pre-existing hypertension.
• The Insurance Ombudsman upheld the rejection solely on the ground of non-disclosure of alcohol consumption.

Issues

1. Whether the insurer was justified in repudiating the claim based on non-disclosure of alleged daily alcohol consumption and pre-existing hypertension.
2. Whether the Ombudsman’s Award based on partial and inconsistent reasons could be sustained.
3. Whether there was any nexus between the allegedly undisclosed facts and the ailment suffered.

Petitioner’s Arguments

• Non-disclosure of alcohol consumption is immaterial as it was occasional and unrelated to the ailment (cancer).
• The claim denial letters were inconsistent; some did not even mention hypertension.
• The insurer never raised the issue of hypertension before the Ombudsman.
• There is no causal link between hypertension and the cancer diagnosed.
• He had been insured since 2003 and had ported the policy based on representations made by the insurer.
• The insurer continued to seek renewal even after rejecting the claim, indicating that it did not treat the omissions as material.

Respondent’s Arguments

• Petitioner failed to disclose his habit of consuming alcohol and his pre-existing condition of hypertension.
• These omissions were material and would have affected the underwriting and premium assessment.
• The insurer relied on hospital records and telephonic disclosures made by the petitioner indicating alcohol use.
• Reliance placed on Supreme Court decisions holding suppression of material facts to be fatal in insurance contracts.

Analysis of the Law

• The Court emphasized that for non-disclosure to be material, there must be a nexus between the omitted fact and the ailment in question, as held in Manmohan Nanda v. United India Assurance Co. Ltd. and reiterated in LIC v. Sunita.
• It observed that hypertension is a common lifestyle condition among the elderly and is not materially connected to Non-Hodgkin’s Lymphoma.
• The insurer’s own conduct—sending renewal notices and offering continuation of the policy even after full knowledge of the alleged omissions—indicated that the policy itself was not voided.
• Clause 7.1 of the policy allowed cancellation for material non-disclosure, but the insurer chose not to cancel, instead offering renewal on reduced premium.

Precedent Analysis

• Manmohan Nanda was relied upon to reiterate that: “The fact must be one affecting the risk… If it has no bearing on the risk it need not be disclosed.”
• The Court distinguished Branch Manager, Bajaj Allianz v. Dalbir Kaur, noting that in that case, there was active treatment and serious symptoms (vomiting blood) near the date of policy issuance—absent here.
• It also cited LIC v. Sunita but held that decision inapplicable as there was no evidence linking occasional alcohol consumption to the cancer.

Court’s Reasoning

• The Ombudsman only dealt with the alcohol ground and did not examine hypertension, which had never been argued before it.
• The insurer’s failure to be consistent in its claim rejection letters undermined the credibility of its defence.
• The failure to forfeit the premium or cancel the policy despite policy clause allowing it, and sending repeated renewal notices, signaled that the omissions did not impact the underwriting decision.
• The lack of any evidence to establish a causal link between the cancer and alcohol/hypertension was fatal to the insurer’s case.

Conclusion

The Court held that the grounds cited for claim rejection were unsustainable and not borne out by either facts or legal principles. It quashed the Award of the Insurance Ombudsman and allowed the petition.

Implications

• The judgment reinforces the principle that material non-disclosure in insurance must have a demonstrable nexus to the ailment or risk.
• It protects long-time policyholders from arbitrary claim denials, especially after porting policies.
• Insurers cannot selectively use policy terms while continuing to benefit from premium payments.
• The ruling may have implications on future disputes arising out of ported insurance policies involving elderly insured persons.

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