Death claim rejected for 'suppression of material facts' — what Section 45 of the Insurance Act says

Section 45 of the Insurance Act, 1938 limits when a life insurer can question a policy. After three years from the latest of the issue, risk-start, revival or rider date, it cannot question the policy on any ground. Within those three years it can question it for fraud, or for a misstatement of a fact that was material, but it must give the grounds and materials in writing, and if it repudiates for misstatement rather than fraud it must pay back the premiums.

'Suppression of material facts' is the phrase insurers use when they say the proposal form left out, or got wrong, something that mattered to the decision to insure: a medical history, tobacco use, income, an earlier policy. Section 45 decides when an insurer may raise that and what it has to show. The section as it reads in the consolidated Act on India Code was substituted by the Insurance Laws (Amendment) Act, 2015, with effect from 26 December 2014.^[1]

Once the policy is past its contestable period

No policy of life insurance can be called in question on any ground whatsoever after three years from the date of the policy. The section defines that date as the latest of four: the date of issue, the date risk commenced, the date of revival, or the date of a rider. So a revival restarts the count, and so can a rider added later.^[1]

Age is the one carve-out written into the section. The insurer may still call for proof of age at any time if it is entitled to, and adjusting the policy terms because age was wrongly stated is not treated as calling the policy in question.^[1]

What the insurer must show inside the window

• Fraud.: Within three years the policy may be questioned on the ground of fraud, but the insurer must communicate in writing to the insured, or the nominee, legal representative or assignee, the grounds and materials for its decision. Mere silence about a fact is not fraud, unless there was a duty to speak or the silence itself amounts to speech.^[1]
• Defences to fraud.: The insurer cannot repudiate for fraud if the insured can prove the statement was true to the best of their knowledge and belief, that there was no deliberate intention to suppress the fact, or that the fact was within the insurer's knowledge. Where the policyholder has died, the burden of disproving fraud lies on the beneficiaries.^[1]
• Misstatement that is not fraud.: Within three years the policy may also be questioned because a fact material to the life expectancy of the insured was incorrectly stated in the proposal, or in the document on which the policy was revived or a rider issued. A fact counts as material only if it has a direct bearing on the risk, and the insurer has to show that, had it known, it would not have issued any life policy at all.^[1]
• Premiums back.: If the insurer repudiates for misstatement and not for fraud, the premiums collected up to the date of repudiation must be paid to the insured, nominee, legal representative or assignee within ninety days.^[1]
• Who filled in the form.: The section treats a person who solicits and negotiates an insurance contract as the insurer's agent for forming that contract. If an agent or bank staff filled in the proposal, note it and keep any evidence of what you told them; how this plays out depends on the facts.^[1]

Applying the test to the usual allegations

Whatever the fact is — smoking, an earlier illness, income, other policies — the same questions apply. Was the question actually asked in the proposal form, and how was it worded? Was the answer untrue, or left blank? Did the fact have a direct bearing on the risk, and can the insurer show it would not have issued any policy had it known? Was the form filled in by the person who sold the policy? And is the insurer alleging fraud or only misstatement, which changes both the defences open to the family and the refund of premiums?^[1]

What to do with this

1. 1

   Collect the dates.

   Issue, risk commencement, any revival and any rider date from the policy schedule and receipts; then the date of death and the date of the repudiation letter. The latest of the policy dates starts the three-year count.^[1]

2. 2

   Get the proposal form and the material relied on.

   Ask the insurer in writing; it has to communicate the grounds and materials for its decision. Getting a copy of the proposal form explains how.^[1]

3. 3

   Match each alleged fact to the question asked.

   Write down, for each fact the insurer names, the exact question in the form, the answer given, and the record that shows when the fact first existed.

4. 4

   Write the grievance.

   Answer the ground under each part of Section 45 that applies. The insurer should resolve the complaint within 14 days and give reasons that refer to the policy terms if it does not accept it; the nominee's next steps covers what follows.^[2]

ClaimAssure is an independent private platform. It is not an insurer, IRDAI, Bima Bharosa or the Insurance Ombudsman, it never files anything on your behalf, and it cannot promise any outcome. What it does is read your documents and show you what they say.

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