The Supreme Court has ruled that insurers have the right to deny health claims for conditions linked to alcoholism if the policyholder failed to disclose their alcohol consumption at the time of purchasing the policy.

The Supreme Court approved the decision of the Life Insurance Corporation (LIC) to repudiate a claim over the hospitalisation of a policyholder under the "Jeevan Arogya” scheme since he gave false information regarding his habit of alcohol consumption.

A bench of Justice Vikram Nath and Justice Sandeep Mehta heard LIC's appeal against the National Consumer Disputes Redressal Commission (NCDRC) order, which had upheld the State and District fora’s decision directing LIC to pay ₹5,21,650 and costs to the claimant.

In this case, the claimant's husband, Mahipal, purchased LIC's "Jeevan Arogya" policy in 2013, which offered hospital cash benefits, including ₹1,000 per day for non-ICU hospitalization and ₹2,000 per day for ICU hospitalization. Nearly a year later, he was hospitalized with severe abdominal pain and, after a month of treatment, passed away.

LIC rejected the claim filed by the policyholder’s widow, citing that the deceased had withheld crucial information about his chronic alcoholism. Referring to Clause 7(xi) of the Jeevan Arogya Plan, LIC stated that the policy excludes coverage for "self-inflicted injuries or conditions (attempted suicide) and/or the use or misuse of any drugs or alcohol and complications arising from it."

The claimant then approached the Consumer Forum, which directed LIC to reimburse the medical expenses. However, the Supreme Court disagreed with the approach taken by the NCDRC and the Consumer Fora.

The Court first observed that the Consumer Fora had incorrectly treated the policy as a medical reimbursement policy when, in reality, it only provided specified cash benefits. Additionally, upon reviewing the medical records, the Court found clear evidence that the policyholder had a history of "chronic alcohol intake."

Notably, in the policy proposal form, a specific question asked whether the insured consumed alcohol, cigarettes, bidis, or tobacco in any form. The policyholder had answered "No" to this question.

The SCDRC dismissed the hospital note on chronic alcohol intake, reasoning that it was issued a year after the policy was purchased. However, the Supreme Court disagreed, emphasizing that chronic liver disease resulting from prolonged alcohol consumption does not develop overnight.

"The deceased's alcoholism was a long- standing condition, which he knowingly suppressed while subscribing to the policy. Given this suppression of material facts, the appellant was justified in repudiating the claim under the exclusion clause," the Court observed.

The NCDRC had relied on the Supreme Court’s judgment in Sulbha Prakash Motegaoneker & Ors. v. Life Insurance Corporation (2015), which ruled that merely suppressing a pre-existing disease was not sufficient grounds to reject a claim. However, the Supreme Court distinguished the present case from Sulbha Prakash Motegaoneker, noting that in that case, the undisclosed disease was not the cause of death. In contrast, while the immediate cause of death in this case was cardiac arrest, it was linked to chronic liver disease, which had developed due to alcoholism.

"The record shows that he was hospitalized for severe abdominal pain and vomiting—complications commonly associated with chronic liver disease. He remained hospitalized for nearly a month before succumbing to a cardiac arrest. Given this medical history, it cannot be said that the cardiac arrest was an isolated event, unrelated to the pre-existing chronic liver disease."

The Court further observed that Sulbha Prakash Motegaoneker was later clarified in Bajaj Allianz Life Insurance Co. Ltd. v. Balbir Kaur, which held that if a pre-existing disease directly caused the death, its suppression would justify the repudiation of the claim.

"Thus, Sulbha Prakash Motegaoneker does not establish a general principle of law applicable to all cases of non- disclosure. Instead, each case must be assessed based on its specific facts," the Court said.

"The deceased's chronic alcoholism and liver disease were material facts that were deliberately suppressed when the policy was obtained. Given the clear exclusion clause, the appellant was justified in repudiating the claim."

While upholding LIC's decision to reject the claim, the Court acknowledged that ₹3 lakhs had already been paid to the claimant as per the Consumer Commission's directions. Considering the respondent's financial condition, the Court chose not to permit LIC to recover the amount.

Case : Life Insurance Corporation vs Sunita and others | SLP(c) 15354/2020