Widow denied ₹1 crore claim after husband passed away, later receives payment: Why court sides with the family

A ₹1 crore life insurance claim took a legal turn after Tata AIA rejected a widow’s claim, alleging that the policyholder withheld some information in the declaration form. The dispute eventually reached the Telangana State Consumer Commission, which examined whether the insurer had enough evidence to justify denying the death benefit.

Telangana State Consumer Disputes Redressal Commission recently heard a case involving a ₹1-crore Tata AIA Life Insurance policy taken by a retired Central Excise officer. The officer died during the COVID-19 pandemic, only two years after taking a ₹1 crore cover.

But when his wife, the nominee, filed a claim, the insurer rejected it, alleging that the policyholder had failed to inform the insurer that another insurer had previously postponed his insurance proposal due to medical findings.

The policyholder bought Tata AIA Life Insurance’s Samporna Raksha plan on October 31, 2019, with a ₹1 crore cover for 25 years and an annual premium of around ₹58,800. His wife was named nominee. After he died from Covid-19 on May 25, 2021, she filed a claim for the full sum assured. Since the death occurred within two years, Tata AIA investigated the claim.

What Tata AIA Life say on rejecting the claim?

While investigating the case, the insurer found the policyholder had earlier approached ICICI Prudential Life Insurance for another ₹1 crore policy. But the case was postponed on medical grounds. This information was not disclosed while applying for the Tata AIA policy.

In fact, the Tata AIA proposal form had specifically asked whether any similar insurance application had ever been declined, postponed, accepted at an extra premium, or modified on terms previously. To which, the policyholder had answered "No".

TATA AIA then rejected the death claim, stating, “this amounted to suppression of a material fact and that it would have assessed the risk differently had the earlier proposal been disclosed.” However, it refunded all the premiums received

What did the family say while challenging the decision?

The family challenged the insurer's decision, saying Tata AIA had conducted its own medical examination and declared the deceased fit before issuing the policy. They also claimed the alleged LVH condition has no connection to Covid death.

Following this, the District Commission ruled in favour of the family and ordered the insurer to pay the ₹1 crore death benefit, along with 9% annual interest from the date the claim was repudiated. The insurer was also directed to pay ₹50,000 as compensation and ₹10,000 towards legal expenses.

Tata AIA then appealed against the order before the State Consumer Commission.

What did the State Consumer Commission observe?

While hearing the case, the Commission referred to a Supreme Court ruling stating that details of earlier insurance policies or applications can constitute important information that a policyholder must disclose.

“However, the Commission distinguished that case because Tata AIA failed to prove that the deceased knew about the earlier postponement before completing its proposal form. Thus, the precedent established the legal principle of full disclosure but did not automatically justify repudiation," says Alay Razvi, Managing Partner, Accord Juris told ET.

The medical reports alone did not establish that the deceased had been informed of the findings or the postponement, he added

The Commission found a critical evidentiary gap in Tata AIA's case. It also pointed out that Tata AIA had also conducted its own medical examination before issuing the policy, giving it an opportunity to independently assess the insured's health.

The State Commission dismissed Tata AIA Life's appeal and confirmed the District Commission's order in full.

The case is a big lesson for the policyholder, underscoring the need to be very careful and transparent when declaring information when taking out an insurance policy. At the same time, when an insurer conducts an independent medical examination and certifies a proposer as healthy, it cannot then argue that the same is irrelevant and reject the claim