Implications of non-disclosure by the insurer :

It is true that in a contract of insurance the insured has to furnish more information about him. But there are certain covenants in a contract, which have to be thoroughly elaborated to the insured. These relate to the conditions in which the insurance company may or may not perform its promises.

It has to be noted that it is the duty of both the insurance agent and the company authorities that this particular aspect is looked into. Any laxity at this point may tilt the judgments in favor of the insured in case of a dispute.

Example

In the case of LIC vs. Shakuntalabai, the insured had availed a life insurance policy from LIC. Before taking the policy he had suffered from indigestion for a few days and at the first instance had availed treatment from an ayurvedic doctor. This fact was not disclosed by the insured.

The insured died of jaundice within a few months after buying the policy. Eventually LIC refused to accept the claim on the ground of non-disclosure of information. However the court rejected this stand of LIC since it had not explained this covenant clearly to the insured, which amounts to non-compliance of its responsibilities. Such casual ailments are common and occur many times over and they can be treated by over the counter drugs. It is normally not possible for a person to distinguish a potentially serious ailment inherent in such symptoms. Also it is not possible for a person to remember the details of all such illnesses like cough, cold, headaches, etc., and the medications taken for them after a few months. So these facts are not to be considered as material to the contract and thus their nondisclosure does not invalidate the contract.