State Consumer Disputes Redressal Commission
Life Insurance Corporation Of India vs Suman, on 1 August, 2008
IN THE STATE COMMISSION:DELHI IN THE STATE COMMISSION: DELHI (Constituted under Section 9 of The Consumer Protection Act, 1986) Date of Decision: 01-08-2008 Appeal No. A-177/2004 (Arising out of Order dated 01-11-2003 passed by the District Forum-II, Qutub Institutional Area, New Delhi, in Complaint Case No. 666/2002) Life Insurance Corporation of India, Branch Office 11-X, Saket, New Delhi AND Divisional Office No.1, 25-K.G. Marg, New Delhi 110001. . . . Appellant Through Mr. G.L. Chawla, Advocate Versus Smt. Suman, C/o. Shri Satish Kumar, R/o. Village Chandanhulla, Mehrauli, New Delhi. . . . Respondent CORAM: Justice J.D. Kapoor, President Ms. Rumnita Mittal, Member
1. Whether Reporters of local newspapers be allowed to see the judgment?
2. To be referred to the Reporter or not?
Justice J.D. Kapoor (Oral)
1. The facts of the case are very interesting. Short controversy arising in this appeal preferred against the order dated 01-11-2003 passed by the District Forum; whereby the appellant-insurance company has been directed to pay the insurance amount to the nominee of the insured with interest @9% from 01-11-2000 within one month, is whether the contract of insurance was concluded prior to the death of the insured or not? The insured died on 31-03-2000at 4.30 PM whereas the appellant company claims to have received the payment from its agent at 5.10 PM on 31-03-2000. Admittedly, the insured died in a fatal accident.
2. The case of the respondent in brief is that her husband had taken a life insurance policy for Rs. 1.00 Lakh for which premium was paid but unfortunately he died on 31-03-2000in an accident and she being the nominee and widow of the insured filed a claim with the appellant company which was rejected.
3. While justifying the rejection of the claim the appellant averred that the policy was obtained by fraudulent misrepresentation by giving fake declaration knowing to be false with a view to defraud and hence contract of insurance became void ab-initio. Further the husband of the respondent had not taken any policy.
He died on 31-03-2000 at 4.30 PM whereas the premium was paid at 5.05 PM on 31-03-2000.
Premium was deposited by one Bishamber Singh which was later on got adjusted against the name of deceased Yashpal-husband of the respondent. At the time of effecting insurance the proposer had already died and the premium was paid by someone else by concealing the fact that the proposer had died.
4. However, the finding of fact returned by the District Forum is that the contract was already concluded on acceptance of the premium by the appellant company by way of issuing the policy. The reasons and observations given by the District Forum in arriving at this conclusion are as under:-
We do not find substance in any contention of the O.P. O.P. even denied that any policy was issued to the husband of the complainant (Para-1 of the Reply on Merits). If no policy was issued, how it was obtained as it was further stated by the O.P. that policy was obtained by fraudulent misrepresentation. The two statements are obviously contradictory. Fact is that policy was issued and there was no misrepresentation on the part of the complainants deceased husband. O.P. is trying to take benefit of payment of premium shown to have been paid at 5.05 pm whereas death had taken place at 4.30 pm on 31-03-2000. But even the plea which is the main plea of O.P. when examined minutely is not tenable because of the fact that premium was deposited by Bishamber Singh who is agent of O.P with Code No. 83934-I1X along with other premiums for other policies done by him. He had deposited Rs. 24,100/- whereas premium of complainants husbands policy was only Rs. 1287/- This sheet/statement filed by O.P. does not have any time of payment. It is the O.P. who has concealed the fact that Bishamber Singh is their agent. He is their agent is proved by the Code 83936- 11X. It was clearly stated by the complainant that the proposal form with premium was handed over to the agent of O.P. and Policy dated 28-03-2000 was issued. After the premium was deposited by the agent in lump sum for many policies, O.Ps office might have prepared individual statements for their record and when the turn of complainants husbands policy came it was 5.05 pm but it does not at all mean and show that premium was paid at 5.05 pm only. It only shows that O.P. took it in the individual account at 5.05 pm though it had been paid much earlier and may even before 1.00 pm because Bishamber Singh had made the payment of Rs. 24,100/- at S. No. 261, whereas the sheet contain S. No. up to 273. If one entry takes even five minutes, payment was deposited by Bishamber Singh at about 4.00 pm but the time of deposit is much before 4.00 pm because all of 273 payments shown in the statement have been deposited by agent and individuals. Sheets would have obviously been prepared after the statement up to S. No. 273 has been completed.
5. The plea of the Ld. Counsel for the appellant that the proposal form did not contain the name of the agent and even address mentioned in the proposal form was wrong as the letter sent at the said address was received back with the remarks, Incomplete address has not found favour with the District Forum for the following reasons:-
We have seen the proposal form in which name of village has been written as Chander, whereas O.P. wrote the village as Chander Mal. It was obviously not correctly written by O.P. and nothing was wrong with the proposal form which has been duly filled by Shri Yash Pal husband of the complainant.
6. The aforesaid findings have been assailed by the Ld. Counsel for the appellant, firstly, on the premises that the insured died at 4.30PM on 31-03-2000, whereas the premium was received at 5.10 PM on 31-03-2000 and since it was the last date of the financial year the policy might have been obtained for getting benefit under the Income Tax Act. The Ld. Counsel has vehemently contended that it was a case of unconcluded contract as no proposal form for insurance duly signed by the deceased life insured was ever sent to the appellant and as such question of having accepted such a proposal for insurance did not arise and even otherwise if any such proposal for insurance was submitted to the appellant even in that case the acceptance of the said proposal was never communicated to the life assured before he died, i.e. before 4.30 pm on 31.03.2000, as the first premium receipt cum acceptance of proposal was issued only on 20-04-2000 and that under the circumstances the District Forum should have held that most essential ingredients of valid contract, i.e. consideration, acceptance, and communication, were missing and as such no contract of insurance ever came into existence and consequently the question of performance of the contract by the appellant never arose.
7. Another contention of the Ld. Counsel for the appellant is that in the proposal for insurance dated 25-03-2000 and declaration which was the very basis of contract, it was declared by the deceased life assured that;-
if after the date of submission of the proposal but before the issue of First Premium Receipt, if there is any change in the general health, he shall forthwith intimate the same to the Corporation in writing to reconsider the terms of acceptance of assurance and any omission of his part to do so shall render the insurance invalid and all moneys which shall have been paid in respect thereof shall stand forfeited to the Corporation.
8. Lastly, it was contended that the proposal form did not contain the signature of the life assured and was only verified and produced by the agent. Next contention of the appellant is that as per rules policies issued after 28th to 31st of any month are shown as issued on 28th as there are only 28 days in February. The Ld. Counsel for the appellant has produced no such rule on record.
9. In support of his contentions the Ld. Counsel for the appellant has relied upon the decision of the Supreme Court in Dharamvir Anand 1998 (5) 584, wherein it was held that the date of commencement of the insurance, time and date of commencement of risk and date on which the policy was issued are all different things.
While drawing support from this decision, the Ld. Counsel has contended that policy was allowed to be back dated as 28th March 2000 and this does not mean that the risk commence from 28th March 2000 and it only means that period of insurance which was for a period of 20 years is to be reckoned w.e.f. 28th March 2000 and the future quarterly instalment of premium would fall due on 28th June, 28th September and 28th December every year till the date of maturity or till death if it occurs earlier tan 28-03-2020.
10. So far as the liability of the Corporation arising out of the acts of omissions and commissions of its agent, the Ld. Counsel for the appellant has again relied upon the judgment of an English Court in New Sholm Bros. Ltd. v. Road Transport & General Assurance Co. (1929) 2KB 356, to the effect that, an agent entitled to solicit proposal is not ordinarily the insurers agent to fill up the proposal forms, and if he does so, he becomes the agent of the assured for that purpose.
11. On the face of it, the ratio of this judgment is not applicable in the given circumstances of this country. It is a common experience that literate people also get proposal forms filled up by agents of the company, what to talk of illiterate and gullible people? These observations may be relevant for the country where the aforesaid case was filed, but not in this country.
12. The Ld counsel for the appellant has also suggested and referred to the policy of the insurance company that if the assured is not satisfied with the decision of the company and feels that the company has not considered any particular fact or circumstance in support of his claim, he may send a representation within a month for reconsideration to its Zonal Office and for this retired High Court Judges have been appointed more or less like Ombudsman.
13. While refuting the contentions of the counsel for the appellant, the counsel for the respondent has contended that the name of the agent was mentioned in the proposal form as B. Singh and the code is mentioned in the proposal form and secondly the amount was deposited by B. Singh at S. No. 261 and cash was received up to S. No. 273 which clearly shows that S. No. 261 was not received at 5.00 PM but was earlier than that, may be, at 2.00 or 3.00 PM because it take 10-20 minutes to receive one single policy from the agent. Further the company issued the policy on 28th February, which shows that the policy started on 28th February and not on 31st March.
14. So far the factum of address being incorrect or incomplete, it was observed by the District Forum that the insurance company has wrongly written the name Chander Mal, instead of Chander in place of the Village, resulting in non-receipt of the letter.
15. We have accorded careful consideration and do not find an iota of infirmity in the finding of facts returned by the District Forum on all accounts. In terms of Regulation-3 of IRDA the contract of insurance is concluded either on issuance of cover note, premium or policy. The definition of the word cover note is very clear and is as under:-
Cover means an insurance contract whether in the form of a policy or a cover note or a certificate of insurance or any other form prevalent in the industry to evidence the existence of an insurance contract.
16. Whenever any service provider chooses or evolves a mechanism of providing its services through its agents like the airlines or insurance, it has a vicarious liability of every act of omission and commission of their agents. These service providers employ agents only to save their administrative expenses and huge expenses to be incurred by opening establishments at every place, and provide home service and therefore in the process the service provider saves millions of rupees and if they are to open offices at every place then the paraphernalia and staff requirement would be so huge and expensive that the business may not be so beneficial for them.
17. Though we have deprecated the practice of issuing policies against cheques. It will be better if the insurance companies, in the interests of consumer, either issue the policies against cash or demand draft.
18. We have taken a stand that the moment the agent receives a cheque or cash after the getting the proposal form filled in and issues cover note, the contract stands concluded. We have also taken a view that whenever service provider like the insurance company evolve a mechanism of accepting the premium by way of cheque and if the cheque is dishonoured on presentation on the same day or on the next day, as the case may be, and the moment they receive the information about the dishonouring of the cheque, it will intimate the consumer on the same day by sending a messenger, the same way they send their agent to get business, so as to facilitate the payment of premium in cash.
19. Any lapse, shortcoming or inadequacy in such obligation of the insurance companies or the service provider amounts to deficiency in service as defined by Sec. 2(1)(g) of the Consumer Protection Act, 1986, which means:-
any fault, imperfection, shortcoming or inadequacy in the quantity, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.
20. In the instant case, the appellant company tried to invent excuses and false pleas with the object to see as to how to defeat the rightful claim of the assured. It was not a case of the policy having been obtained by fraud or by a person who was suffering from such diseases that he would not have survived for a day or a week.
It was a case of sudden death by way of a fatal accident.
21. We have been impressing upon the service providers to always interpret the terms of beneficial contracts, as is the case in hand, or the beneficial legislations, in a manner that is beneficial to the consumers. Every beneficial legislation or statutory contract has to be provided and receive beneficial interpretation. If there are two or more interpretation possible, the interpretation which goes in favour of the consumer and protects his interests has to be acted upon and no other interpretation. We have also come down heavily upon such service providers like the insurance company as to their mind set and their whimsical and arbitrary conduct in harassing the consumers and forcing them to seek legal remedy by approaching the Forums little realizing that legal remedies are becoming expensive and costlier day by day and going beyond the reach of middle class people and, therefore, to force a poor consumer to seek legal remedy in itself is a cause of harassment, mental agony, injury, emotional suffering, humiliation and adding insult to injury for which the company has to compensate the consumer.
22. Financial loss a consumer suffers in running from pillar to post in getting his rightful claim is again torturous conduct on the part of the service provider. It was for this act of malfeasance and arbitrary conduct of public officers of the service providers that the Supreme Court has come down heavily in Ghaziabad Development Authority v. Balbir Singh (2004) 5 SCC 65, calling upon the District Forums and Consumer Commissions to order recover of compensation from the salary of all the concerned delinquent officials. Concept of compensation has been given wide connotation in the case of Ghaziabad Development Authority (supra) by including each and every element of suffering by consumer so as to vindicate the strength of law.
23. We have decided almost 1100 cases filed against Insurance sector and find that this Sector has developed a tendency to find one or the other excuse and flimsy ground to reject the rightful claim of poor consumers, who after insuring themselves are completely at the mercy of the Insurance Companies, little realizing that by doing so they are bleeding themselves, as at the end of the day they shell out many times more than the actual claim, by paying interest and compensation as once the dispute lands in the legal forum it take a decade or so to attain finality. We through this Order warn the Insurance sector to shed such an approach and be consumer friendly and not make the consumer run from pillar to post or else they should be ready for the consequence of recovery of compensation amount from the salary of the officials. Supreme Court has also called upon the District Forum and Commissions to resort to this if the conduct of public officer is found to be malafide, whimsical, arbitrary and oppressive.
Observations of the Supreme Court in Ghaziabad Development Authority v. Balbir Singh (2004) 5 SCC 65 and Lucknow Development Authority v. M.K. Gupta, 1994 (1) SCC 243 are pithy and are as under:-
10.
who should pay the amount determined by the Commission for harassment and agony, the statutory authority or should it be realised from those who were responsible for it? Compensation as explained includes both the just equivalent for loss of goods or services and also for sufferance of injustice. For instance in Civil Appeal No.... of 1993 arising out of SLP (Civil) No.659 of 1991 the Commission directed the Bangalore Development Authority to pay Rs.2446.00 to the consumer for the expenses incurred by him in getting the lease-cum-sale agreement registered as it was additional expenditure for alternative site allotted to him. No misfeasance was found. The moment the authority came to know of the mistake committed by it, it took immediate action by allotting alternative site to the respondent. It was compensation for exact loss suffered by the respondent. It arose in due discharge of duties. For such acts or omissions the loss suffered has to be made good by the authority itself. But when the sufferance is due to mala fide or oppressive or capricious acts etc. of a public servant, then the nature of liability changes.
The Commission under the Act could determine such amount if in its opinion the consumer suffered injury due to what is called misfeasance of the officers by the English Courts. Even in England where award of exemplary or aggravated damages for insult etc. to a person has now been held to be punitive, exception has been carved out if the injury is due to, 'oppressive, arbitrary or unconstitutional action by servants of the Government' (Salmond and Heuston on the Law of Torts).
Misfeasance in public office is explained by Wade in his book on Administrative Law thus:
"Even where there is no ministerial duty as above, and even where no recognised tort such as trespass, nuisance, or negligence is committed, public authorities or officers may be liable in damages for malicious, deliberate or injurious wrong-doing. There is thus a tort which has been called misfeasance in public office, and which includes malicious abuse of power, deliberate maladministration, and perhaps also other unlawful acts causing injury." (p.777).
The jurisdiction and power of the courts to indemnify a citizen for injury suffered due to abuse of power by public authorities is founded as observed by Lord Hailsham in Cassell & Co. Ltd. v. Broome [1972 AC 1027: (1972) 1 All ER 801] on the principle that, 'an award of exemplary damages can serve a useful purpose in vindicating the strength of law'. An ordinary citizen or a common man is hardly equipped to match the might of the State or its instrumentalities. That is provided by the rule of law. It acts as a check on arbitrary and capricious exercise of power.
In Rookes v. Barnard [1964 AC 1129: (1964) 1 All ER 367, 410] it was observed by Lord Devlin, 'the servants of the government are also the servants of the people and the use of their power must always be subordinate to their duty of service'. A public functionary, if he acts maliciously or oppressively and the exercise of powers results in harassment and agony then it is not an exercise of power but its abuse.
No law provides protection against it.
He who is responsible for it must suffer it. Compensation or damage as explained earlier may arise even when the officer discharges his duty honestly and bona fide. But when it arises due to arbitrary or capricious behaviour then it loses its individual character and assumes social significance. Harassment of a common man by public authorities is socially abhorring and legally impermissible. It may harm him personally but the injury to society is far more grievous. Crime and corruption thrive and prosper in the society due to lack of public resistance.
Nothing is more damaging than the feeling of helplessness. An ordinary citizen instead of complaining and fighting succumbs to the pressure of undesirable functioning in offices instead of standing against it. Therefore the award of compensation for harassment by public authorities not only compensates the individual, satisfies him personally but helps in curing social evil. It may result in improving the work culture and help in changing the outlook.
Wade in his book - Administrative Law, has observed that it is to the credit of public authorities that there are simply few reported English decisions on this form of malpractice namely, misfeasance in public offices, which includes malicious use of power, deliberate mal-administration and perhaps also other unlawful acts causing injury. One of the reasons for this appears to be development of law which apart, from other factors succeeded in keeping a salutary check on the functioning in the government or semi-government offices by holding the officers personally responsible for their capricious or even ultra vires action resulting in injury or loss to a citizen by awarding damages against them.
Various decisions rendered from time to time have been referred to by Wade on Misfeasance by Public Authorities.
We shall refer to some of them to demonstrate how necessary it is for our society.
In Ashby v. White (1703) 2 Ld. Raym 938 the House of Lords invoked the principle of ubi jus ibi remedium in favour of an elector who was wrongfully prevented from voting and decreed the claim of damages. The ratio of this decision has been applied and extended by English Courts in various situations.
In Roncarelli v. Duplessis (1959) 16 DLR 2d 689 the Supreme Court of Canada awarded damages against the Prime Minister of Quebec personally for directing the cancellation of a restaurant-owner's liquor licence solely because the licensee provided bail on many occasions for fellow members of the sect of Jehovah's Witnesses, which was then unpopular with the authorities. It was observed that, 'what could be more malicious than to punish this licensee for having done what he had an absolute right to do in a matter utterly irrelevant to the Alcoholic Liquor Act? Malice in the proper sense is simply acting for a reason and purpose knowingly foreign to the administration, to which was added here the element of intentional punishment by what was virtually vocation outlawry.
In Smith v. East Elloe Rural District Council [1956 AC 736: (1956) 1 All ER
855)] The House of Lords held that an action for damages might proceed against the clerk of a local authority personally on the ground that he had procured the compulsory purchase of the plaintiff's property wrongfully and in bad faith.
In Farrington v. Thompson [1959 UR 286] the Supreme Court of Victoria awarded damages for exercising a power the authorities knew they did not possess.
A licensing inspector and a police officer ordered the plaintiff to close his hotel and cease supplying liquor.
He obeyed and filed a suit for the resultant loss. The Court observed:
"Now I take it to be perfectly clear, that if a public officer abuses his office, either by an act of omission or commission, and the consequence of that is an injury to an individual, an action may be maintained against such public officer."
In Wood v. Blair [The Times, July 3, 4, 5, 1957 (Hallet J and Court of Appeal] a dairy farmer's manageress contracted typhoid fever and the local authority served notices forbidding him to sell milk, except under certain conditions. These notices were void, and the farmer was awarded damages on the ground that the notices were invalid and that the plaintiff was entitled to damages for misfeasance. This was done even though the finding was that the officers had acted from the best motives.
11. Today the issue thus is not only of award of compensation but who should bear the brunt. The concept of authority and power exercised by public functionaries has many dimensions. It has undergone tremendous change with passage of time and change in socio-economic outlook. The authority empowered to function under a statute while exercising power discharges public duty. It has to act to subserve general welfare and common good. In discharging this duty honestly and bana fide, loss may accrue to any person. And he may claim compensation which may in circumstances be payable. But where the duty is performed capriciously or the exercise of power results in harassment and agony then the responsibility to pay the loss determined should be whose? In a modern society no authority can arrogate to itself the power to act in a manner which is arbitrary. It is unfortunate that matters which require immediate attention linger on and the man in the street is made to run from one end to other with no result. The culture of window clearance appears to be totally dead.
Even in ordinary matters a common man who has neither the political backing nor the financial strength to match the inaction in public oriented departments gets frustrated and it erodes the credibility in the system. Public administration, no doubt involves a vast amount of administrative discretion which shields the action of administrative authority. But where it is found that exercise of discretion was mala fide and the complainant is entitled to compensation for mental and physical harassment then the officer can no more claim to be under protective cover. When a citizen seeks to recover compensation from a public authority in respect of injuries suffered by him for capricious exercise of power and the National Commission finds it duly proved then it has a statutory obligation to award the same. It was never more necessary than today when even social obligations are regulated by grant of statutory powers. The test of permissive form of grant is over. It is now imperative and implicit in the exercise of power that it should be for the sake of society. When the Court directs payment of damages or compensation against the State the ultimate sufferer is the common man. It is the tax payers' money which is paid for inaction of those who are entrusted under the Act to discharge their duties in accordance with law.
It is, therefore, necessary that the Commission when it is satisfied that a complainant is entitled to compensation for harassment or mental agony or oppression, which finding of course should be recorded carefully on material and convincing circumstances and not lightly, then it should further direct the department concerned to pay the amount to the complainant from the public fund immediately but to recover the same from those who are found responsible for such unpardonable behaviour by dividing it proportionately where there are more than one functionaries."
We are in full agreement with what is observed herein. Thus the law is that the Consumer Protection Act has a wide reach and the Commission has jurisdiction even in cases of service rendered by statutory and public authorities. Such authorities become liable to compensate for misfeasance in public office i.e. an act which is oppressive or capricious or arbitrary or negligent provided loss or injury is suffered by a citizen.
24. We deem that by now Insurance Sector might have shelled out 150 Crores or so by their attitudinal problem. Foregoing reasons persuade us to dismiss the appeal being wholly misconceived, misdirected and devoid of merits, with a cost of Rs. 25,000/-.
We do not find any force in the argument of the Ld. Counsel for the appellant that the District Forum erred in awarding interest, as every consumer is entitled for interest by way of compensation if he has suffered a loss.
25. Appeal is disposed of in aforesaid terms. Payment shall be made within one month from the date of receipt of a copy of this order.
26. Copy of order as per statutory requirement be forwarded to the parties and to the concerned District Forum and thereafter the file be consigned to record.
27. FDR/Bank Guarantee if any be released under proper receipt.
(JUSTICE J.D. KAPOOR) PRESIDENT (RUMNITA MITTAL) MEMBER HK