Robinson vs Life Insurance Corporation Of India on 14 August, 2012

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Kerala High Court

Robinson vs Life Insurance Corporation Of India on 14 August, 2012

Impugned in this appeal is the judgment of the learned Single Judge, upholding the award of the Permanent Lok Adalat for Public Utility Services. The dispute was with respect to the value payable on the surrender of an Insurance Policy taken by the appellant from the respondent-Corporation.

2. Exhibit P1 policy of insurance, in which the appellant was the proposer whose life was assured, was for a period of 25 years payable as on the stipulated date of maturity, i.e., 10.7.2026, or on the death of the proposer at any earlier point of time. As per the terms of the policy, the premium was to be paid for a period of 12 years and it contains special provisions by which a Guaranteed Addition of Rs.75/- per thousand of sum assured was to be added to the policy at the end of each policy anniversary and payable when the sum assured becomes payable. The total sum assured was Rs.10,00,000/-, along with the Guaranteed Additions specified above. W.A.No.43 of 2013 - 2 -

3. There is no dispute that the appellant paid the premium from 10.7.2001 to September, 2005, totalling a sum of Rs.3,54,167/- and the Guaranteed Addition for the said period came to Rs.3,18,750/-. The appellant was unable to pay the further instalments and, hence, surrendered the policy. As against the above mentioned payments, the appellant was offered an amount of Rs.1,59,952/- as per Exhibit P2. The appellant assailed the same before the Permanent Lok Adalat, which found, on an examination of the terms of the policy, that the sum offered as per Exhibit P2 was perfectly in order. That order was assailed before the learned Single Judge, contending that the same is against the terms of the policy and that, if at all the same is in consonance with the terms, such terms are opposed to public policy as provided under Section 23 of the Contract Act and is again violative of Section 113 of the Insurance Act, 1938.

4. The learned Single Judge elaborately considered the terms of the policy and the computations set out in the counter affidavit of the respondent-Corporation and found that there were two options available on surrender and the respondent-Corporation had, in fact, offered the surrender value as per the more beneficial surrender W.A.No.43 of 2013 - 3 - option available under Exhibit P1 policy. With respect to the contention that the terms are opposed to public policy and violative of Section 113 of the Insurance Act, both were negatived.

5. The appellant before us contended that the dictum laid down in the decision of the Supreme Court in Central Inland Water Transport Corporation Ltd. and another v. Brojo Nath Ganguly and another [AIR 1986 SC 1571] is squarely applicable to the facts of this case. We cannot but say that the said contention is raised on very fickle premise, since the learned Single Judge himself had noticed that the above-cited decision dealt with a contract of employment and considering the dominant position occupied by the employer and the rather servile status of the employee, the Supreme Court declared that the terms though agreed by the employee are liable to be scrutinized with reference to public policy and if found opposed, are liable to be struck down as void under Section 23 of the Contract Act. We fully agree with the learned Single Judge that there is absolutely no identity of circumstance or status and the instant case is one in which, with open eyes, the proposer/appellant entered into a contract of insurance covering the life of the insured. The terms of the contract entered into W.A.No.43 of 2013 - 4 - by the insurer and the insured are not liable to be examined as in the case cited above. The contract essentially boils down to one entered into between two parties competent to contract and agreeing upon the terms, which cannot at all, be said to be opposed to public policy.

6. The learned Single Judge has elaborately detailed the computations available under both the options and has arrived at the finding that the more beneficial option was offered to the appellant. We do not go into such computations as the Permanent Lok Adalat, as also the learned Single Judge, has attempted the exercise threadbare. However, the contention with respect to condition No.7 in Exhibit P1 policy being violative of Section 113 of the Insurance Act, is to be considered with reference to such computations. The argument of the learned counsel is that Section 113 requires that when a policy of life insurance, wherein the whole or part of the benefits are payable either on the occurrence of the contingency or at fixed intervals after such contingency having occurred, a guaranteed surrender value shall be prescribed; if all the premiums have been paid at least three consecutive years and to such guaranteed surrender value shall be added the surrender value of any subsisting bonus already attached to W.A.No.43 of 2013 - 5 - the policy. It is the contention of the appellant that such bonus has not been attached as per the offer under Exhibit P2, which is said to be computed in consonance with condition No.7. Hence, it is the contention that the said condition is violative of Section 113 of the Insurance Act.

7. Condition No.7 of Exhibit P1 policy indicates that the guaranteed surrender value allowable under the policy, in the case of it being not a single premium policy, will be equal to 30% of the total amount of premiums paid excluding the premiums for the first year or the amount calculated at the scale given below, whichever is higher:

Policy term 5 years 10 years 15 years 20 years 25 years Percentage of all premiums paid excluding extra premiums paid if any 50 40 30 20 15 Looking at the scale under Condition No.7, the appellant's policy being of a term of 25 years; on surrender, is eligible to be paid 15% of all premiums paid excluding extra premiums paid, if any. The monthly premium excluding extra premium being Rs.5,923/-, 15% of the total premium paid for 4 years and 3 months would only come to Rs.45,311. However, taking the first option and excluding the 1st year premium, 30% of the premium paid for three years and 3 months W.A.No.43 of 2013 - 6 - would come to Rs.69,299.10. These are the two surrender values applicable under the two options and by Exhibit P2, the more beneficial one was offered to the appellant.

8. The further contention with respect to bonus also has been dealt with in Exhibit P2. The vested bonus upto the point at which premiums are paid was Rs.3,18,750/-. Condition No.7, after the table, also prescribes that "the cash value of any existing vested Guaranteed Addition will also be allowed" and this would be the bonus claim put forth by the appellant and indicated in Exhibit P2.

9. The counter affidavit filed by the respondent-Corporation lucidly sets out the philosophy behind subscribing to an insurance policy which gives more significance to the coverage of risk, meaning the risk of extinguishment of life rather than investment priorities. It is clearly indicated that on the appellant continuing with the policy, the sum assured along with the guaranteed addition (bonus) will be paid either on the date of maturity or on death occurring at any point of time before the date of maturity. On the contingency of death occurring, the sum assured would be the same, i.e., Rs.10,00,000/-, be it at any point during the currency of the insurance policy and the W.A.No.43 of 2013 - 7 - guaranteed addition would depend on the completed years, i.e., the addition of Rs.75/- for each Rs.1000/- of the sum assured in every completed year. However, if the policy is discontinued after three years and the appellant does not surrender the same, the entire surrender value and the vested bonus as indicated in Exhibit P2 would be payable at the death of the appellant or on the date of maturity. The present computation under Condition No.7 has been necessitated only due to the fact that the appellant had surrendered the policy and had sought for surrender value as per the terms of the policy.

10. We have seen above that the more beneficial option had been adopted by the respondent-Corporation to arrive at the surrender value and what remains is the Guaranteed Addition, which would be the "bonus" indicated in Section 113 of the Insurance Act. On surrender as per the conditions of the policy, there is applied, a formula as detailed above, for payment of percentage of the premium actually paid. Necessarily, a similar formula ought to be applied for the Guaranteed Addition too. That is what has been done, which is explained by the respondent-Corporation as having applied the surrender value factor, being 0.2377, on the date of surrender as per W.A.No.43 of 2013 - 8 - the statutory tables of the Corporation being applied to the Guaranteed surrender value. The vested bonus of Rs.3,18,750/- indicated in Exhibit P2 was applied with such factor and an amount of Rs.75,766.90 has been arrived at. We do not see any inconsistency with condition No.7 and Section 113 of the Insurance Act. We notice that Section 113 of the Insurance Act is more concerned with transparency, in so far as listing out the terms of surrender in the policy itself; rather than the computation as such of the surrender value and the bonus payable.

We are unable to find any good reason to interfere with the findings of the learned Single Judge and we dismiss the appeal, leaving the parties to suffer their respective costs.

Sd/-

Manjula Chellur, Chief Justice Sd/-

K.Vinod Chandran, Judge.

vku/-

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Kerala High Court