State Consumer Disputes Redressal Commission
Life Insurance Corporation Of India vs Gita Sharma on 8 September, 2008
IN THE STATE COMMISSION: DELHI IN THE STATE COMMISSION: DELHI (Constituted under section 9 clause (b) of the Consumer Protection Act, 1986) Date of decision: 08.09.2008 First Appeal No.2007/1 (Arising from the order dated 22.11.2006 passed by District Forum(North) Tis Hazari, Delhi in Complaint Case No.332/2005) Life Insurance Corporation, Appellant . Of India , through Ms. Jaya Tomar, Divisional Office No.1, advocate, Jeevan Prakash Building, 25, K.G. Marg, New Delhi. Versus Smt. Gita Sharma Respondent. W/o Late Sh. Sunil C. Sharma, C-129, Sarvodya Enclave, New Delhi. 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, President(ORAL)
1. Short question arising in this appeal preferred against impugned order dated 22.11.2006, passed by the District Forum, is whether the contract of insurance stood concluded with the acceptance of premium amount of Rs.10,181/- by the appellant company without intimating to the respondent as to the fate of the proposal form for more than 15 days or so as prescribed by Clause (zc) of sub section (2) of Section 114A of the Insurance Act, 1938 read with sections 14 and 26 of the Insurance Regulatory and Development Authority Act 1999.
2. Vide impugned order dated 22.11.2006, the appellant company was held liable to discharge its obligation to pay the insurance amount of Rs.1,80,000/-
to the legal heirs of the life assured against Jeevan Suraksha Policy besides payment of Rs.30,000/- as compensation and Rs.5,000/- as cost of litigation.
3. Allegations of the respondent leading to the impugned order in brief were that the husband of the respondent during his life time purchased the policy of insurance with the appellant being Jeevan Suraksha (Pension Plan) with life risk cover. He completed all the formalities and also paid the exact amount of premium as demanded after due calculation by the appellant vide cheque No.169066 dated 22.12.2001, which was duly encashed on 26.12.2001 by the appellant. Unfortunatley on 15.01.2002, the insured died at Delhi of Meningitis. The respondent stated that the appellant did not send the receipt and/or policy to the insured until his death. The respondent stated that even the receipt dated 22.12.2001 issued against the premium paid of Rs.10,181/- was handed over to the respondent by the appellant in the month of March 2002 after the death of the insured. The respondent wrote to the appellant on 11.03.2002 informing about the untimely demise of the insured and to rectify the name of the deceased in its record and also to send the claim form. The respondent sent many letters and reminder to the appellant but all in vein. The respondent met the officials of the appellant at their branch office at Roop Nagar, Delhi. The appellant admitted that there was an omission on their part in fulfilling their statutory and contractual obligations. The respondent was shocked to receive a communication dated 08.05.2002 from the appellant regarding refund of proposal deposit along with cheque dated 09.05.2002 for a sum of Rs.10,181/-.
4. In the said letter the appellant alleged that no proposal papers were registered at their end to avoid liability of making legitimate claim payment to the respondent. The respondent submitted that the cheque enclosed with the letter was issued in the name of the respondent, thus admitting the fact that she is nominee of the insured as contained in their documents. The said cheque has not been encashed by the complainant. Thereafter the complainant sent various letters demanding the entire amount under the policy of insurance besides monthly pension as nominee also being entitled to the estate of the deceased. The complainant also made an appeal to the Chairman, Life Insurance Corporation vide letter dated 16.4.2003. The complainant also filed a writ petition before the Honble High Court being C.W. No. 4423/03 being Gita Sharma Vs LIC and another. The said writ petition was dismissed as withdrawn by the High Court with a liberty to the complainant to seek remedy in Civil Court which was duly granted. The complainant stated that during the pendency of the above writ petition O.P. issued another cheque dated 21.6.2003 against the previous chequed and the complainant did not encash the cheque as well. Alleging deficiency in service on the part of the appellant the respondent prayed for direction to the appellant to pay Rs.2,99,000/- towards claim under the policy, compensation for causing mental agony and harassment, miscellaneous expense alongwith with interest @12% p.a. from March 2002 to June 2005 with cost of litigation.
5. In reply the appellant took the plea that it received the cheque for amount of Rs.10,181/- without any proposal form and Sh. Sunil Chand Sharma never presented himself for medical examination before any authorised medical officer of the appellant and as such in the absence of proposal form, question of its approval and issuance of insurance policy to him by the appellant does not arise nor any concluded contract of insurance took place between Sh. Sunil Chand Sharma and the appellant. The appellant denied that the insured ever purchased any alleged policy of the appellant and that the alleged receipt is a kacha receipt which was issued in token of the receipt of the cheque towards the amount of first premium only and as per rules of the appellant, upon the receipt of the proposal form and requisite documents, initial amount towards proposal and after report of medical examination, the proposal of insurance put before the competent authority for approval and only after approval of proposal, the decision to issue the policy is taken and thereafter the First Premium Receipt, duly stamped is issued as proof of the concluded contract and within 60 days original policy of insurance is prepared and issue to the insured. The appellant submitted that the said amount of Rs.10,181/- was refunded to Smt. Gita Sharma as she was holding a joint account with her husband Sh. Sunil Chand Sharma in the Hongkong Shanghai Banking Corporation Ltd., Sarvodaya Enclave, as per the cheque encashment certificate submitted by the respondent with the appellant. Appellant further submitted that since no proposal papers were received in the office of the appellant, so the question of any nomination does not arise. Denying any deficiency in service on its part, the appellant prayed for dismissal of the complaint with cost.
6. Main premise on which the impugned order has been assailed by the counsel for the appellant is that the proposal form was neither submitted by the insured with the appellant nor received by the appellant. The appellant kept the said amount in Deposit with a good faith and in anticipation that the life proposed would submit the duly filled up proposal form and other relevant documents. The appellant kept the said amount in the suspense account without appropriation towards the premium and that nowhere in the said BOC receipt appellant have mentioned about the risk coverage. As per the procedure for taking insurance policy, merely depositing the initial amount without submitting the proposal documents and other relevant documents as to age proof, medical report etc. one does not become entitle for risk cover.
7. Further the appellant underwrites risk and if found suitable for the insurance, it conveys its decision in writing to the proposer. Thereafter appellant issues first premium receipt(FPR) in the name of the proposer and only then the risk commences from the date of first premium receipt. In the absence of submission of relevant documents like age proof, medical report etc. one does not become entitled for the risk cover and that the proposal amount deposited can be appropriated as a premium for risk cover only after the same is converted in to a concluded contract by acceptance of the said contract at the end of the appellant.
8. In our view this is a case of extreme negligence on the part of the appellant company in not dealing with the proposal in the legal and prescribed manner. It is not understandable as to what made the appellant to first accept the premium amount and deposit with it and thereafter ask for the proposal papers and other things and then keep the life assured waiting for indefinite period.
9. In the instant case despite various letters and reminders after even the death of the life assured, the appellant did not take up the matter. Once the premium was accepted and receipt was encashed the contract stood concluded and offer made which was accepted by the respondent by asking him to pay premium amount of Rs.10,181/-. In such like matter the Bench of the National Commission presided by Honble President in Revision Petition No.702/2003 entitled Life Insurance Corporation of India & Ors. Vs Mrs. Rakshna Devi has referred to the legal obligation of the insurance companies in terms of (zc) of sub section (2) of Section 114A of the Insurance Act, 1938 read with sections 14 and 26 of the Insurance Regulatory and Development Authority Act 1999. According to these regulations the proposal shall be processed by the insurer with speed and efficiency and all decisions shall be communicated by it in writing within a reasonable period not exceeding 15 days from the receipt of the proposal by the insurer. Relevant Regulation No.4 is reproduced as under:
Regn. 4, Proposal for Insurance: -
Expect in case of a marine insurance cover, where current market practices do not insist on a written proposal form, in all cases, a proposal for grant of a cover, either for life business or for general business, must be evidenced by a written document. It is the duty of an insurer to furnish to the insured free of charge, within 30 days of the acceptance of a proposal, a copy of the proposal form.
Forms and documents used in the grant of cover may, depending upon the circumstances of each case, the made available in languages recognised under the Commission of India.
In filling the form of proposal, the prospect is to be guided by the provisions of Section 45 of the Act. Any proposal form seeking information for grant of life cover may prominently state therein the requirements of Section 45 of the Act.
Where a proposal form is not used, the insurer shall record the information obtained orally or in writing and confirm, it within a period of 15 days thereof with proposal and incorporate the information in its cover note or policy. The onus of proof shall rest with the insurer in respect of any information not so recorded, where the insurer claims that the proposer suppressed any material information or provided misleading or false information on any matter material to the grant of a cover.
Wherever the benefit of nomination is available to the proposer, in terms of the Act or the conditions of policy, the insurer shall draw the attention of the proposer to it and encourage the prospect to avail the facility.
Proposals shall be processed by the insurer with speed and efficiency and all decision thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposals by the insurer.
10. Counsel for the appellant has referred to the decision of Supreme Court in LIC of India Vs Raja Vasireddy Komalavalli Kamba & Ors. 1984(3) SCR 350, wherein it has been held that when an insurance policy becomes effective is well settled by the authorities but before we note that said authorities, it may be stated that it is clear that the expression underwrite signifies accept liability under. The dictionary meaning also indicates that (see in this connection The Concise Oxford Dictionary Sixth Edition P1267). It is true that normally the express underwrite is used in Marine insurance but the express used in Chapter III of the Financial powers of the Standing Order in this case specifically used the express underwriting and revivals of policies in case of Life Insurance Corporation and stated that it was the Divisional Manager who was competent to underwrite policy for Rs.50,000/- and above. The mere receipt and retention of premium until after the death of the applicant or the mere preparation of the policy documents is not acceptance. Acceptance must be signified by some act or acts agreed on by the parties or from which the law raises a presumption of acceptance.
11. The ratio of the aforesaid decision cannot be extended or applied to the facts of the case in hand as there are certain legal obligations cast upon the appellant under the Insurance Act read with Insurance Regulatory Development Act, which have been in extenso dealt with by the Bench of National Commission presided by Honble President in Revision Petition No.702/2003 entitled Life Insurance Corporation of India & Ors. Vs Mrs. Rakshna Devi.
12. The aforesaid case almost involves identical facts and it was held that there was unjustifiable delay in accepting the proposal and there was no justifiable reason for such delay, that too in a case where the assured was having a previous subsisting policy.
13. On the concept of concluded contract Section 2 (b) of the Contract Act was referred to, which provides Interpretation Clause and is as under:
Section 2: Interpretation Clause In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:
(a) ..
(b) when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.
14. Another decision referred by the National Commission was of the Supreme Court in Tarsem Singh Vs Sukhminder Singh MANU/SC/0158/1998, wherein few relevant sections of Contract Act were referred to particularly Section 2 and Section 20. Section 20, provides that an agreement would be void if both the parties to the agreement were under a mistake as to a matter of fact essential to the agreement. The mistake has to be mutual and in order tht the agreement be treated as void, both the parties must be shown to be suffering from mistake of fact. Unilateral mistake is outside the scope of this Section.
15. Regulation No.3 of IRDA Regulation is relevant as it requires to be followed by the Insurance Companies to protect the interest of the consumer. Regulation No.3 of IRDA is as under:
Regulation -3: Point of Sale (1) Notwithstanding anything mentioned in regulation 2(e) above, a prospectus of any insurance product shall clearly state the scope of benefits, the extent of insurance cover and in an explicit manner explain the warranties, exceptions and conditions of the insurance cover and in case of life insurance, whether the product is participating (with profits) or non-participating (without profits). The allowable rider or riders on the product shall be clearly spelt out with regard to their scope of benefits, and in no case, the premium relatable to health related or critical illness riders in the case of term or group products shall exceed 100% of premium under the basic product. All other riders put together shall be subject to a ceiling of 30 per cent of the premium of the basic product. Any benefit arising under each of the rider shall not exceed the sum assured under the basic product.
Provided that the benefit amount under riders shall be subject to Section 2(11) of the Insurance Act 1938.
Explanation: The rider or riders attached to a life policy shall bear the nature and character of the main policy, viz. participating or non-participating and accordingly the life insurer shall make provisions etc., in its books.
(2) An insurer or its agent or other intermediary shall provide all material information in respect of a proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or her interest.
(3) Where the prospect depends upon the advice of the insurer or his agent or an insurance intermediary such a person must advise the prospect dispassionately.
(4) Where, for any reason, the proposal and other connected papers are not filled by the prospect, a certificate may be incorporated at the end of proposal form, from the prospect that the contents of the form and documents have been fully explained to him and that he has fully understood the significance of the proposed contract.
16. Hence from any angle we may examine the matter, we cannot resist from the conclusion that the respondent was entitled for the claim.
17. We have taken a view that whenever service providers like insurance companies or other service providers evolve mechanism of accepting consideration by way of cheque it become obligatory upon the service provider to immediately present the cheque on the next date and confirm it from the bank about the encashment of the cheque and when it comes to know that cheque has been dishonoured it shall personally inform by way of messenger or courier on the same day to the consumer so as to facilitate the consumer to make payment by cash so as to keep the contract alive.
18. With the acceptance of premium in cash by issuing receipt and keeping the proposal for days together and not intimating the consumer within statutory period of 15 days about the fate of the proposal coupled with the fact that after the death of the life assured the appellant did not inform about the fate of the proposal form or the contract and it took several months even in refunding the amount which amount to grossest kind of deficiency in service, which in terms of Section 2(1)(g) of Consumer Protection Act 1986, means any fault, imperfection, shortcoming or inadequacy in the quality, 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 undertake to be performed by a person in pursuance of a contract or otherwise in relation to any service.
19. Foregoing reasons persuade us to dismiss the appeal being devoid of merit, misconceived and misdirected. The order shall be complied with within one month from the date of receipt of this order.
20. Bank Guarantee/FDR, if any, furnished by the appellant be returned forthwith.
21. A copy of this order as per the statutory requirements be forwarded to the parties free of charge and also to the concerned District Forum and thereafter the file be consigned to Record Room.
Announced today on 08th day of September, 2008.
(Justice J.D. Kapoor) President (Rumnita Mittal) Member Tri