KERALA STATE CONSUMER DISPUTES REDRESSAL COMMISSION,

VAZHUTHACAUD, THIRUVANANTHAPURAM

C.C. No. 11/2006

JUDGMENT DATED: 10.11.2022

PRESENT:

HON’BLE JUSTICE SRI. K. SURENDRA MOHAN              : PRESIDENT

SRI.T.S.P. MOOSATH                                                                    : JUDICIAL MEMBER

SRI.RANJIT. R                                                                               : MEMBER

SRI. RADHAKRISHNAN K.R.                                                    : MEMBER

COMPLAINANTS:

1. Lincy Varghese,W/o late Jaison Joseph, Thekkan House, Kottamam kara, Neeleswaram P.O, Aluva Taluk, Ernakulam.

2. Jeevan Jaison, S/o late Jaison Joseph,Thekkan House, Kottamam kara, Neeleswaram P.O, Aluva Taluk, Ernakulam.

                        (By Adv. Renny Augustine )

                                                Vs.

OPPOSITE PARTY:

Life Insurance Corporation of India, P.B. No. 33, Market Road, Chalakkudy- 680307, Rep. by its Branch Manager.

                                        (By Adv. G.S. Kalkura )

JUDGMENT

SRI. RADHAKRISHNAN K.R. : MEMBER

          This is a complaint filed under sections 12 and 18 of the Consumer Protection Act, 1986 by the legal heirs, wife and minor son aged one year, of the late Jaison Joseph who had proposed for a Life Insurance Policy from the opposite party. 

2.  Facts  of the case are  briefly as follows:-

    The deceased Jaison Joseph had submitted a proposal, for availing a life insurance policy for an amount of Rs. 40 lakhs, along with a premium of Rs. 12,800/- on 22.08.2005.  The proposer died in a motor vehicle accident after four months on 23.12.2005.  The complainant preferred a death claim  to the opposite party on 09.01.2006 and as directed by them vide letter dated 11.02.2006,  she had submitted the required documents such as  death certificate, copy of FIR,  Post mortem report etc.  These documents were submitted 09.03.2006.  On 22.06.2006, after more than three months, the opposite party informed the complainant that the claim could not be considered as there was no contract of insurance.  This complaint is filed against this decision of the opposite party insurer, claiming Rs. 40 lakhs being the sum assured under the proposed policy with 18% interest, compensation and costs.

          3. The opposite party entered appearance and filed their version.  An additional version was also filed subsequently.  They submitted that the proposer remitted Rs. 12,800/- only as against the actual premium of Rs. 13,741/- and there was a shortage of Rs. 941.  The income of the proposer is an important parameter for giving the insurance.  So  the opposite party informed the proposer vide their letters dated 08-09-2005 and  15-10-2005 to submit the Income Tax Returns for the  years 2004-2005 and 2005-2006  and  also to remit  the balance premium of Rs. 941.  As these requirements were not complied with by the proposer, the proposal for insurance submitted by him remained as a proposal. No letter of acceptance of proposal was given by the insurer and so there is no conclusion of any contract of insurance and further no policy was issued to him.  As there is no contract of insurance between the proposer and the insurer, the opposite party is not liable to honour the claim.  The proposer is eligible only for refund of premium after deduction of expenses of medical examination in respect of the proposer. The opposite party prayed for dismissal of the complaint. 

          4. The first complainant was examined as PW1 and documents Exbts. A1 to A6 were marked. DW1 was examined on the side of the opposite party and  Exbts. B1 to B5 were marked on their side. 

5. In the light of the pleadings, the following points arise for consideration:

1. Whether there is a concluded contract of insurance and whether the opposite party is liable to pay the death claim of the deceased proposer.
2. Whether there is any deficiency in service or unfair trade practice on the part of the  opposite party as alleged in the complaint
3. What, if any, are the reliefs to be granted?   

6.  Heard the learned counsel on both sides and perused the records. 

7.  Point No (i): The learned counsel for the complainant submitted that the deceased proposer submitted proposal No. 5767 along with the first premium of Rs 12,800/- on 22.08.2005. They have not received any communication requiring any additional documents or for payment of balance premium.  The proposer had submitted all the papers for the insurance before his demise.  The first premium was paid as early on 22.08.2005 and the proposer died in the accident after 4 months on 23.12.2005.  The proposer or the complainants are not aware about the authority and sanctioning formalities of the opposite party in issuing the policy. These are all internal issues of the opposite party and not in any way connected with the proposer.  The intimation about the death was communicated to the opposite party on 09.01.2006 (Ext A3). The opposite party directed the complainants to submit certain documents after a month vide their letter dated 11.02.2006 (Ext A4) which was received by the complainants on 04.03.2006.  All the required papers were submitted on 09.03.2006 (Ext A5).  The communication regarding refusal of the claim was sent by the opposite party more than three months after submission of all papers vide their letter dated 22.06.2006 (Ext A6). Despite having complied with all the requirements before the demise of the proposer it is not justified on the part of the opposite party to say after ten months that there was no contract of insurance and there was no coverage for the proposer.  If there was no policy they could not have asked for the documents or at least they could have replied immediately after getting the documents.  No intimation about the fate of the proposal was conveyed till 22.06.2006. So the refusal of the claim is an afterthought decision to reject the proposal and claim together.  Hence the learned counsel contended that the proposal of the deceased proposer is deemed to have been accepted and non issuance of the policy is a serious lapse on the part of the opposite party. According to him, as far as the deceased proposer is concerned there is a concluded insurance contract and the only issue is the undue delay on the part of the opposite party in issuing the policy for reasons best known to them. Not issuing the policy documents and not responding to the claim submitted by the complainant in time amounts to deficiency in service and unfair trade practice and also amounts to violation of policy holder rights. Hence the learned counsel prayed for directing the opposite party to pay the sum assured Rs. 40 lakhs with 18% interest with compensation and litigation expenses. 

          8. Learned Counsel for the opposite party admitted having received the proposal No. 5767, submitted by the deceased for “Anmol Jeevan” policy of the opposite party which is a term risk insurance policy for a period of 18 years.  Opposite party has to follow several underwriting guidelines before issuing the policy.  They have to consider the   income of the proposer and also to get approval from the appropriate higher authority.  In this case the deceased proposer failed to submit the income tax returns for the years 2004-2005 and 2005-2006. He remitted a premium of Rs 12,800/- only as against the actual premium of Rs 13,741/-.   The balance premium of Rs. 941/- was not remitted.  Both these requirements were intimated to the proposer on 08-09-2005 (Ext B1) and 15-10-2005 (Ext B2) which were not replied to.  The Income Tax Returns were submitted on 20-12-2005.  The despatch register ( Exbt. B4) and the inward register (Exbt. B5) are produced to prove the communication with the deceased proposer.   As no policy was issued to the proposer the opposite party has no liability to pay the claim of the complainant.  Hence the learned counsel prayed for dismissal of the complaint with cost.

          9. It is admitted that opposite party received a proposal from the deceased for a life insurance policy, “Anmol Jeevan”, for a sum assured of Rs. 40 lakhs .  It is a pure term insurance policy which is primarily for protection only with no maturity benefits. Nominee will get the entire sum assured if death of the life assured occurs within the policy term. If nothing happens to the life assured till maturity period of the plan, nothing will be returned. The period of the policy is 18 years and the proposer had paid an amount of Rs. 12,800/- on 22-08-2005 along with the duly completed proposal form.  Necessary medical check up was also conducted and reports were received by the opposite party. He had submitted the income tax returns for the three assessment years 2001-02, 2002-03 and 2003-04 along with the proposal.  The opposite party contends  that they had communicated to the  proposer  to pay the balance premium of Rs. 941/- and also to submit the income tax returns for the years 2004-2005 and 2005-2006 vide their letters dated 08.09.2005 (Ext B1) and 15.10.2005 (Ext B2).  They have also produced the despatch register to prove that these letters were sent.  But nothing is there in the despatch register to prove that the said letters were sent to him, nor have they produced any acknowledgment evidencing receipt of the letters by the proposer. As there is no evidence to prove that computation of actual premium or short remittance in premium was properly communicated to the proposer, we find that there is no shortage in the premium and that the proposer has paid the premium demanded by the insurer.  It is also noted that the opposite party has affixed the date stamp on 20-12-2005 on the income tax returns for the Assessment year 2004-05 and 2005-06, submitted by the deceased proposer.  In spite of receipt of these documents the policy was not issued.  In this case the policy holder deposited the premium, submitted the documents and passed away before issuing the policy by the opposite party.

10.  Ext A2 Premium deposit receipt states that “Acceptance of this deposit does not make the Corporation liable for acceptance of risk”. In Mahendra Todi Vs Birla Sunlife Insurance Company Ltd (Civil Appeal No. 7636 of 2021 dated 11.12.2021) the Apex Court observed that

“…….. In any case the proposal having not been accepted, the claim of the appellant could not have been countenanced. To this extent the order passed by the National Commission calls for no interference”.

In another case, Birla Sunlife Insurance Company Limited Vs Bhanvari Devi (Order dated 01.02.2022 in First appeal number 1033/2015), National Consumer Disputes Redressal Commission held that death claim cannot be entertained as the proposal was not accepted.  Relevant portions of the order are reproduced below:

“9. We have gone through the insurance premium receipt dated 16.07.2012. Clause 5 of the receipt reads as under:

‘For application under consideration, the insurance cover shall commence after the said application form for insurance has been examined and accepted by BSLI this shall be separately communicated to you. The prevailing NAV as on date of acceptance / commencement of risk will be applicable’.

10. From a bare perusal of the above clause it is clear that the insurance cover could not have commenced without the application form having been accepted by the Appellant Insurance Company. In the present case, from the record maintained by the appellant Insurance Company, it is evident that the proposal of the insured was rejected ‘in view of financial not justified’. Therefore the policy document was not issued by the Appellant Insurance Company to the Complainant. Since the life of the deceased was never covered by the Appellant Insurance Company, Appellant Insurance company is not liable to pay the insured amount, which would have been payable in the event of the proposal being accepted.”

The above decisions are relevant while considering the point regarding conclusion of insurance contract. In this complaint no policy document was issued by the opposite party to the proposer before his death.  Observations of the Apex Court and NCDRC in the cases cited above supports the contentions of the learned counsel for the opposite party to the extent that there is no contract of insurance. However other issues, specific to this case, are discussed separately in the subsequent points.  In view of what is stated above, we find that there is no contract of insurance with the deceased proposer and so the opposite party is not liable to pay the sum assured claimed by the complainant.    The point is answered accordingly. 

          11. Point No. (ii): We have already found that opposite party is not liable to pay the claim as there is no contract of insurance. However we are inclined to consider whether there is any deficiency in service or unfair trade practice on the part of the opposite party in handling the proposal of the deceased proposer and also in dealing with the claim submitted by the complainants after his demise, as alleged by the complainants. Though there is no contract of insurance and opposite party is not liable to honour a claim as there is no policy, we have to look into these matters, as we are of the view that they have to follow the laws of the land, when they have collected the premium from public and have silently retained it for a long time.  This is a case in which the opposite party neither accepted nor rejected the proposal of the deceased proposer.  It was a “pending proposal” at the time of the unfortunate demise of the proposer ie. even after four months of submission of the proposal.  The copy of the income tax returns said to be required by the opposite party were received by them  on 20.12.2005 as revealed by their inward seal, ie.  before the demise of the proposer.  Other than the inward seal of the opposite party there is no evidence to prove the date of receipt of the income tax returns by the opposite party.  Whether the returns were essential to decide about the acceptance of the proposal is also not explained.  As per the IRDAI (Protection of Policy Holders’ Interests) Regulations, the acceptance of the proposal or the   decision about a claim should be intimated by the insurer within the prescribed time limits. 

Regulation 4(6) of the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002 (notified on 26.04.2002) reads as under:

“Proposals shall be processed by the insurer with speed and efficiency and all decisions thereof shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposals by the insurer”

Relevant portion of Regulation 8(3) states that:

“A claim under a life insurance policy shall be paid or be disputed giving all the relevant reasons, within 30 days from the date of receipt of all relevant papers and clarifications required……”

12.  No final decision was taken by the opposite party about the proposal during the life time of the proposer for about four months. The proposer when he was alive and then nominee after his death were kept in the dark about the fate of the proposal till the claim was repudiated on 22.06.2006. This is in violation of various guidelines and directions of the regulator besides against principles of natural justice. Opposite party had many options during this period – they could have rejected the proposal and refunded the premium. If there was a shortage in premium or if the parameters for underwriting the proposed policy were not fully complied with, they could have suggested to reduce the sum assured or offered a different policy satisfying the parameters.  Opposite party produced Ext B3, original of the proposal file of the proposer/deceased. However it mainly contains confidential documents and internal correspondence about which the proposer was not aware. It has not much relevance unless it had been made known to the proposer. As regards the guidelines in the Underwriting and Agents manuals, stated by the opposite party, these are confidential documents of the opposite party for their internal use only and the proposer has no opportunity to understand its contents. Ext B3(a) is the proposal form (Pages 16 to 22) which does not contain name of the plan opted or computation of premium payable. B3(c) and B3(g) are the letters said to be given by the proposer. These are not dated and there is no reference about Ext B1 and B2 letters. Entries regarding these letters are not seen in the inward Register (Ext B5). DW1 deposed that letters received directly in the office are not entered in the register. This is a lapse on the part of the opposite party for which proposer cannot be blamed. Ext B3(e) and (f) are the income tax returns for the assessment years 2004-05 and 2005-06 with date stamp 20.12.2005, affixed by the opposite party. The opposite party contended that additional requirements were communicated to the proposer vide letters dated 08.09.2005 (Ext B1) and 15.10.2005 (Ext B2). The despatch register (Ext B4) produced by the opposite party does not contain any entries relevant to the said letters. The Opposite party in their objection dated 11.03.2009 admitted that “Specific details of the letters to the proposer is not seen in the outward register for the period relevant”. This is confirmed by DW1 also in his deposition.  Hence communication to the proposer as per Ext B1 and B2 letters is not proved.

13.  Paragraph 9 of the averments as stated in the counter affidavit of the Opposite party dated 06.02.2008 is extracted as follows: “In so far as the proposal on the life of Jaison Joseph is concerned, the complainants are total strangers and it cannot be accepted that they are posted with every development in the proposal.” This is a strange excuse of the opposite party for their serious lapses when the first complainant is the nominee in the proposal who has also submitted the claim with the documents required by the opposite party as legal heirs. The long pendency of the proposal denied alternative options for the proposer – to take a different policy/ plan/ term etc as per his financial status – from the opposite party itself or from another insurer of his choice.  He lost that opportunity for no fault on his part.  We expect more responsibility from a customer centric commercial organization by minimising the processing time for acceptance of a proposal and taking decision in a claim. The insurer should have gracefully accepted the liability as the proposer had complied with all the requirements before his demise and only a technical approval was remaining.

14. The insurance contract is different from other contracts on many counts.  In the normal practice, parties to a contract sign it simultaneously in the same document.  In the case of insurance, the proposer signs    proposal form in advance and hands over the same to the insurer.  The policy document is issued by the insurer subsequently. It is their responsibility to issue the policy within the prescribed time limit. Internal procedures for issuing the policy are not the look out of the proposer.  If the proposal is not accepted it should be communicated to the proposer as per the rules and regulations. It is not expected to be a one sided affair, like the proposer gives the proposal and insurer takes their own time at their will to accept or reject the proposal.  Having   received the proposal and the documents, the insurer sat on the papers for a long time. Life insurance covers an unexpected event pertaining to the life of an individual and so every moment is significant for the proposer. The approach that urgency is applicable only at one end is wrong. This is all the more important when the insurer is at a more advantageous position, having received the signed document, ie the proposal, from the other party to the contract well in advance and the conclusion of the contract depends on the insurer.

In D Srinivas Vs SBI Life Insurance Co Ltd & others (Civil appeal No. 2216 of 2018 dated 16.02.2018) the Apex Court observed that

“13.  …….The insurance contract being a contract of utmost good faith, is a two-way door. The standards of conduct as expected under the utmost good faith obligation should be met by either party to such contract”. 

It was further observed that  

“15. ….We are unable to fathom the reason for such excessive delay in informing the appellant, which cannot be excused. We are of the opinion that the rejection of the policy must be made in a reasonable time so as to be fair and in consonance with good faith standards. In this case, we cannot hold that such enormous delay was reasonable”.

In SBI Life Insurance Co Ltd Vs D Srinivas and 2 others, (First Appeal No 560 of 2012 decided on 03.02.2017) NCDRC observed that

“16. …..if the proposal was not accepted for any reason whatsoever, the premium amount would be refunded and credited to the account of the proposer”.

It was further observed that

“19.….we do not find any merit in the argument of the appellant that the appellant is not liable because the contract of insurance was not concluded”. 

Inordinate delay in taking decision regarding acceptance of the insurance is a clear deficiency in service on the part of the opposite party.

          15. The death claim was intimated to the opposite party on 09.01.2006.  If there was no contract of insurance and if no policy was issued, the opposite party could have very well informed the complainants on the same day that there no was policy in the name of the proposer and hence claim was not admissible. Instead of that they asked the complainants to submit various documents to process the claim. They had the opportunity to reject the claim then and there.  They could have done it even after getting all the papers on 09.03.2006. Again it took more than three months to repudiate the claim. No satisfactory explanation is given by the opposite party for giving unnecessary trouble to the complainants by asking for additional documents and for the undue delay in intimating the rejection of the claim.  In the repudiation letter dated 22.06.2006 (Ext A6) the opposite party asked the complainant to submit “Legal heir Certificate” from a court of law for refunding the deposit premium after deducting medical fees. Nominee’s name is clearly given in the proposal form {(Ext B3(a) Page 22}and such a requirement is unwarranted. This is nothing but a cruel action of the opposite party on a bereaved family.  Hence we find that there was deficiency in service and unfair trade practice on the part of the opposite party in handling the proposal of the deceased and also for the unnecessary delay in taking a decision in the claim and communicating the same to the nominee/ first complainant. 

16. Point No (iii): We have already found deficiency in service and unfair trade practice on the part of the opposite party.  Hence the opposite party is liable to pay compensation for deficiency in service and unfair trade practice. Based on the facts and circumstances of the case we consider it just and reasonable to award an amount of Rs 15 lakhs as compensation. The case was filed about 16 years ago and the complainants have been fighting a long legal battle.  Hence we find that an amount of Rs. 50,000/- is reasonable towards litigation expenses. 

In the result, the complaint is allowed on the following terms:

(1) The opposite party is directed to pay an amount of Rs. 15 lakhs as compensation with interest at 9% from the date of filing the complaint (ie. 06.12.2006) within one month from the date of receipt of a copy of this judgment. If they fail to do so, complainants shall be entitled to get 12% interest on the total amount payable (ie. On the total of the compensation of Rs. 15 lakhs plus interest @ 9% from 06.12.2006) from the said date of default. 

(2) The opposite party is directed to pay a further amount of Rs. 50,000/- to the Complainants towards litigation expenses within one month from the date of receipt of a copy of this order.

JUSTICE K. SURENDRA MOHAN  : PRESIDENT

                                                      T.S.P. MOOSATH  : JUDICIAL MEMBER

                               RANJIT. R                : MEMBER

                                                                                                               RADHAKRISHNAN K.R.  : MEMBER

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APPENDIX

JUSTICE K. SURENDRA MOHAN  : PRESIDENT

                                       T.S.P. MOOSATH  : JUDICIAL MEMBER

                     RANJIT. R                : MEMBER

                                                                                                  RADHAKRISHNAN K.R.  : MEMBER

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