SUPREME COURT HOLDS INSURANCE CONTRACT TO BE CONCLUDED BETWEEN PARTIES, AS PRE-ESSENTIAL REQUIREMENTS WERE COMPLIED AND PREMIUM WAS PAID

A two-Judge Bench of the Supreme Court comprising Justice Hrishikesh Roy and Justice K.M. Joseph, passed a Judgment dated 15.12.2022 in the case titled Gokal Chand (D) Thr. Lrs. V. Axis Bank Ltd. & Anr. in SLP (C) No. 14140 of 2020 and observed that the Insurance Contract between the Parties was deemed to be concluded and hence, the Respondent No. 2-Insurer would be liable to settle the insurance claim.

Facts

In this case, one, Gokal Chand (“Deceased”), applied for home loan from Axis Bank (“Respondent No.1/Bank”) where Max Life Insurance Corporation (“Respondent No.2/Insurance Company”) was acting as an insurance agent. On 25.07.2017, the Respondent No.1 sanctioned home loan of Rs. 70,99,172/- to Gokal Chand. Thereafter, out of the disbursed loan amount, insurance premium of Rs. 6,24,172/- was paid on behalf of the Insured, Gokal Chand by the Bank to the Insurance Company.

On 30.7.2017, as a pre-condition for securing the home loan, the Appellant had gone through a medical test. But before the Insurance Contract could be executed, Gokal Chand died of cardiac arrest. As a result, the Legal Representatives of Gokal Chand (“Appellants”) made a claim for his life insurance, but on 08.08.2017, the Respondent No. 2 refused such claim, as it was a case of unconcluded Contract and hence, they were not liable to pay any amount to the Appellants.

As a result, the Appellant filed a Complaint No. 605 of 2017 before the State Consumer Disputes Redressal Commission, Haryana (“State Commission”). The State Commission, vide Judgment dated 14.05.2019, dismissed the Consumer Complaint on the ground that in the present case, the Respondents had only offered the Insurance Policy by way of debiting the amount of the Deceased-Insured towards premium, but the Deceased-Insured had not communicated his acceptance towards the Insurance Policy, hence the Contract is not deemed to have been concluded or come into existence between the Parties. Hence, the Appellants were not entitled to the benefit of life insurance amount under the unconcluded Insurance Contract.

Aggrieved by the State Commission Judgment dated 14.05.2019, the Appellant preferred First Appeal No. 1834 of 2019 before the National Consumer Disputes Redressal Commission (“National Commission”).  The National Commission, vide Order dated 12.09.2019, dismissed the said Appeal and observed that in the absence of acceptance of the proposal and issuance of an insurance policy to him, there was no relationship of insurer and insured between him and respondent No.2. In the absence of such a relationship, the respondent No.2 cannot be held liable for making payment to the complainant in terms of the proposal submitted by late Sh. Gokal Chand which respondent No.2 never accepted… As far as Respondent No.1 Axis Bank Ltd is concerned they have having forwarded the proposal to the insurer before late Sh. Gokal Chand died, they cannot be said to be deficient in rendering services to the complainant or to late Sh. Gokal Chand.

Aggrieved by the National Commission Order dated 12.09.2019, the Appellant preferred an Appeal before the Supreme Court and submitted following contentions.

i) Harshit Khanduja, the learned Counsel for the Appellant submitted that the death of the Insured Gokal Chand was intimated to the Respondents on 15.8.2017 with a request to process the insurance claim. However, instead of acting on the information furnished by the Appellants, an ante-dated Letter posted on 16.08.2017 was served on the Appellant with the information that the proposal for insurance cover for Gokal Chand had been postponed by six months, as his medical / treadmill test as required. Further, both Forums failed to consider the fact that the Insurance Company retained the insurance premium for some time after the death of the Insured. Additionally, the medical test result of the Insured was normal, hence there was no reason to either postpone or to reject the insurance policy when the premium was ascertained and debited by the Bank in favor of the Insurance Company. Thus, the act of the Insurance Company was an afterthought prompted only after the intimation of death and a request for processing claim.

ii) Bagga, the learned Counsel, for the Respondent No. 2 submitted that the Insurance Company is not obliged to honor the insurance claim since notwithstanding the collection of the premium amount, the policy was at the proposal stage only. Moreover, unless acceptance of the proposal leads to issuance of an insurance policy, there can be no relationship between the Insurer and the Insured for a valid claim.

iii) Devendra Kumar Singh, the learned Counsel for the Respondent No. 1-Bank while supporting the stand of the Insurance Company submitted that they had forwarded the proposal to the Insurance Company well before Gokal Chand died, and had already remitted the insurance premium to the Insurance Company, and therefore the Bank cannot be said to be deficient in rendering service to the Complainant.

Supreme Court’s Observations

The Apex Court, vide Judgment dated 15.12.2022, made the following observations:

1. That after considering the contentions of both the Parties and appraisal of evidence, it was quite clear that (i) the pre-condition for home loan as specified by the Respondents was that the life of the Deceased-Borrower will have to be insured and (ii) that the grant of insurance policy was subject to a medical examination. Accordingly, the medical examination of the Deceased was done and thereafter, the loan amount was sanctioned and the premium amount was credited to the Insurance Company.
2. That the Supreme Court observed that when medical examination is compulsory before acceptance of premium, it would be logical to say that premium acceptance was based on medical examination, and in a situation where premium is accepted, the pre-condition of medical examination stands waived. In such circumstances, a concluded contract governs the parties and when such claim is repudiated, the same was held to be a case of deficiency of service in a concluded insurance contract.
3. Thus, in the present case, the Bench held that the insurance process would be deemed as complete. Furthermore, the act of sending an ante-dated Letter to the Appellant, after learning about his death, shows malafide intention on the part of the Respondent No. 2.

Therefore, based on the aforesaid observations, the Apex Court allowed the Appeal and set aside the National Commission Order dated 12.09.2019. The Bench further directed the Respondent No.2 to process the Appellant’s insurance claim.

Ankit Tiwari

Legal Associate

The Indian Lawyer