life insurance companies that gleefully accept premium but cite technicalities to later reject a claim got a rude shock from the Supreme Court which said that any ground to deny a policy must be communicated to the insured within reasonable time. It further said that once premium amount is accepted, all condition precedents required under the scheme will stand waived off.
The order has come as a welcome relief for lakhs of life insurance policy holders who are harassed by the insurance firms for one reason or the other.
A case travelled to the Supreme Court which highlighted the plight of an elderly couple waging a lone legal battle against the SBI life Insurance for grant of life insurance cover following the death of their son, also insured under a joint life cover
policy, who suffered a massive heart attack on December 17, 2009.
The policy was offered to home loan buyers of SBI and under their Group insurance scheme for home loan borrowers, a life cover of Rs 7.8 lakh was given to one D Srinivas, his wife D Suguna and son D Venugopal.
A premium of Rs 78150 got debited from the SBI account of Srinivas on September 29, 2008 and the company credited the premium to its account on October 13, 2008. When Venugopal died, the bank was intimated for payment of the insured sum.
Instead of paying the amount, the insurance company returned the premium by a cheque signed just a week before the day the deceased died and washed its hands off the responsibility to pay premium by claiming that the policy could not be completed for want of the deceased's medical examination. Interestingly, the refund came only by February 23, 2011.
For the elderly couple mourning over their son's death, this came as a sudden shock. The State Consumer Commission on July 16, 2012 held that the insurance company was liable to fulfill its commitment under the policy. But the company got a favourable order from the National Consumer Commission which went by the terms of policy which indicated compulsory medical check-up as a condition precedent for payment of life cover.
Deciding on the appeal by Srinivas, the apex bench of Justices NV Ramana and S Abdul Nazeer noted that the premium was accepted by the company that informed about the non-completion of the policy to the appellant on January 18, 2011, after a delay of almost one year and one month since the death of the insured policy holder.
“By the very fact that they accepted the premium waived the condition precedent of medical examination….We are unable to fathom the reason for such excessive delay in information the appellant (of rejection of policy) which cannot be excused….It can be reasonably concluded that the insurer is trying to get out of the bargain which they had willfully accepted.”
For future cases, the Court laid down that if rejection of a policy is not informed to the insured within reasonable time, the policy has to be finally honoured.