SC allows appeal against insurance company for ante-dated letter under the garb of unfounded medical reason [Read Judgment]

NEW DELHI: The Supreme Court has allowed an appeal against an insurance company, which issued a ante-dated letter to reject the insurance claim on learning of the death of the insured person who took home loan.  

A bench of Justices K M Joseph and Hrishikesh Roy directed the Max Life Insurance Corporation to process the complainant’s insurance claim and remit the payable sum.

In the judgement, the court noted that when the death information was conveyed to the respondents, most surprisingly, that was the trigger which led to the insurance company to issue a back dated letter deferring the insurance process, followed by refund of the premium a few days later, and then the repudiation after that.

The bench said the conduct of the company cannot be countenanced against the good faith standards that an insurance contract warrants.

The matter related to home loan secured by the appellants for which obtaining the life insurance in the name of Gokal Chand (now deceased) was a prerequisite, as set out by the Axis Bank.

The appellants said that the bank acting as an agent for insurance company, on July 25, 2017 sanctioned home loan of Rs 70,99,172.

From the disbursed loan amount, an insurance premium of Rs 6,24,172 was paid on behalf of the insured Gokal Chand by the bank to the insurance company.

Gokal Chand faced a medical test on July 30, 2017 as a pre-condition for securing the home loan. However, he died of cardiac arrest soon thereafter on August 8, 2017. The insurance company refused to settle the loan account when the insurance claim was made.

The appellants filed a complaint before the State Consumer Disputes Redressal Commission, Haryana, which dismissed the complaint with the observation that there was no privity of contract between the insurer and the insured. The National Consumer Disputes Redressal Commission (NCDRC) also dismissed the plea against the state commission’s decision. The appellants moved the apex court, which set aside the NCDRC’s judgment.

The judgement authored by Justice Roy said, “The case at hand shows clear malafide on the part of respondent No. 2 in the manner they dealt with the insurance policy, after learning of the death of the insured person on intimation from the affected persons. The way the issue was addressed by respondent No. 2 following the information conveyed does fail, in our opinion, the test of Reasonable Conduct”.

It further added that to cover up their late reaction, most tellingly, the ante dated letter under the garb of an unfounded medical reason was dispatched.

“These in our opinion, amount to a clear case of deficiency of service and a non-bonafide conduct by the respondent no.2. The contrary findings in the impugned order do not pass our judicial scrutiny,” the bench said.

The bench noted that in this case, the pre-condition for the home loan as stipulated by the respondents was that life of the borrower will have to be insured and only after assessment of the applicant’s credentials, the loan was approved.

“When the loan amount was sanctioned, the premium amount was kept aside and was credited to the insurance company and the insured was subjected to a medical test which showed normal health status. Thus, premium was accepted and retained for the life insurance and no change of this position was found necessary even after the treadmill test result of the insured," the bench said.

It further added, " This entire procedure would suggest, at least from the insurer’s perspective, that the insurance process was complete and all mandatory requirements were met. Significantly, there was no contrary communication by the respondent No. 2 indicating otherwise as well".

[Read Judgment]