Non-payment of premium and lapsed policies will lead to rejection of insurance claim: SC

An insurance claim can be rejected if the policy has lapsed on account of non-payment of premium, said the bench of Justices Sanjiv Khanna and Bela M Trivedi of Supreme Court, while setting aside an order of the National Consumer Disputes Redressal Commission (NCDRC) that ordered additional to compensation in a road accident case, in an appeal filed by the Life Insurance Corporation (LIC). 
The bench said that the terms of an insurance policy have to be strictly interpreted because it is a well-settled legal position that in a contract of insurance there is a requirement of Uberrimae fides i.e. utmost good faith on the part of the insured. 
"It is clear that the terms of insurance policy have to be strictly construed, and it is not permissible to rewrite the contract while interpreting the terms of the policy," the bench said. 
In the case, the woman's husband had taken a life insurance policy under the Jeevan Suraksha Yojana from the Life Insurance Corporation under which a sum of Rs. 3.75 lakh was assured by LIC. Besides this amount, in case of death by accident an additional sum of Rs. 3.75 lakh was also assured. 
The insurance premium  was to be paid six-monthly. However, the policyholder defaulted in payment. 
On March 6, 2012, the husband of the complainant met with an accident and died of injuries on March 21, 2012. 
The complainant thereafter filed a claim before LIC which paid Rs3.75 lakh to her. However, the additional sum of Rs. 3.75 lakh towards the accident claim benefit was denied. 
The complainant, therefore, approached the District Forum which allowed the appeal and directed the payment of an additional sum of Rs. 3.75 lakh towards the Accident claim benefit. 
The State Consumer Disputes Redressal Commission set aside the district court order which was then challenged in the National Consumer Disputes Redressal Commission. The NCDRC set aside the order passed by the State Commission and directed LIC to pay accident benefit. 
The apex court pointed out that condition no. 11 of the policy stipulated that the policy has to be in force when the accident takes place. "In the instant case, the policy had lapsed on October 14, 2011, and was not in force on the date of accident i.e. on March 6, 2012. It was sought to be revived on March 9, 2012, after the accident in question, and that too without disclosing the fact of the accident which had taken place on March 6, 2012," the apex court said in its October 29 order. 
The top court said apart from the fact that the complainant had not come with clean hands to claim the add on/extra accident benefit of the policy, the policy in question was not in force on the date of the accident as per condition no. 11 of the policy, the claim for extra accident benefit was rightly rejected by LIC. 
"Since clause 3 of the said terms and conditions of the policy permitted the renewal of the discontinued policy, the appellant-Corporation had revived the policy of complainant by accepting the payment of premium after the due date and paid Rs 3,75,000 as assured under the policy. Nonetheless for the Accident benefit, the policy had to be in force for the full sum assured on the date of accident as per the said condition no. 11," the bench said. 
The apex court said the accident benefit could have been claimed and availed of only if the accident had taken place after the renewal of the policy.



To continue

Sign Up or Sign In


We are listening!

Solve the equation and enter in the Captcha field.

Changes in Our Business Model
25th Sept 2020
Greetings from Moneylife Advisory Services
Between financial years 2019-21, SEBI has come up with extensive changes to investor advisor regulations. On Sep 23, 2020, SEBI had issued new additional guidelines. This comes just two months after extensive changes announced in July 2020. Earlier, in December 2019 there was an ad hoc circular
As a result of these changes, IAs, cannot accept fees through credit cards, will have to sign a 26-clause investor agreement, have to maintain physical record written & signed by client, telephone recording, emails, SMS messages and any other legally verifiable record for five years. IAs were already asked to record the suitability and rationale for every piece of advice given, sign them and store them for five years.
While these extensive and frequent changes, designed to strengthen the conduct of IAs are well-meaning, these have sharply increased compliance efforts and cost. We, being online advisors, find many of changes harder to implement, compared to advisors working in the physical space. We will have to have an army of advisors, administrative and tech staff to be compliant. If we do this, we will have to divert money to these areas and the cost of our service will double. We want to remain the least-cost service in the market to benefit more and more people. In the circumstances, we are forced to change our business model from “advisory” to “research”. This will mean the following:
What remains the same:
  • Recommendations on insurance, investment and Lion stocks, will continue as a part of the MAS premium subscription. Our strength has always been research and this will remain available to you through our recommendations.
  • The magazine and all textual content will remain as part of the service
  • We will have to suspend the restructuring tool.
What changes:
  • The interactions in Ask / Handholding will offer investment advice but not specific to your situation. It will offer information on investment products and also clarify your doubts about various financial products. It will be a forum for information, not for advice. This will be implemented with immediate effect and our guidelines in Ask, reflect this now.
Over the next few weeks our site and our communication to you will reflect these and other additional changes.
We feel this will not affect you much in terms of what really matters in investing: knowing what to buy and when to buy. This is our edge and it will still be available to you.
Debashis Basu