Gokal Chand (D) Thr. Lrs. Vs Axis Bank Ltd. (Supreme Court of India)
Whether an insurance company even after receiving the insurance premium, can refuse to honour its contract when the insured person dies immediately after taking the home loan.
An interesting issue arose in this case when the insured obtained a home loan from Axis Bank and as part of the loan mandatory insurance was taken from Max NewYork Life and a premium of Rs 6.24 lacs was also debited.After such debit, tread mill test (TMT) test was conducted in which there was no abnormality and there was no adverse communication from either bank or the insurer. However, 15 days after TMT, the insured died of a heart attack and when the insurer was informed to honour the claim, the insurance company back dated a letter declining to take insurance policy on the pretext of adverse TMT Finding.
Moreover, when the death information was conveyed to the respondents, most surprisingly, that was the trigger that led to the insurance company to issue a back dated letter deferring the insurance process, which was followed by refund of the premium a few days later, and then the repudiation after that.
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.
These in our opinion, amount to a clear case of deficiency of service and a non-bonafide conduct by the respondent no.2.
The Supreme Court relying on D. Srinivas vs. SBI Life Insurance Company Limited and Others (2018) 3 SCC 653(SC) came down upon heavily upon the insurance company as well as the bank that when the insurance premium was debited followed by a TMT test which was a normal test, the contract of insurance was valid and the backdated letter which was established, could not be relied upon.
This judgement will be helpful in insurance matters where the claims are not paid on flimsy grounds.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Leave granted.
2. Heard Mr. Harshit Khanduja, the learned counsel appearing for the appellants. Also heard Ms. Suman Bagga, learned counsel representing the Max Life Insurance Corporation (respondent No. 2). The first respondent is represented by Mr. Devendra Kumar Singh.
3. The appeal arises out of a 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 (respondent no.1).
4. The appellants project that respondent No. 1 bank acting as an agent for respondent No. 2 Insurance Company, on 25.7.2017 sanctioned home loan of Rs. 70,99,172/-. From 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. The loan account has since been settled by the borrowers on 19.3.2020 during the pendency of the appeal.
5. Gokal Chand had faced a medical test on 30.7.2017 as a pre-condition for securing the home loan and although, he died of cardiac arrest soon thereafter on 8.8.2017, the respondent No. 2 refused to settle the loan account when the insurance claim was made. Consequently, a Consumer Complaint was filed by the appellants before the State Consumer Disputes Redressal Commission, Haryana (for short “State Commission”). The State Commission, however, dismissed the Consumer Complaint with the observation that there was no privity of contract between the insurer and the insured.
6. The resultant appeal was dismissed by the National Consumer Disputes Redressal Commission (for short “National Commission”) by the impugned order which has led to the present appeal before this Court.
7. In the impugned judgment, it was noted that the Complainant along with her husband, late Gokal Chand approached the bank for a home loan for which the respondent bank had insisted that a life insurance cover should be obtained from respondent No. 2 on the life of Gokal Chand. The bank accordingly deducted a sum of Rs.6,24,172/- on 25.7.2017 towards the insurance premium. The insured Gokal Chand was subjected to medical tests on 30.7.2017 and although he died on 8.8.2017, the insurance claim was repudiated by respondent No. 2.
Counsel’s Submissions
8.1. Mr. Harshit Khanduja, the learned counsel for the appellant would submit that the death of the insured Gokal Chand was intimated on 16.8.2017 with a request to process the insurance claim, however, instead of acting on the information furnished by the appellants, a letter (purportedly dated 3.8.2017) was served on the appellant with the information that the proposal for insurance cover for Gokal Chand is postponed by six months. The reason disclosed for postponement was “Treadmill Test Finding.”
8.2. The appellants have set up a specific case of the respondent no. 2 ante-dating the purported letter indicating postponement of the proposal and unilaterally reversing/refunding the insurance premium, much after the death of the insured was informed to the insurance company.
8.3. According to the appellants, both Forums failed to consider the fact that the insurance company retained the insurance premium for some time after the death of the insured on 8.8.2017 and returned the same only after the appellant, on 16.8.2017, visited the bank for giving information about the death of the insured. This was immediately informed by telephone by the bank to the insurance company and to the insurance company in the late evening of 16.8.2017 (date of death intimation), posted an ante-dated letter (bearing the date as 3.8.2017 on it) which was received by the appellant on 17.8.2017. In the said letter, it was mentioned that the proposal has been postponed for six months. On the next date i.e., on 17.8.2017, the amount debited towards insurance premium was unilaterally refunded and was adjusted in the loan account.
8.4. The contention here is that when the medical/treadmill test result of the insured was normal, there was no reason to either postpone or to reject the insurance policy when the payable premium was ascertained and debited by the bank to the insurance company. It is, therefore, argued that the act of the insurance company was an afterthought triggered only after the intimation of death and a request for processing claim. Moreover, such an action was unreasonable and this would amount to malafide action.
9.1. Representing the insurance company (respondent No. 2), Ms. Suman Bagga, learned counsel on the other hand submits that the proposal was postponed by six months, and eventually the policy was declined and the insurance company refunded the premium sum to the bank with intimation to the appellant and therefore no concluded life insurance policy existed in this case.
9.2. Ms. Bagga, the learned counsel, therefore argues that the respondent No. 2 is not bound 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 of insurer and the insured for a valid claim.
10.1. For the respondent bank, Mr. Devendra Kumar Singh, the learned counsel while supporting the stand of the insurance company would submit that they had forwarded the proposal to the insurance company well before Gokal Chand died, and had already remitted the payable insurance premium, and therefore the bank cannot be said to be deficient in rendering service either to the Complainant or to the insured (Gokal Chand).
Reasoning & Decision
11. As can be noted, the home loan document issued by the bank to the applicant Gokal Chand (Annexure P-1) makes it a condition precedent to obtain the life insurance cover for getting the home loan. The relevant clause 4.1(k) reads as under: –
(k) comprehensively insure and keep insured, with the Bank as a sole beneficiary, (i) the Property for its full market value or replacement cost, and (ii) whenever required by the Bank, the risk of death and injury of the Borrower, and
– shall assign in favour of the Bank and submit to the Bank the original insurance policy document(s) and premium/payment receipts;
– Shall promptly inform the Bank of any loss or damage to the Property due to any force majeure or Act of God;
– shall do all acts as may be required to maintain the Bank’s status of sole beneficiary (under the said insurances) and receive money thereon;
12. The applicant’s declaration in Loan Letter (Annexure P-1) authorizing bank to disburse premium to the insurance company became effective only when all the formalities as required by insurance company were satisfied. The satisfaction of the insurance company’s necessary requirements was a condition precedent, for disbursal of the premium, as is clear from the following: –
“Opting for the loan amount along with life/property insurance in the loan downsize letter shall be considered as the written intent of the customer to avail the insurance. Such selection shall be considered to be explicit instruction from the borrower to the bank in writing to disburse the premium to the insurance company directly and will become effective only on the borrower complying with the all formalities as required by the insurance company…” [Emphasis supplied]
13. While sanctioning the home loan, the respondent bank, debited the premium amount from the sanctioned loan, and credited the same to the account of the insurance company. This appears to be the business arrangement of the bank and the insurance company. The policy accordingly was issued by respondent No. 2 in the name of “Axis Bank Group Credit Life Policy No. 35002367”.
14. The treadmill test undergone by the insured Gokal Chand on 30.7.2017, did not bring forth any health issue, as the extract thereof would show: –
