Lack Of Response Does Not Indicate Consent In Insurance Contracts: NCDRC
The National Consumer Disputes Redressal Commission, presided by Mr. Subhash Chandra and Dr. Sadhna Shanker, held that in insurance proposals, a lack of response does not imply agreement, and a valid contract is established only when there is clear acceptance from the authorized party.
Brief Facts of the Case
The late husband of the complainant took housing loan from the insurer and purchased a life insurance policy, the SBI RiNn Raksha Policy Scheme, under a Group Master Policy to cover this loan. He submitted a membership form along with an initial premium of Rs. 85,360 for a policy with a sum assured of Rs. 50 lakhs. Following a medical examination revealing high blood sugar levels, the insurer offered coverage at an increased premium of Rs. 1,39,137, which the complainant's husband did not accept. Consequently, the initial premium was refunded. He passed away shortly after, and the complainant submitted claim forms to the insurer. After issuing legal notices regarding the claim, alleging deficient service, the complainant approached the State Commission of Andhra Pradesh, seeking Rs. 50 lakhs with interest, Rs. 5 lakhs for hardship, and Rs. 1 lakh in costs. The State Commission allowed the complaint, ordering the insurer to pay the outstanding loan amount with interest. Consequently, the insurer appealed before the National Commission.
Contentions of the Insurer
The insurer argued that the insurance coverage under the SBI RiNn Raksha Policy Scheme was a voluntary option linked to the housing loan, which required a medical examination. Due to the high blood sugar levels found in the medical exam, the insurer contended that the proposal was not accepted, resulting in no insurance coverage for the deceased. They claimed that simply depositing a premium amount does not automatically create a policy, as the full balance premium necessary for the contract had not been paid. The insurer cited Section 64 VB of the Insurance Act, which mandates that no insurer can assume risk unless the premium is received in advance. They also noted that the Master Policy defined coverage to start only after the proposal was accepted and the premium received. Therefore, the insurer maintained that the insurance contract was void due to lack of consideration. They contended that the State Commission erred in favoring the complainant and ordering the insurer to pay the outstanding loan amount with compensation and litigation costs. The insurer referenced several court judgments, including LIC of India vs. Rajavasi Reddy, LIC vs. Gurnam Singh, Life Insurance Corporation of India vs. Mala Goyal, LIC of India vs. Bimala Routray, LIC of India & Anr. Vs. Smt. K. Aruna Kumari, and Avtar Singh & Ors. Vs. SBI Life Insurance Co. Ltd. to support their position.
Observations by the National Commission
The National Commission observed that the late husband of the complainant had applied for insurance coverage under the SBI RiNn Raksha Policy Scheme, with a premium of ₹85,360 deducted and paid to the insurer. However, the policy was not approved because a higher premium was needed due to the applicant's medical status, which indicated high sugar levels. Since this additional premium was not paid, the policy did not come into effect. The insurer repudiated the claim, citing the absence of a valid policy and referencing Section 64 VB of the Insurance Act 1938. The commission noted that the State Commission's finding overlooked these facts and incorrectly determined that the complainant's husband was covered by the policy, leading to unwarranted relief and compensation being awarded. The Supreme Court in LIC of India vs. Rajavasi Reddy clarified that in insurance proposals, silence does not indicate consent, and a binding contract only exists when there is explicit acceptance by the competent authority. Since the premium for the life cover had not been paid, no insurance contract was formed under Section 64 VB of the Insurance Act. Consequently, the commission concluded that the State Commission's findings were unsustainable and set aside the impugned order, allowing the appeal.
Case Title: SBI Life Insurnace Co. Ltd. Vs. Smt. Soma Kanchana Gowri & 3 Ors.
Case Number: F.A. No. 99/2021