NCDRC Orders Reliance Life Insurance Company To Pay Rs 1 Crore And 50k Litigation Costs

Brief Facts of the Case:

Nirmala Devi (“Complainant”) was the nominee of her deceased son, Vijay Kumar Verma. Her son, an employee of Oriental Bank of Commerce (OBC), had purchased a life insurance policy worth Rs. 1 crore from Reliance Life Insurance Company (“Insurance Company”) on October 14, 2015. The policy was issued after a medical fitness examination conducted by the insurance company. Tragically, on October 27, 2015, the complainant’s son was involved in a road accident that led to severe head injuries. Despite receiving medical attention, he passed away on November 9, 2015. Following his death, the complainant submitted an insurance claim to the insurance company for the accidental death benefit, which was rejected by the insurance company. Aggrieved, the complainant filed a consumer complaint in the National Consumer Disputes Redressal Commission (“NCDRC”).

The complainant alleged that there was a deficiency in service on the part of the insurance company. She argued that her son, the deceased policyholder, had paid the required premium, and therefore, she was entitled to receive the benefit of the policy. She also pointed out that her son was covered by other policies issued by the Life Insurance Corporation of India (LIC), and the claim for his accidental death had been settled by LIC without any objections. She claimed Rs. 2 crores for accidental death, Rs. 50,000 for harassment, and Rs. 51,000 as litigation costs.

The insurance company contended that the deceased policyholder had not disclosed the fact of a previous head injury sustained in a road accident one year prior to obtaining the policy. The insurance company further argued that the non-disclosure of this material information amounted to a violation of the insurance contract and the Insurance Act, 1938. The insurance company justified its repudiation of the claim based on Section 45 of the Insurance Act, which allows repudiation of a policy within three years from the date of issuance in cases of fraud or non-disclosure. Furthermore, the insurance argued that the complainant was not a beneficiary under the insurance policy and therefore not a 'consumer' under the Consumer Protection Act. The insurance company also presented evidence of the deceased's hospitalization due to a head injury from a previous accident and contended that this history had not been disclosed at the time of obtaining the policy. The insurance company emphasized that the claim repudiation was in line with the terms of the insurance policy and the regulatory framework. It argued that the complainant had inflated the claim amount, as the policy did not provide for Rs. 2 crores in case of accidental death but was only for Rs. 1 crore.

Observations of the Commission:

The NCDRC addressed the insurance company’s contention that the complainant was not a 'consumer' under the Consumer Protection Act. The NCDRC ruled that a nominee under a policy of insurance is the rightful claimant of the benefits under the policy, as per the contract between the insured and the insurer. The NCDRC cited the Canara Bank Vs. M/s. United India Insurance Co. Ltd. & Ors. CA No.1042 of 2020 in SLP (Civil) No.20393 of 2018 case to support the notion that beneficiaries of policies taken by the insured are also 'consumers' under the Act, even though they are not parties to the insurance contract.

The NCDRC observed that hospitalization due to a motor vehicle accident, not reported in the proposal form, should not be treated as concealment of pre-existing illness or disease. The NCDRC emphasized that the medical examination of the complainant’s son was meant to inquire about pre-existing illnesses or diseases, and the non-disclosure of a previous motor vehicle accident did not amount to fraudulent concealment.

The NCDRC noted that another insurance company, Life Insurance Corporation of India (LIC), had approved the insurance claim related to the same incident without any objections. This fact indicated that the non-disclosure of the earlier accident was not a valid ground for repudiating the claim.

The NCDRC rejected the insurance company’s reliance on section 45 of the Insurance Act, 1938, as a basis for claim repudiation. The NCDRC held that the failure to disclose a previous hospitalization on account of a motor vehicle accident did not fall under the purview of Section 45, which pertains to the repudiation of claims due to fraudulent conduct. Resultantly, the complaint was allowed and the insurance company was directed to pay Rs. 1,00,00,000/- or 10 times the annualised premium or 105% of the premium paid as on date of death to the complainant along with interest @ 9% per annum from the date of submission of the claim, till the date of the order within two months. The insurance company was also directed to pay the complainant Rs.50,000/- as litigation cost.

Case: Nirmala Devi vs Reliance Life Insurance Com

Case No.: CC/1725/2016

Advocate for the Complainant: Mr. Hirandra Kumar

Advocate for the Respondent: Mr. Praveen Mahajan

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