Policy Clauses Of Insurance Contract Should Be Interpreted Holistically: NCDRC

Brief Facts of the Case

The complainant bought a whole life Unit Linked Insurance Policy(ULIP) for his son from PNB Metlife Insurance/Insurer and paid premiums for the first three years. The complainant stopped paying the premium after three years, and the insurer ended the policy without informing the complainant or offering the chance to reinstate it, despite provisions for reinstatement. Subsequently, the insurer paid the surrender value to the complainant. The complainant argued that the termination was against the policy terms and filed a complaint before the National Commission. The complaint requested reinstatement of the policy without further premium payments and sought compensation for mental agony and harassment caused .

Contentions of the Insurer

The insurer argued that the complainant's claim was based on a misunderstanding of the policy terms. They contended that the policy terms and conditions were clear, and the complainant had violated them, justifying the policy's termination. Under the Insurance Act, the insurer was not required to provide notice before termination. The complainant could not avoid paying premiums, as the 3-year premium payment option was subject to lapse and reinstatement provisions. The insurer argued that, as an experienced professional, the complainant understood the policy terms. The policy's market-linked investments likely influenced his decision to stop paying premiums due to market risks. The surrender value calculation was accurate based on the total 3-year premiums paid. Therefore, the insurer concluded that the complainant's arguments were without merit and the complaint should be dismissed.

Observations by the National Commission

The National Commission observed that the contention of the complainant was that no notice was given by the insurer to exercise the option of restarting premium payments after stopping for three years. The commission highlighted that it was evident that after the first three years, if the payment was stopped, it could be restarted, subject to the termination clause 21 of the policy. However, to restart the policy, a request in writing had to be made, and old due premiums were to be paid up to the date of reinstatement. The commission further observed that the termination clause provided that if the surrender value fell below the annualized premium, the policy would be terminated after the first three policy years by paying the surrender value as of that date. The commission noted the complainant's counsel contended that the surrender value paid after terminating the policy was Rs.13,91,553.54, which was not below the annual premium of Rs.5 lakhs, and hence the policy could not be terminated under clause 21. This was contested by the insurer's counsel, arguing the annualized premium referred to the total regular premiums of Rs.15 lakhs paid over the first three years. Since three regular premiums were paid for the first three years in this case, the surrender value had to be calculated against the total Rs.15 lakh premium paid. The commission emphasized that clause 21 of the policy entitled the insurer to terminate the policy after paying the Rs.15 lakh surrender value, as the complainant's contention would give an endless option to stop paying premiums after three years while continuing to enjoy policy benefits. The commission observed that under clause 17, one could stop paying premiums and restart, but subject to lapse and reinstatement provisions tied to clause 21's termination clause. The commission highlighted that the complainant did not renew, restart, or exercise any option in writing to revive the policy, basing the complaint solely on an expectation of policy subsistence that did not satisfy the policy terms. The commission further observed that clauses of an insurance contract are supposed to be read together and not selectively..The commission ruled that providing a notice was unnecessary because the policy terms clearly stated that termination would occur due to non-payment of premiums unless the policyholder submitted a written request for reinstatement of the policy.

The National Commission found no merits in the complaint and dismissed it accordingly.

Case Title: Neeraj Kumar Vs. M/S PNB Metlife India Insurance Company

Case Number: C.C. No. 28/2014