Issuance Of First Premium Payment Receipt To Insured Would Provide Presumption Of Policy Acceptance By Insurer: Supreme Court

In a recent decision concerning insurance law, the Supreme Court observed that the issuance of a receipt of the first premium payment by the insurer would provide a presumption of the acceptance of the policy by the insurer.

Reversing the findings of the National Consumer Dispute Redressal Commission (“NCDRC”), the bench comprising Justices AS Bopanna and CT Ravikumar, while interpreting the terms and conditions of the insurance contract, noted that the risk of the insured is deemed to be covered from the date of the issuance of the first premium amount receipt by the insurer.

In the instance case, the respondent/Life Insurance Corporation (“LIC”) denied the claim of the appellant's husband/insured on the ground that the policy wouldn't be deemed to come into force from the date of the issuance of the receipt towards the payment of the first premium amount.

However, the appellant contended that the policy would be deemed to be commenced from the date of the receipt of the first premium amount payment made to the LIC.

The uncontroversial fact was that the first premium towards the insurance policy was accepted and a duly signed receipt  was issued by the LIC on 09.07.1996. The cheque issued by the appellant against the payment of the premium amount was encashed on 12.07.1996. The appellant's husband died on 14.07.1996 and the policy was prepared on 15.07.1996.

Taking reference to the case of D. Srinivas v. SBI Life Insurance Co. Ltd. & Ors, the court framed a question as to whether issuance of receipt towards the first premium payment to the LIC would provide a presumption of the acceptance of the policy by the LIC.

Rather than strictly interpreting the terms and conditions of the contract, the Supreme Court in the D. Srinivas case laid down a flexible formula for the court to see whether there was a clear indication of acceptance of the insurance.

After noting that the LIC has not disputed the issuance of the First Premium Receipt carrying the assurance, the court while relying upon the dictum of D. Srinivas inclined to hold that there exists a presumption of acceptance of the policy by the LIC since the issuance of First Premium Receipt.

“In Annexure B receipt of the first premium, it is specifically stated that the acceptance of payment would place the Corporation on risk with effect from the date of the said Acceptance cum-First Premium Receipt, subject to the realization of the amount in cash and the terms and conditions of acceptance printed overleaf. What is printed overleaf is not on record as the same was not produced, though it should be a part of Annexure B. Thus, the entire circumstances discussed based on the documents in the orders of the District Forum and the State Commission hereinbefore in this judgment, in the light of the decision in D. Srinivas's case (supra) constrain us to hold that the proposal was accepted.”, the Judgment authored by Justice CT Ravikumar said.

Based on the aforesaid observation, the impugned order of the NCDRC was set aside, and the order of the State Commission was confirmed by the court directing the LIC to pay the policy amount to the appellant within two months.

Accordingly, the appeal was allowed.

Counsels For Appellant(s) Ms. Manisha T. Karia, AOR Ms. Nidhi Nagpal, Adv. Mr. Adarsh Kumar, Adv. Mr. Aditya Kesar, Adv. Mr. Rohan Trivedi, Adv.

Counsels For Respondent(s) Mr. Kailash Vasdev, Sr. Adv. Ms. Indra Sawhney, AOR

Case Title: Mrs. Bhumikaben N. Modi & Ors. Versus Life Insurance Corporation of India

Citation : 2024 LiveLaw (SC) 365

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