Employer Should Be Regarded As Agent Of Insurer, Necessitating Protection Of Life Assured's Interests: NCDRC

Brief Facts of the Case

The complainant was the wife and the nominee of the late husband, an employee of Singareni Collieries Company Limited, who held multiple insurance policies with the insurer totaling a sum of Rs. 2,55,000. According to the policy terms, upon the policyholder's death, the nominee was entitled to receive the sum assured along with any bonuses and entitled benefits. Sadly, the complainant's husband was murdered, and she notified the insurer of his death within a month, submitting all necessary documents and the claim form. Despite the considerable time that passed, the insurer did not process the claim payment. In response to the delay, the complainant issued a legal notice urging the insurer to expedite the claim processing. The insurer replied, claiming they had not received any intimation, and requested the submission of the original policy bonds and the death certificate, which the complainant believed was a tactic to delay payment. Frustrated by the non-payment, the complainant filed her complaint before the District Forum, which allowed the complaint. The insurer then moved to the State Commission, which rejected the appeal. Following this, the insurer filed a revision petition before the National Commission.

Contentions of the Insurer

The insurer argued that the life assured had opted for voluntary retirement from his employer and subsequently stopped making premium payments, which resulted in the policy lapsing without being revived during his lifetime. After retirement, the life assured no longer received a salary, making it impossible for the employer to pay premiums on his behalf. The life assured was responsible for maintaining the premium payments after reviving the policy. The insurer contended that no evidence was presented to confirm whether the life assured was receiving a salary from his employer. It was argued that the State Commission incorrectly held the insurer responsible for informing the life assured about the premium payment default, especially since he had already chosen voluntary retirement.

Observations by the Commission

The Commission observed that the insurer argued the policies had lapsed because periodic premiums were not received after the complainants took voluntary retirement from their employers. According to Clause 22 (2) of the policy, the insurance policies would lapse if premiums were not collected or remitted by the employer. The insurer submitted a policy document concerning the deceased husband of the complainant, which had identical provisions to another complainant's policy. The relevant policy clause stated that if the life assured left employment or premiums ceased to be collected, the life assured was required to inform the insurer, and premiums due after leaving employment would increase by an additional charge for monthly payments. It was further highlighted that the insurer contended that the policies lapsed since the enhanced premiums were not received after the cessation of employment. Therefore, the insurer had no liability to satisfy the claims. However, the State Commission did not accept this argument, citing a decision by the Supreme Court in the case of Grasim Industries Limited vs. State of Kerala, which held that the employer should be regarded as an agent of the insurer. Therefore, the life assured could not be penalized for any omission by the employer in reporting the cessation of employment or remitting premiums. The commission highlighted the State Commission's findings, which noted that the insurer failed to inform the policyholder about the lapse or gaps in premium payments. The Supreme Court in Chairman, LIC of India vs. Rajiv Kumar Bhasker ruled that the insurer could not take a different stance to make the employee suffer due to the employer's default. The employer had an obligation to inform the employee if unable to perform its obligations, allowing the employee to pay the premiums directly to the insurer. The Commission held that both the employer and the insurer were equally liable to pay the benefits accrued under the policies, as the insurer did not address any letters or inform the life assured that the policy had lapsed. Consequently, the commission ruled that the revision petition lacked merit and upheld the District Forum's decision.

Case Title: Life Insurance Corporation Of India Vs. Pittala Pochamma

Case Number: R. P. No. 1058/2017