Insurance Policies Should Be Interpreted Holistically In Favor Of Insured: NCDRC

Brief Facts of the Case

The complainant is a nominee of the policyholder who approached Life Insurance Corporation/insurer to purchase a pension/annuity policy. Since the appropriate Proposal Form (Table No.147) was unavailable, the Proposal Form (Table No.122) was used instead. The policyholder completed and submitted the proposal form, requesting the policy to commence the next day. The proposal was accepted, and the policy was issued with an annual premium of Rs.10,000 for a term of 34 years. According to the policy's Special Provisions, if the policyholder while the policy was active, all premiums paid up to the death date, accumulated at a rate set by LIC, would be paid along with any term assurance sum assured. The proposer did not submit the necessary form or application for the Term Rider Benefit under the policy. Following the policyholder's death in a road accident, the insurer refunded the paid premium of Rs.10,000 along with accrued interest of Rs.125 to the nominee. The nominee accepted this amount without protest. The nominee then filed a complaint with the Insurance Ombudsman, which was rejected, stating no grounds for interference with the insurer's decision. Subsequently, the complainant filed a complaint before the State Commission, and the Complaint was allowed. The insurer appealed against the State Commission's order before the National Commission.

Contentions of the Insurer

The insurer argued that the complainant is not even a consumer per the definition provided under the Consumer Protection Act 1986. The order of the State Commission was based on presumptions and conjecture instead of adhering to the policy terms and conditions, which constituted the contract between the policyholder and the insurer. It was argued that the State Commission failed to recognize that the Proposal Form - Table No. 122 was used because the new Form for Table No. 147 was still being printed, and only Form 122 was available at that time. This should be seen as an irregularity, not illegality, without any malafide intention by the Life Insurance Corporation of India. It was argued that the policyholder did not submit Form 300, any application, or a letter to avail of the term rider benefit. The insurer contended that merely having a policy under Table 147 did not entitle the policyholder or their legal heirs to term rider benefits without submitting Form 300 or any request for such benefits.

Observations by the Commission

The Commission observed that the insurer used an incorrect proposal form (Table 122) for issuing a policy under Table 147, leading to ambiguity over whether the deceased insured opted for an Annuity Plan with or without Term Rider Benefit. The commission cited the Supreme Court's ruling in Canara Bank Vs. United India Insurance Co. Ltd. & Ors. (2020) which held that insurance policies should be interpreted in a way that considers the reasonable expectations of all parties involved, including the insured person and the beneficiaries. Any clauses related to coverage should be given a broad interpretation, and if there are any ambiguities, they should be resolved in favor of the insured person. On the other hand, any exclusions or exceptions should be interpreted narrowly. Following this principle, the commission determined that the insurer cannot treat the policy solely as an Annuity Plan without including the Term Rider Benefit.

The Commission upheld the State Commission's order and dismissed the appeal.

Case Title: Life Insurance Corporation Of India Vs. Brijendra Kumar Tyagi

Case Number: F. A. No. 888/2021