Silence Does Not Imply Consent In Insurance Proposals: NCDRC

Brief Facts of the Case

The deceased husband of the complainant had availed two home loans of Rs. 14 lakhs each from State Bank of India for two flats. He was nominated to be covered under the insurance under the Master Policy held by the bank with SBI Life Insurance Company/insurer that provided the “SBI Life – RINn Raksha Insurance Policy.” The complainant's late husband submitted a policy proposal and the bank paid a premium of Rs. 11,080 to the insurer. The insurer then sent the borrower a Health Questionnaire asking for health information which was fulfilled. Therefore, the insurer credited the premium amount back into the borrowers account and wrote to him explaining that he would not be able to get insurance from the insurer. The borrower had a heart attack and died at work in another country. Subsequently, the complainant's insurance claim was rejected based on lack of coverage. The complainant then filed a complaint with the State Commission of Maharashtra, which was allowed after a contest. Consequently, the insurer appealed before the National Commission.

Contentions of the Insurer

The insurer argued that although the loan was granted by the bank and the life insurance premium was remitted, the life insurance policy was not approved because the complainant's late husband did not supply his health details. Hence the premium was refunded and there was no contract made. Since the death happened before embracing the policy, the claim was turned down. The insurer quoted the case of Uttamchand vs. LIC wherein it was held that paid up and proposal form does not entitle the person an assured insurance policy. The insurer also pointed the Commission's ruling in Avtar Singh & Others vs. SBI Life Insurance Co. Ltd., where the court held that mere encashment of the premium cheque does not make a contract.

Thus, the insurer contended there was no deficiency in service and requested the dismissal of the complaint.

Observations by the National Commission

The National Commission observed that the central issue in this matter was whether the deceased,was eligible for life cover and whether the insurer was justified in repudiating the claim. Analyzing the records and submissions provided by the insurer it was obvious that it did not issue any life cover policies for the complainant's late husband. The complainant claimed that the policies were guaranteed when the home loans were given and the premium was paid; therefore they must be approved. However, such an argument had to be weighed against the law on the matter. The apex court in LIC of India vs. Rajavasireddy & Others (AIR 1984 SC 1014) had ruled that non acceptance also does not amount to acceptance of the insurance proposal and a contract is binding where there is clear communication of acceptance. The Commission noted that insurance policy is a contract, and it is made where there is an offer and acceptance in terms of Section 2(b) of the Contract Act, 1872. Acceptance must be communicated to the proposer to form the contract to be enforceable. In this case, since the proposal has been returned and the premium refunded before the complainant's late husband's death, it would not be proper to say that there was a formation of a contract or that the insurer was in a position to address such a claim. Therefore, due to the Supreme Court ruling in Rajavasireddy, the Commission discovered that the State Commission's order cannot be justified, and thus it required intervention. Consequently, the First Appeal was allowed, and the State Commission's order in the complaint was set aside, with no order as to costs.

Case Title: SBI Life Insurance Company Ltd. Vs. Hemangi & 2 Ors.

Case Number: F.A. No. 593/2022

Click Here To Read/Download Order