Insurance Claim Liable To Be Rejected If Premium Was Not Paid On Due Date : Supreme Court

The Supreme Court observed that it is not permissible to rewrite the contract while interpreting the terms of the Insurance Policy.

The bench of  Justices Sanjiv Khanna and Bela M. Trivedi said that the terms of insurance policy have to be strictly construed. In a contract of insurance there is a requirement of Uberrima fides i.e. good faith on the part of the assured, the court said.

The complainant's husband had taken a life insurance policy under the Jeevan Suraksha Yojana on 14.04.2021 from the Life Insurance Corporation, under which a sum of Rs. 3,75,000/- was assured by the corporation, and in case of death by accident an additional sum of Rs. 3,75,000/- was also assured. He met with an accident and succumbed to the injuries on 21.03.2012. The complainant after the death of her husband filed a claim before LIC. She was paid a sum of Rs. 3,75,000/- , but the additional amount of Rs. 3,75,000/- towards the Accident claim benefit was not paid.

The complainant, therefore, approached the District Forum by filing a complaint seeking the said amount towards the Accident claim benefit. LIC contended that the day when the husband of the complainant met with an accident, the said policy had already lapsed on account of non-payment of the due premium. The complaint was allowed by the District Forum. The State Consumer Disputes Redressal Commission allowed the appeal. But, the National Commission Disputes Redressal Commission restored the order passed by District Forum.

Before the Apex Court, LIC contended that condition no. 11 of the Policy clearly stipulated that the policy has to be in force when the accident takes place. The policy had lapsed on 14.10.2011 and was not in force on the date of accident i.e. on 06.03.2012. It was sought to be revived on 09.03.2012 after the accident in question, and that too without disclosing the fact of accident which had taken place on 06.03.2012.

Taking note of this fact, the bench observed:

It is not disputed that the husband of the complainant had taken the life insurance policy on 14.04.2011, that the next premium had fallen due on 14.10.2011 but was not paid by him, that the husband of the complainant met with an accident on 06.03.2012, that thereafter the premium was paid on 09.03.2012 and that he expired on 21.03.2012. It is also not disputed that at the time of making payment of premium on 09.03.2012, it was not disclosed by the complainant or her husband to the appellant-Corporation about the accident which had taken placed on 06.03.2012. The said conduct on the part of the complainant and her husband in not disclosing about the accident to the corporation not only amounted to suppression of material fact and lacked bona fides but smacked of their mala fide intention, and therefore, the Accident benefit claim of the complainant was liable to be rejected on the said ground alone. It is well settled legal position that in a contract of insurance there is a requirement of Uberrima fides i.e. good faith on the part of the assured. 

The court further observed thus, by referring to Vikram Greentech (I) Ltd. V/s New India Assurance Co. Ltd. (2009) 5 SCC 599:

From the afore-stated legal position, it is clear that the terms of insurance policy have to be strictly construed, and it is not permissible to rewrite the contract while interpreting the terms of the Policy. In the instant case, condition no. 11 of the Policy clearly stipulated that the policy has to be in force when the accident takes place

The court observed that the Accident benefit could have been claimed and availed of only if the accident had taken place subsequent to the renewal of the policy. Having held thus, it allowed the appeal and dismissed the complaint.

Click here to Read/Download Judgment