831 January 22 2023

Supreme Court: If Insurance premium is accepted, the pre-condition of medical examination stands waived 

GOKAL CHAND V/s  AXIS BANK LTD. & ANR. 

SUPREME COURT JUDGE: Hrishikesh Roy, J.

Advocate for Petitioner : Mr. Harshit Khanduja
Advocate for Respondent No.1:   Mr. Devendra Kumar Singh
Advocate for Respondent No.2: Ms. Suman Bagga

Petitioner: Loan Co-Borrower, Wife of Gokal Chand (D)
Respondent No.1: Axis Bank
Respondent No.1: Max Life Insurance 

"Legalfree.in" 
Relevant Information: A co-borrower plays as important a role as the primary borrower in the legal and financial ramifications of paying back a home loan. While both have an equal responsibility in repayment of the home loan, if the primary borrower is unable to repay the home loan, for some reason, then the responsibility to pay back the home loan falls solely on the shoulders of the co-borrower.

Fact of the Case: 
A home loan secured by the appellants for which obtaining the life insurance in the name of Gokal Chand (now deceased) was a pre-requisite, as set out by the Axis Bank (respondent no.1). Allegedly  respondent No. 1 bank acting as an agent for respondent No. 2 Insurance Company, on 25.7.2017 sanctioned home loan of Rs. 70,99,172/-. From the disbursed loan amount, insurance premium of Rs. 6,24,172/- was paid on behalf of the insured Gokal Chand by the bank to the insurance company. Gokal Chand had faced a medical test on 30.7.2017 as a pre-condition for securing the home loan and although, he died of cardiac arrest soon thereafter on 8.8.2017, the respondent No. 2 (Max Life Insurance) refused to settle the loan account when the insurance claim was made.

Issue: Whether 'state' and 'national' consumer commissions rightly held that there was no privity of contract between the insurer and the insured.

"Legalfree.in" 
Relevant Information: Privity of contract is a doctrine of contract law that states that contracts should not give rights or obligations to entities other than those who are parties to the contract. For example, if a party ‘Jaggu’ promised ‘Jugni’ to pay Rs.10,000 to the third party ‘Shento’.  Thus, ‘Jaggu’ and ‘Jugni’ can sue each other in case of a breach of contract. However, ‘Shento’ cannot sue the parties. This is known as the privity of contract.

Contentions by the Petitioner:

The death of the insured Gokal Chand was intimated on 16.8.2017 with a request to process the insurance claim, however, instead of acting on the information furnished by the appellants, a letter (purportedly dated 3.8.2017) was served on the appellant with the information that the proposal for insurance cover for Gokal Chand is postponed by six months. The reason disclosed for postponement was “Treadmill Test Finding.”

Both Forums failed to consider the fact that the insurance company retained the insurance premium for some time after the death of the insured on 8.8.2017 and returned the same only after the appellant, on 16.8.2017, visited the bank for giving information about the death of the insured. This was immediately informed by telephone by the bank to the insurance company and to the insurance company in the late evening of 16.8.2017 (date of death intimation), posted an ante-dated letter (bearing the date as 3.8.2017 on it) which was received by the appellant on 17.8.2017. In the said letter, it was mentioned that the proposal has been postponed for six months. On the next date i.e., on 17.8.2017, the amount debited towards insurance premium was unilaterally refunded and was adjusted in the loan account.

The contention here is that when the medical/treadmill test result of the insured was normal, there was no reason to either postpone or to reject the insurance policy when the payable premium was ascertained and debited by the bank to the insurance company.

Contentions by the Respondent No.2:

Ms. Suman Bagga, learned counsel on the other hand submits that the proposal was postponed by six months, and eventually the policy was declined and the insurance company refunded the premium sum to the bank with intimation to the appellant and therefore no concluded life insurance policy existed in this case.

The respondent No. 2 is not bound to honor the insurance claim since notwithstanding the collection of the premium amount the policy was at the proposal stage only. Moreover, unless acceptance of the proposal leads to issuance of an insurance policy, there can be no relationship of insurer and the insured for a valid claim.

Contentions by the Respondent No.1:

The learned counsel while supporting the stand of the insurance company would submit that they had forwarded the proposal to the insurance company well before Gokal Chand died, and had already remitted the payable insurance premium, and therefore the bank cannot be said to be deficient in rendering service either to the Complainant or to the insured (Gokal Chand).

Supreme Court Observation:

The applicant’s declaration in Loan Letter (Annexure P-1) authorizing bank to disburse premium to the insurance company became effective only when all the formalities as required by insurance company were satisfied. The satisfaction of the insurance company’s necessary requirements was a condition precedent, for disbursal of the premium as is clear from the following: - 

“Opting for the loan amount along with life/property insurance in the loan downsize letter shall be considered as the written intent of the customer to avail the insurance. Such selection shall be considered to be explicit instruction from the borrower to the bank in writing to disburse the premium to the insurance company directly and will become effective only on the borrower complying with the all formalities as required by the insurance company...” [Emphasis supplied]

While sanctioning the home loan, the respondent bank, debited the premium amount from the sanctioned loan, and credited the same to the account of the insurance company. This appears to be the business arrangement of the bank and the insurance company. The policy accordingly was issued by respondent No. 2 in the name of “Axis Bank Group Credit Life Policy No. 35002XXX”.

Also, the treadmill test undergone by the insured Gokal Chand on 30.7.2017, did not bring forth any health issue. The reason for deferment is surprisingly shown as treadmill test finding, although, no abnormality as such was detected in the said test report, as noted earlier. Yet, the insurance company dispatched an ante-dated letter (written after getting intimation about the death of the insured), informing about 6 months postponement of the proposal.

Interestingly, even in this first ante-dated communication of the insurance company, there was no mention of rejection of the proposal or refund of the insurance premium (Rs. 6,24,172), remitted by the bank to the insurance company on 25.7.2017 i.e., the date when the loan amount was sanctioned.
Respondent No. 2 sent through the Blue-Dart Courier reflects that the insurance company’s letter was dispatched only at 19:38 hours on 16.8.2017. Thereafter only on 17.8.2017, the premium amount was unilaterally returned by the respondent No. 2 to the loan account, followed by the communication dated 31.8.2017 purporting to decline the insurance policy for the housing loan, sanctioned by the bank.

Supreme Court Reasoning for decision:

Firstly, it was a pre-requisite for the home loan borrower to obtain life insurance coverage and the records show that the loan amount was sanctioned on 25.7.2017. On that very day, Rs. 6,24,172/- was remitted towards insurance premium by the bank to the insurance company. This would suggest that all the requirements for the policy as prescribed by insurance company were satisfied at that stage.

Gokal Chand’s treadmill test, did not flag any health issue. In such backdrop, the communication of the insurance company for postponing the life insurance coverage by six months by adverting to the treadmill test report and that too at a stage after intimation about the death of the insured to the respondents, appears to be a malafide act. In the given circumstances, would suggest that the respondent No. 2 were deficient in rendering services to the appellant.

Justice S. Abdul Nazeer writing for the Court observed, that when medical examination is compulsory before acceptance of premium, it would be logical to say that premium acceptance was based on medical examination, and in a situation where premium is accepted, the pre-condition of medical examination stands waived.

The case at hand shows clear malafide on the part of respondent No. 2 in the manner they dealt with the insurance policy, after learning of the death of the insured person on intimation from the affected persons. The way the issue was addressed by the respondent No. 2 following the information conveyed does fail, in our opinion, the test of Reasonable Conduct. On top of that, to cover up their late reaction, most tellingly, the ante dated letter under the garb of an unfounded medical reason was dispatched. These in our opinion, amount to a clear case of deficiency of service and a non-bonafide conduct by the respondent no.2.

Supreme Court decision:

We are, therefore, persuaded to conclude that the impugned judgment is unsustainable and the same is set aside. With this order, the appeal and the complaint stand allowed. The respondent No.2 is accordingly directed to process the complainant’s insurance claim and remit the payable sum. The parties to bear their own costs.

You can View here,







Click here to download Official Supreme Court Judgment 

Note :This Article is written by Adv. Alok Kumar practicing advocate in Delhi High Court, for any kind of suggestion you may contact here advocatealok21@gmail.com and 9953184869.

Author

avatar
Adv. ALOK KUMAR
Advocate Serving Delhi NCR
Delhi High Court & District Courts
LL.B.▪︎Faculty of Law▪︎Delhi University


Comments are not allowed on this article.