The Kerala High Court (Ernakulam Bench) came to the aid of the widow of a deceased borrower who was denied the claim of insurance, citing non-acceptance of the policy after the death of her husband. The Court clarified that the very policy was taken in the present case to secure the loan in the event of unforeseen circumstances. Hence, the insurer, having taken the risk of violating the regulations and not informing about the acceptability of rejection of the proposal within the time granted, cannot be heard to say that the insured did not honour the conditions of the policy.
Since the life insurance policy was a precondition for the housing loan, and the premium was collected and retained by the insurer through the bank, the Court cited the IRDAI Regulations, 2017, to hold that once there is a clear indication of acceptance of the insurance proposal, the subsequent refund of premium only after the death of the insured is unjustified.
The Court stated that the very object of IRDAI Regulations would be frustrated if an insurer were permitted to remain silent during the proposer’s lifetime and later defeat the claim by raising a contention of non-acceptance. Accordingly, the failure to communicate nonacceptance within the stipulated period fastens liability on the insurer, and the plea of non-acceptance raised only after the death of the proposer is unsustainable in law.
If the insurer does not do that and retains the premium till the death of the sum assured, they must be estopped from contending that the policy had not come into existence or that the proposal was rejected, added the Court.
The Court also clarified that to permit an insurer to withhold communication during the proposer’s lifetime and thereafter defeat the claim by raising a plea of non-acceptance after his death would be wholly destructive of the object of the insurance and the regulatory mandate, and the insurer, having failed to act within the mandatory timeline and to discharge its duty of bona fide communication, must be held liable.
Noncommunication of rejection of policy within the period prescribed is not a mere irregularity, but a violation of statutory duty, and an insurer cannot be permitted to take advantage of its own omission by raising a plea of non-acceptance at a later stage, added the Court.
A Single Judge Bench of Justice Mohammed Nias C.P. observed that acceptance of the premium itself amounts to a waiver of preconditions such as medical examination and creates a presumption of a concluded contract, and that refund of the premium only after the death of the insured reveals mala fides and amounts to a deficiency of service.
The Bench found that an intimation as well as the refund of the premium amount was made almost 2 and a half years after the date of the proposal, that too after the death of the insured, and after a claim was raised by the wife of the deceased.
Since there is nothing on record to show that the husband (deceased) of the respondent did not comply with any request made by the insurer, the Bench referred to Regulation 14 of the IRDAI Regulations, which provides that a death claim must be settled or repudiated within thirty days from the date of receipt of all relevant documents, failing which interest at two per cent above the bank rate shall be payable.
Briefly, in this case, the insured, a borrower from HDFC Bank, had availed a housing loan which was secured by two life insurance policies from HDFC Life Insurance Company. The premium amounts were financed through a separate loan, and both premiums were debited directly from the borrower’s loan account. While the first policy was issued, HDFC Life failed to issue the second policy, despite collecting the full premium.
In the meantime, the insured died due to COVID-19, and his widow (the respondent) submitted claims for both policies. The company honoured the Rs. 30 lacs policy but rejected the Rs. 1.4 crores claim, citing that the second policy was never finalized due to non-completion of the medical examination. The insurer later offered the refund of the premium, claiming the proposal was withdrawn for want of underwriting requirements.
The respondent approached the Insurance Ombudsman, who found that the insurer had neither communicated rejection nor refunded the premium. The Ombudsman therefore directed the insurer to pay Rs. 1.4 crores plus interest at 8.75%.
Appearances:
Advocates K.J. Saji Isaac, Dr. Elizabeth Varkey, Jithin Saji Issac, Abhishek S. Kumar, and Joshua Sebastian, for the Petitioner
Advocates K.P. Sreekumar and P.M. Satheesh, for the Respondent
