Supreme Court Denies Accident Claim Benefit Due to Policy Lapse: LIC vs. Sunita (2021)

Introduction

Date of the Judgment: 29 October 2021

Citation: (2021) INSC 747

Judges: Sanjiv Khanna, J. and Bela M. Trivedi, J.

Can an insurance company deny an accident claim if the policy had lapsed due to non-payment of premium, even if it was revived after the accident but before the death of the insured? The Supreme Court of India recently addressed this question in a case involving the Life Insurance Corporation of India (LIC). The court had to decide whether the insurance company was liable to pay the additional accident benefit when the policy had lapsed before the accident, despite the policy being revived later. The judgment was delivered by a two-judge bench comprising Justice Sanjiv Khanna and Justice Bela M. Trivedi, with the majority opinion authored by Justice Bela M. Trivedi.

Case Background

The case revolves around a life insurance policy taken by Mr. Pradeep Kumar, the husband of the respondent, Sunita, under the Jeevan Suraksha Yojana from the Life Insurance Corporation of India (LIC) on April 14, 2011. The policy had a sum assured of Rs. 3,75,000, with an additional Rs. 3,75,000 for accidental death. The policy required premiums to be paid every six months, with the next premium due on October 14, 2011. However, Mr. Kumar defaulted on this payment.

On March 6, 2012, Mr. Kumar met with an accident and sustained injuries. On March 9, 2012, he paid the overdue premium to revive the policy. Unfortunately, he succumbed to his injuries on March 21, 2012. Following his death, Sunita filed a claim with LIC. The insurance company paid the basic sum assured of Rs. 3,75,000 but refused to pay the additional Rs. 3,75,000 for the accident claim, stating that the policy had lapsed before the accident. Sunita then approached the District Forum seeking the accident claim benefit.

Timeline

Course of Proceedings

The District Forum ruled in favor of Sunita, relying on a Ready reckoner issued by LIC, and ordered the accident claim benefit to be paid. However, LIC appealed to the State Consumer Disputes Redressal Commission, which overturned the District Forum’s decision. Aggrieved by this, Sunita filed a Revision Petition before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC allowed Sunita’s petition, setting aside the State Commission’s order and reinstating the District Forum’s decision. LIC then appealed to the Supreme Court.

Legal Framework

The case primarily involves the interpretation of the terms and conditions of the insurance policy, specifically clauses related to the revival of lapsed policies and the conditions for availing accident benefits. The relevant clauses are:

• Clause 3: Revival of Discontinued Policies:
  “If the policy has lapsed, it may be revived during the life time of the Life Assured, but within a period of five years, from the due date of the first unpaid premium and before the date of Maturity, on submission of proof of continued incurability to the satisfaction of the corporation and the payment of all the arrears of premium together with interest compounding half yearly at such rates as may be fixed by the Corporation from time to time. The Corporation, reserves the rights to accept or accept with modified terms or decline the revival of Discontinued Policy. The revival of a Discontinued Policy shall take effect only after the same is a approved by the Corporation and is specifically communicated to the proposer/Life Assured.” This clause outlines the conditions for reviving a lapsed policy.

• Clause 4: Non-forfeiture Regulations:
  “(a)If, after at least 3 full years premiums have been paid in respect of this Policy, any subsequent premiums be not duly paid, this Policy shall not be wholly void, but shall subsist as a Paid-up Value which shall be payable in case of death/Matyrly and shall depend on the number of years for which premiums have been paid and shall be greater of a sum that bears the same ratio to the Maturity Sum Assured as the number of premiums actually paid shall bear to the total number of premiums originally stipulated in the Policy. OR The surrender value as per para 7 below assuming that the policy has been surrendered on the date of death/Matyruty, as the case may be.” This clause explains the non-forfeiture benefits available if premiums are not paid after a certain period.

• Clause 11: Accident Benefit (If opted for):
  “If at any time when this policy is in force for the full sum assured or reduced sum assured in case of partial surrender of the policy, the life assured, before the expiry of the policy term or the policy anniversary on which the age nearer birthday of the Life Assured is 70 years, whichever is earlier, is involved in an accident resulting in either permanent disability as hereinafter defined or death and the same is proved to the satisfaction of the Corporation, the Corporation agrees in the case of :- (b) Death of the Life Assured: to pay an additional sum equal to the Accident Benefit Sum Assured under this Policy, if the life assured shall sustain and bodily injury resulting solely and directly from the accident caused by outward, violent and visible means and such injury shall within 180 days of its occurrence solely, directly and independently of all other causes result in the death of the life assured.” This clause specifies the conditions for claiming the accident benefit, particularly stating that the policy must be in force at the time of the accident.

These clauses are interpreted within the framework of the Consumer Protection Act, which aims to protect the interests of consumers.

Arguments

Arguments by the Appellant (LIC):

• LIC argued that the accident benefit was payable only if the policy was in force on the date of the accident, as per condition no. 11 of the policy. Since the policy had lapsed in October 2011, and the accident occurred on March 6, 2012, the accident benefit was not applicable.

• The premium was paid on March 9, 2012, three days after the accident, and the corporation was not informed about the accident when the policy was revived.

• LIC emphasized the principle of uberrima fides (utmost good faith) in insurance contracts, citing the judgments in Vikram Greentech (I) Ltd. & Anr vs New India Assurance Co. Ltd (2009) 5 SCC 599 and Life Insurance Corporation of India Vs. Jaya Chandel (2008) 3 SCC 382. They argued that the insured had a duty to disclose all material facts, including the accident, when reviving the policy.

Arguments by the Respondent (Sunita):

• Sunita contended that the terms and conditions of the policy were not brought to the insured’s notice. She argued that the Ready reckoner indicated the entitlement to the accident claim benefit.

• The policy was revived after the payment of the premium along with the late fee charges on March 9, 2012, before the death of her husband.

• Sunita relied on LIC vs. Jaya Chandel (supra), arguing that the issuance of the renewal premium receipt on March 9, 2012, meant the policy was revived, and the accident benefit should be provided.

The arguments of both sides can be summarized as follows:

Innovativeness of the Argument:
The innovative aspect of Sunita’s argument was the reliance on the Ready reckoner and the argument that the policy was effectively revived with the issuance of the renewal receipt, despite the accident occurring before the revival. This attempted to circumvent the strict interpretation of the policy terms regarding the policy being in force at the time of the accident.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the respondent-complainant was entitled to the accident claim benefit when the policy had lapsed before the accident, despite the policy being revived after the accident but before the death of the insured?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court followed Vikram Greentech (I) Ltd. V/s New India Assurance Co. Ltd. (2009) 5 SCC 599* to emphasize the principle of uberrima fides in insurance contracts, stating that the insured has a duty to disclose all material facts. The court also reiterated that the terms of an insurance policy must be strictly construed.

• The Supreme Court distinguished Life Insurance Corporation of India Vs. Jaya Chandel (2008) 3 SCC 382*, stating that in the present case, the policy had lapsed before the accident, and the accident benefit was conditional on the policy being in force at the time of the accident.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following points:

• The strict interpretation of the insurance policy terms, particularly condition no. 11, which required the policy to be in force at the time of the accident for the accident benefit to be payable.
• The principle of uberrima fides, emphasizing the insured’s duty to disclose all material facts, including the accident, when reviving the policy.
• The fact that the policy had lapsed on October 14, 2011, and the accident occurred on March 6, 2012, before the policy was revived on March 9, 2012.
• The court’s view that the conduct of the complainant and her husband in not disclosing the accident at the time of revival of the policy amounted to suppression of material fact and lacked bona fides.

The court’s reasoning was heavily based on the contractual terms and the need for good faith in insurance contracts.

Fact:Law Ratio:

Logical Reasoning:

The court considered alternative interpretations, such as the respondent’s argument that the policy was revived and the Ready reckoner indicated entitlement. However, these were rejected in favor of a strict interpretation of the policy terms and the principle of good faith. The court emphasized that the accident benefit was conditional on the policy being in force at the time of the accident, which was not the case here.

The Supreme Court held that the insurance company was not liable to pay the additional accident benefit. The court reasoned that the policy had lapsed before the accident, and the revival of the policy after the accident did not retroactively cover the accident. The court also noted that the insured had not disclosed the accident when reviving the policy, which was a breach of good faith.

The court’s decision was unanimous, with both judges agreeing on the outcome and the reasoning.

The decision has implications for future cases involving insurance claims where policies have lapsed and been revived. It reinforces the principle that insurance contracts must be strictly construed and that the insured has a duty to disclose all material facts.

Key Takeaways

• Insurance policies must be strictly interpreted based on their terms and conditions.
• The principle of uberrima fides requires the insured to disclose all material facts, including accidents, when reviving a lapsed policy.
• Accident benefits under an insurance policy are generally payable only if the policy is in force at the time of the accident.
• Revival of a lapsed policy does not automatically cover accidents that occurred before the revival.

This judgment reinforces the importance of timely premium payments and complete disclosure of all material facts when dealing with insurance contracts. It serves as a reminder that insurance companies are not liable for claims when the policy was not in force at the time of the incident.

Directions

No specific directions were given by the Supreme Court in this case.

Development of Law

The ratio decidendi of this case is that for an accident benefit to be payable under an insurance policy, the policy must be in force at the time of the accident. The revival of a lapsed policy after the accident does not retroactively cover the accident. This judgment reinforces the existing legal position on the interpretation of insurance contracts and the principle of uberrima fides. There is no change in the previous position of law, but the judgment clarifies the application of these principles in cases where policies have lapsed and been revived.

Conclusion

In conclusion, the Supreme Court allowed the appeal filed by the Life Insurance Corporation of India, setting aside the order of the National Consumer Disputes Redressal Commission. The court held that the respondent was not entitled to the accident claim benefit because the insurance policy had lapsed before the accident, and the insured had not disclosed the accident when reviving the policy. This decision emphasizes the importance of strict adherence to policy terms and the principle of good faith in insurance contracts.

Category

Parent Category: Consumer Law

Child Categories: Insurance Law, Life Insurance, Accident Claims, Consumer Protection Act, 1986

Parent Category: Insurance Law

Child Categories: Uberrima Fides, Policy Interpretation, Revival of Policy, Accident Benefit

FAQ

Q: What is uberrima fides in insurance contracts?

A: Uberrima fides means “utmost good faith.” In insurance contracts, it requires both the insured and the insurer to act honestly and disclose all material facts. The insured must disclose all relevant information that could affect the insurer’s decision to provide coverage.

Q: What happens if I miss a premium payment on my life insurance policy?

A: If you miss a premium payment, your policy may lapse. However, most policies have a grace period during which you can pay the overdue premium and revive the policy. If you do not pay within the grace period, you may need to go through a revival process, which may require additional fees and proof of good health.

Q: Can I claim an accident benefit if I revive my policy after an accident?

A: Generally, no. As per the Supreme Court’s ruling, the accident benefit is usually payable only if the policy is in force at the time of the accident. Reviving the policy after the accident may not retroactively cover the accident.

Q: What should I do if I have an accident after my insurance policy has lapsed?

A: If you have an accident after your policy has lapsed, you should immediately contact your insurance company. You should also be prepared to pay any overdue premiums and follow the company’s revival process. However, be aware that the accident benefit may not be payable if the accident occurred before the policy was revived.

Q: Why is it important to disclose all material facts when reviving a lapsed policy?

A: It is crucial to disclose all material facts, such as an accident, when reviving a lapsed policy because the insurance company needs to assess the risk accurately. Failure to disclose material facts can be considered a breach of good faith and may lead to denial of claims.