Supreme Court Orders Additional Compensation in LIC Policy Dispute: Madhav Hari Joshi vs. Life Insurance Corporation of India (2019) INSC 1

Date of the Judgment: January 4, 2019
Citation: (2019) INSC 1
Judges: Hon’ble Dr. Justice D.Y. Chandrachud and Hon’ble Mr. Justice Hemant Gupta. This was a two-judge bench.

Can an insurance company withhold a policy and a customer’s money after accepting a proposal and premium? The Supreme Court of India recently addressed this question in a case involving the Life Insurance Corporation of India (LIC). The court found LIC deficient in service for not issuing a policy and for retaining the appellant’s money for five years, ordering additional compensation beyond the refund and interest.

Case Background

On January 31, 2009, Madhav Hari Joshi (the appellant) submitted a proposal to the Life Insurance Corporation of India (LIC) for a Jeevan Aastha Plan. Along with his proposal, he paid Rs. 1,75,000, which included Rs. 10,000 as an additional risk premium. The Jeevan Aastha Plan was available for subscription for a limited period between December 8, 2008, and January 22, 2009.

On April 15, 2009, LIC responded to the appellant, stating that his proposal was referred to the divisional office and that it could be completed with a Class V health extra. The letter also mentioned that the Jeevan Aastha Plan was closed on February 21, 2009, and offered the appellant an alternative plan.

The appellant, dissatisfied with this response, wrote to the Chairman of LIC, noting that he had already fulfilled all requirements, including paying the additional premium and undergoing a medical test.

On July 23, 2009, LIC responded, stating that the proposal had been accepted on March 2, 2009, subject to three conditions: (1) consent for Class V extra, (2) reason for nomination in favor of sister-in-law, and (3) a moral hazard report by the Development Officer. LIC claimed that the agent was informed of these conditions, but the appellant had not consented to the extra premium.

Ultimately, LIC neither issued the policy nor refunded the appellant’s money. This led the appellant to file a complaint with the District Consumer Disputes Redressal Forum, Thane, in 2012, seeking a refund, interest, and compensation.

Timeline

Course of Proceedings

The District Forum ruled in favor of the appellant, directing LIC to refund Rs. 1,75,000 and pay Rs. 4,25,000 as compensation. The State Consumer Disputes Redressal Commission, Mumbai, upheld this order.

LIC then filed a revision petition with the National Consumer Disputes Redressal Commission. The National Commission upheld the refund of Rs. 1,75,000 and ordered 12% interest from the date of payment until the deposit with the District Forum. However, it removed the compensation of Rs. 4,25,000.

A review petition against the revision order was dismissed. The appellant then appealed to the Supreme Court.

Legal Framework

The judgment primarily deals with the deficiency of service under the Consumer Protection Act, 1986. While the judgment does not quote any specific section, it implies that the act of not issuing the policy and retaining the money constitutes a deficiency in service.

Arguments

Appellant’s Submissions:

• The appellant argued that all findings of fact were in his favor, yet the National Commission deleted the compensation without justification.
• He contended that he had already paid the extra premium, and the remaining conditions were to be fulfilled by LIC.
• The appellant submitted that the policy was equity-based, and due to the retention of his money for five years, he lost potential gains in a booming equity market.
• He argued that a refund with 12% interest was insufficient recompense for the loss of investment opportunity.

LIC’s Submissions:

• LIC argued that the plan had closed on February 21, 2009, and the appellant was informed to apply for an alternative plan, which he failed to do.
• LIC submitted that there was no basis for granting compensation, and the National Commission’s order should not be interfered with.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue was:

• Whether the National Commission was justified in deleting the compensation awarded by the District Forum and the State Commission.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not explicitly cite any cases or legal provisions in its judgment. The judgment primarily relied on the factual matrix and the principles of consumer protection.

Judgment

The Supreme Court, referencing the National Commission’s findings, noted that LIC had found the appellant eligible for the Jeevan Astha policy, subject to certain conditions. The Court highlighted that the extra premium had already been paid, and the remaining conditions were to be fulfilled by LIC.

The Court emphasized that LIC had retained the appellant’s money for nearly five years without any effort to refund it. This constituted a clear deficiency in service.

The Court also noted that the plan was not exclusively insurance based but had an investment element linked to the equity market. The appellant was therefore deprived of the potential gains from the equity market.

The Court stated, “LIC held on to the moneys of the appellant wrongfully for five years. Its omission to refund has deprived the appellant of the use of his moneys. Hence, a mere direction for the payment of interest on the principal sum will not provide sufficient redress.”

The Court modified the National Commission’s order, directing LIC to pay an additional Rs. 2,00,000 towards all claims, demands, and outstandings, including litigation expenses. This amount was in addition to the refund and interest already ordered by the National Commission.

The Court ordered that the additional amount be paid within one month and clarified that the total amount should be released to the appellant by the District Forum upon proper identification.

What weighed in the mind of the Court?

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

• Deficiency of Service: LIC failed to issue the policy despite the appellant fulfilling the requirements and retaining his money for five years.
• Equity-Based Plan: The Jeevan Aastha plan had an investment component, and the appellant was deprived of potential market gains.
• Unjust Enrichment: LIC retained the appellant’s money without providing any service or refunding it.
• Need for Adequate Redressal: A mere refund with interest was deemed insufficient to compensate the appellant for the loss of investment opportunity.

Logical Reasoning:

Key Takeaways

• Insurance companies must process proposals expeditiously.
• If a policy is not issued, the premium must be refunded promptly.
• Retention of money without providing service constitutes a deficiency in service.
• Consumers are entitled to compensation for losses arising from deficiency of service, including the loss of investment opportunities.

Directions

The Supreme Court directed LIC to pay an additional amount of Rs. 2,00,000 to the appellant within one month, in addition to the amount already ordered by the National Commission. The total amount was to be released to the appellant by the District Forum upon proper identification.

Specific Amendments Analysis

There was no specific amendment analysis in this judgment.

Development of Law

The ratio decidendi of this case is that insurance companies cannot retain a customer’s money without issuing a policy or refunding the amount, especially when the plan has an investment component. This ruling reinforces the principle that consumers are entitled to adequate compensation for deficiency of service, which can include losses arising from lost investment opportunities. There is no overruling of any legal position, but it does provide a clarification on the extent of compensation that can be awarded in cases of deficiency of service.

Conclusion

The Supreme Court’s judgment in Madhav Hari Joshi vs. Life Insurance Corporation of India is a significant win for consumer rights. The court held LIC accountable for its deficiency in service, emphasizing that customers cannot be made to suffer due to the negligence of service providers. The decision also highlights the importance of adequate compensation, which should include not only the refund of the principal amount but also the loss of potential investment gains.