Supreme Court Upholds Insurance Claim: Non-Communication of Policy Terms Leads to Victory for Cardholder’s Family

Date of the Judgment: 21 February 2022

Citation: Civil Appeal Nos 1544-1545 of 2022 (Arising out of SLP (C) Nos 32397-32398 of 2017)

Judges: Dr Dhananjaya Y Chandrachud, J and Surya Kant, J

Can an insurance company deny a claim if the policy’s terms and conditions were not clearly communicated to the insured? The Supreme Court of India recently addressed this critical question in a consumer case, focusing on the importance of transparency in insurance policies. The court examined whether an insurance company could reject a claim because the insured did not fulfill a condition that was not explicitly made known to them. The bench comprised of Justice Dr. Dhananjaya Y Chandrachud and Justice Surya Kant, with the judgment authored by Justice Dr. Dhananjaya Y Chandrachud.

Case Background

On 3 September 2013, the appellant’s son, an HDFC Bank account holder, was covered under a “Cardsure Package Policy” linked to his debit card. HDFC Bank had obtained this insurance from HDFC Ergo General Insurance Company Limited, effective from 25 August 2013 to 24 August 2014. The policy provided a base cover of Rs 5 lakhs for ‘Platinum’ cardholders, with an additional accelerated cover of up to Rs 5 lakhs based on debit card spending. The appellant’s son passed away in a road accident on 30 October 2013. The appellant, his mother and nominee, filed a claim, which the insurance company rejected on 17 December 2013, stating that the deceased had not made a “non-ATM transaction” in the three months prior to the accident.

Timeline

Course of Proceedings

The District Consumer Disputes Redressal Forum, Bhatinda, initially ruled in favor of the appellant on 16 July 2014, awarding Rs 5 lakhs with interest and compensation. However, both the appellant and the insurance company appealed this decision. The State Consumer Disputes Redressal Commission (SCDRC) dismissed the appellant’s appeal for increased compensation but allowed the insurer’s appeal, stating that the lack of a non-ATM transaction in the three months before the accident invalidated the claim. The National Consumer Disputes Redressal Commission (NCDRC) upheld the SCDRC’s decision on 24 March 2017.

Legal Framework

The core of the dispute revolved around two specific conditions of the insurance policy:

• Condition 5: “Non ATM swipe (transaction) is mandatory i.e. on or before 6 months from the date of loss for claims eligibility.” This condition required a non-ATM transaction within six months of the loss for a claim to be valid.
• Condition 9: “For accidental death coverage the following conditions should be fulfilled – Under Platinum card only: Step I: Base cover – Rs 50,000 per card by doing one POS transaction in the last three months. Step II: Accelerated cover up to Rs 5,00,000/- (Total of up to Rs 10,00,000/-) for over Rs 1 spent on purchase through the Platinum Debit Card, sum assured increases by five times the spent amount (subject to minimum spends of Rs 20,000) in the last 12 months as per the latest bank statement of the customer.” This condition specified that for accidental death coverage under the Platinum card, a POS transaction was required in the last three months for the base cover, and an accelerated cover was linked to spending on the card.

Arguments

Appellant’s Submissions:

• The appellant argued that neither the insurance company nor the bank ever provided the insurance policy, its terms, or any related documents to the account holder, except for a covering letter mentioning a personal accident insurance cover up to Rs 10 lakhs and an increase in the sum insured for every rupee spent.
• The appellant contended that the bank should have proven that it furnished the debit card usage guide, which contained the policy’s terms, to the deceased.
• The appellant highlighted that the insurer did not provide any evidence to show that the debit card usage guide was actually furnished to the deceased account holder.

Insurer’s Submissions:

• The insurer claimed that the bank had purchased the “Cardsure Package Policy” and that the terms and conditions were sent to the bank.
• The insurer stated that the bank provided a debit card usage guide with the card, as mentioned in the covering letter.
• The insurer argued that the appellant suppressed the debit card usage guide and that if there was any deficiency of service, it was on the part of the bank, not the insurer.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was whether the rejection of the insurance claim was justified, given that the specific terms of the insurance policy were not explicitly communicated to the account holder.

Treatment of the Issue by the Court

Authorities

The judgment did not explicitly cite any previous cases or books. The court’s reasoning was based on the principle that the terms of an insurance policy must be clearly communicated to the insured, especially when the policy is issued to a third party (the bank) for the benefit of its customers.

Judgment

What weighed in the mind of the Court?

The Supreme Court emphasized the importance of clear communication of policy terms to the insured. The court noted that the insurance policy was between the insurer and the bank, while the account holders were the beneficiaries. Therefore, it was crucial that the terms and conditions were explicitly made known to the account holder. The court also highlighted the failure of the bank to appear in the proceedings and the insurer’s inability to prove that the usage guide was provided to the deceased.

The Court’s decision was primarily influenced by legal considerations, specifically the principle that the terms of an insurance policy must be clearly communicated to the insured. While the factual aspects of the case were important, they were secondary to the legal principle.

Key Takeaways

• Insurance companies must ensure that all policy terms and conditions are clearly communicated to the insured, especially when the policy is issued through a third party.
• The burden of proof lies with the insurer to demonstrate that the insured was made aware of the specific conditions of the policy.
• In cases where the policyholder is a beneficiary of a policy issued to a third party, the terms must be explicitly communicated to the beneficiary.

Directions

The Supreme Court restored the order of the District Consumer Disputes Redressal Forum, Bhatinda. The insurance company was directed to pay the appellant Rs 5 lakhs with 9% interest from 1 February 2014, along with Rs 20,000 as compensation and costs. The payment was to be made within one month from the date of the judgment.

Development of Law

The Supreme Court’s judgment reinforces the principle that insurance policy terms must be clearly communicated to the insured, particularly when the policy is issued to a third party for the benefit of its customers. This case sets a precedent for ensuring transparency and fairness in insurance contracts, emphasizing that the burden of proof lies with the insurer to demonstrate that the insured was aware of all conditions.

Conclusion

The Supreme Court allowed the appeals, setting aside the NCDRC’s judgment. The court held that the insurance company wrongly rejected the claim because it failed to prove that the specific condition of a non-ATM transaction was communicated to the insured. This judgment underscores the importance of clear communication of policy terms and protects the rights of consumers in insurance matters.