Insurance Claim Denied: Supreme Court Upholds LIC’s Policy Terms on Lapsed Coverage
The Supreme Court of India, in Life Insurance Corporation of India & Anr. vs. Sunita, ruled on a crucial case concerning an insurance claim under the Jeevan Suraksha Yojana. The Court held that an insured person cannot claim accidental benefit under a lapsed policy, even if the premium is paid after an accident but before the insured’s death. The judgment reaffirmed the principle that insurance contracts must be interpreted strictly, emphasizing the insured’s duty of full disclosure.
Background of the Case
Pradeep Kumar, the deceased husband of the respondent (Sunita), had purchased a life insurance policy under the Jeevan Suraksha Yojana from the Life Insurance Corporation of India (LIC) on April 14, 2011. The policy assured a sum of Rs. 3,75,000, with an additional accidental death benefit of Rs. 3,75,000.
Pradeep Kumar was required to pay premiums every six months, with the next due date falling on October 14, 2011. However, he failed to make the payment on time, causing the policy to lapse. On March 6, 2012, he met with a severe accident and succumbed to his injuries on March 21, 2012. Before his death, on March 9, 2012, he paid the outstanding premium to revive the policy.
Claim for Accident Benefit and LIC’s Rejection
After Pradeep Kumar’s death, Sunita filed a claim with LIC, seeking the full policy amount, including the additional sum for accidental death. LIC approved the basic sum of Rs. 3,75,000 but denied the additional Rs. 3,75,000, citing that the policy had lapsed on the date of the accident.
Consumer Forum Proceedings
District Forum’s Decision
Sunita approached the District Consumer Disputes Redressal Forum, which ruled in her favor. The forum relied on LIC’s internal Ready Reckoner, which did not explicitly mention that accident benefit would be denied if the policy was revived after the accident.
State Commission’s Ruling
LIC challenged the District Forum’s decision before the State Consumer Disputes Redressal Commission. The State Commission set aside the order, ruling that since the policy had lapsed at the time of the accident, the claim for accidental benefit was invalid.
NCDRC’s Verdict
Sunita then filed a revision petition before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC overturned the State Commission’s decision and restored the District Forum’s order, directing LIC to pay the additional accidental benefit.
Arguments Presented Before the Supreme Court
LIC’s (Appellant) Arguments:
- The policyholder must have an active policy on the date of the accident to claim accidental death benefits.
- The revival of a policy does not have a retrospective effect for benefits like accident claims.
- The insured and his nominee had failed to disclose the accident at the time of policy revival, violating the principle of uberrima fides (utmost good faith).
- The revival receipt issued on March 9, 2012, was a contractual obligation and did not entitle the insured to additional benefits that were not in force on the accident date.
Respondent’s (Sunita) Arguments:
- The policy was revived before Pradeep Kumar’s death, and LIC had accepted the premium with a late fee.
- LIC’s Ready Reckoner did not clearly state that accident benefits would be denied in cases of post-accident revival.
- The claim denial was arbitrary and against the principles of consumer protection.
- Since LIC had accepted the premium, it was bound to pay all policy benefits.
Supreme Court’s Ruling
The Supreme Court ruled in favor of LIC, setting aside the NCDRC’s order. The key observations were:
On Policy Lapse and Revival:
The Court reiterated that revival of a lapsed policy does not work retrospectively. The Court cited its earlier ruling in Vikram Greentech (I) Ltd. vs. New India Assurance Co. Ltd. (2009), stating:
“Insurance contracts must be strictly construed. A policyholder cannot claim a benefit that was not in force at the time of the incident.”
On Non-Disclosure of the Accident:
The Court held that Sunita’s failure to disclose her husband’s accident at the time of policy revival amounted to suppression of material facts:
“Good faith is the cornerstone of an insurance contract. Concealment of critical information, especially in a contract of utmost good faith, invalidates additional claims.”
On LIC’s Right to Reject Accident Benefit:
The Court emphasized that the terms and conditions of the policy clearly required the policy to be ‘in force’ at the time of the accident:
“An insurance company cannot be compelled to pay accident benefits when the contract explicitly excludes such liability for lapsed policies.”
Impact of the Judgment
The ruling reinforces key principles in insurance law:
- Insurance contracts must be strictly interpreted; benefits not covered cannot be claimed.
- Revival of a lapsed policy does not apply retrospectively to events that occurred before revival.
- Non-disclosure of material facts can lead to claim rejection.
- Accidental benefits are conditional on the policy being in force on the accident date.
Conclusion
This ruling clarifies an important aspect of insurance claims, ensuring that policyholders adhere to the contractual obligations of their policies. The judgment protects insurance companies from undue liabilities while setting a precedent for strict compliance with policy terms. Policyholders must remain vigilant about timely premium payments to avoid lapses that could affect their claims.
Petitioner Name: Life Insurance Corporation of India & Anr..Respondent Name: Sunita.Judgment By: Justice Sanjiv Khanna, Justice Bela M. Trivedi.Place Of Incident: New Delhi.Judgment Date: 29-10-2021.
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