Consumer Education and Research Society vs Life Insurance Corporation of India

THE complainant No. 1 is a registered voluntary Consumer Association and complainant No. 2 is the claimant of insurance amount. THE complainants have filed this petition against the Life Insurance Corporation (hereinafter referred to as LIC) claiming damages on account of non-payment of insurance amount by LIC. THEre is no dispute between the parties that the wife of the complainant No. 2 Kashmiraben K. Shah had taken insurance for an amount of Rs. 1 lakh with accident benefit under the Insurance Policy No. 830626451 from LIC issued on 28.5.87. Copy of the Policy is at Annexure-A.

KASHMIRABEN appears to have expired on 14.6.89 due to sudden accidental burns. The postmortem report was obtained by complainant No. 2 and sent to Opponent alongwith the claim form and original policy for the settlement of the amount. .However LIC repudiated the claim by its letter dated 19.8.89 produced at Annexure-B and sent a voucher for Rs. 15,900/- to the complainant No. 2 for obtaining refund of the amount of premium paid by KASHMIRABEN. This amount was not acceptable to the complainant No. 2 and, therefore, he sent back the voucher on 29.8.89. Thereafter the opponent wrote a letter to the complainant No. 2 intimating that as the death had occurred as a result of accident other than an accident in a public place before the expiry of three years from the date of the policy claim has been repudiated as per Clause 4B of the above policy.

The complainant disputed these facts and by his letter dated 29.11.89 stated that Clause 4B could be imposed by the opponent in the case where the female proponent was below 35 years and not an income-tax payer. However, according to the claimant late Kashmiraben had been assessed for income-tax and wealth tax since 1985- 86 and she had paid income-tax in those years as shown in her income-tax returns. Under these circumstances according to the claimant, the repudiation of the policy by the opposite party was not justified.

AGAIN, the complainant wrote a letter reiterating the facts and circumstances and requested LIC to modify the decision but by letter dated 14.5.90 the LIC was unwilling to change the decision. The letter is produced at Annexure-D. Thereafter there was correspondence by complainant No. 1 with the LIC but no payment was made and, therefore, the present complaint. In para 7 of the complaint by the complainant has in terms stated that the deceased Kashmiraben had her own income which was assessed for income-tax as well as wealth tax since 1975-76 and income for the year 1985-86 and 1986-87 i.e. the previous period before the proposal was Rs. 31,736/ - for accounting year 1985-86 and Rs. 29.696/- for the year 1986-87 and the wealth shown was also exceeding Rs. 3 lakhs and Rs. 4 lakhs respectively. The certificate of M/s. P.H. Parekh and Company, Chartered Accountants, Ahmedabad with the copies of the returns filed by the deceased were also submitted to the Opposite Party for consideration. The complainant has submitted that if these information have been extracted from the insured the Clause 4-B would not have been applied. The complainant has further submitted that his wife being a married women according to the rules of LIC married women can take insurance not exceeding 3/4th of her husband''s insurance in force for full sum assured. The complainant No. 2, husband of the assured was having total insurance of 2 lakhs and as such his wife can take insurance policy amount to Rs. 1,50,000/- straightway without imposition of Clause 4B in her case whereas the deceased was insured for Rs. 1 lakh only. So, her insurance policy was for less than 3/4 of her husband''s total insurance and she was within the limit provided in Appendix IX of LIC Agent''s Manual. Since the insurance amount has not been paid and the said being deficiency in service the complainant has prayed for Rs. 1 lakh in respect of the Policy and Rs. 1 lakh on account of double accident benefit as stipulated in the policy, Rs. 60,000/- as interest, Rs. 50,000/- for mental agony, harassment and hardship and Rs. 5,000/- as cost

THE Opposite Party has filed its version and has denied the claim. THE fact that Kashmiraben was insured for Rs. 1 lakh with double accident benefit policy as stated above is not disputed. THE proposal for the policy was made on 19.4.87 and medical examination was also made on the same day. At the time of proposal she was 28 years old. THE premium was fixed at Rs. 5,400/- per annum. THE premiums were paid upto 28.5.89. In answer to question No. 12 in the proposal form Kashmiraben stated that she had studied upto S.Y.B.A., she had annual income of Rs. 18,000/- and her source of income was interest income and that she does not pay income tax. Relying upon this statement the opposite party pleaded that late Kashmiraben''s only source of income was interest income of Rs. 18,000/- p.a. and was not paying income tax. According to the averment made in this para the LIC has therefore added Clause 4(b) to the conditions and privileges attached to the life insurance policy under which if the death occurs by private accident within the expiry of 3 years the Corporation''s liability shall be limited to the sum equal to the total amount of the premium paid only. THE LIC has further stated that Clause 4(b) is applicable when the proposer is a female below the age of 35 years and who does not have earned income of her own. It has further stated that if a female proposer below the age of 35 years is earning income of her own i.e. out of her personal skill or educational qualifications or out of her own individual efforts, Clause 4(b) will not be applicable. If she is earning income by way of interest only, it cannot be said that Clause 4(b) is inapplicable to such a case. THE Corporation has further stated that the contract of insurance is a contract of uberrima fider and the proposer is under a duty of utmost good faith to the Insurance Company. It was for her to disclose that she was an income-tax payer and that she was earning income from other sources on account of her personal skill or educational qualifications or through her own efforts. THE Company has therefore stated that the applicability of Clause 4(b) was clearly justified and opponent cannot be blamed for it. Late Kashmiraben was guilty of suppression of material facts and the claimant cannot now be permitted to take advantage of her own wrong. She having expired within 3 years from the date of commencement of the risk, the provisions of Clause 4(b) are attracted and the opponent is under no duty or obligation to make the payment of policy amount and only duty is to make the payment of premiums already paid by her. According to the LIC the claim has been rightly repudiated. With regard to the reply to para 7 of the complaint, the LIC in para 8 has stated that late Kashmiraben made false representation to her proposal and failed to disclose true and material particulars to the opponent. THE Company has not admitted that the agent who took her insurance was a new agent and he did not appraise the insured of the correct position by providing material information as alleged. THE LIC has also denied that the opponent or its agent is guilty of suppression of material facts as alleged. THE Company has therefore stated that "it is denied that the opponent or its agent is guilty of suppression of material facts as alleged or otherwise. If the material fact is that late Kashmiraben was having her Own income and was filing regularly income tax returns and was paying income tax, it is clear from the record that she has failed to disclose these material facts. All such facts are exclusively within the knowledge of the proposer and the opponent is not expected to know that unless and until they are disclosed. It is denied that the decision of the opponent needs to be modified with retrospective effect and application of Clause 4(b) will become null and void as alleged." We have reproduced in detail the relevant portion of the factual aspect as well as the respective submissions of the parties. The following points arise for our determination. 1 Whether late Kashmiraben was an income tax payer? 2. Whether non-disclosure of these facts by Kashmiraben can amount to false representation in proposal form disentitling her from claiming any benefit? 3. Whether the agent of LIC was obliged to disclose the material facts advantageous to late Kashmiraben? 4. Whether Clause 4(b) was rightly applied by the LIC? 5. Whether the complainant can get Clause 4(b) removed or treat as non-operative under the facts and circumstances of the case? 6. What are the respective rights and obligations of the parties to a contract of insurance?

Before we deal with the respective submissions and the points raised, it will be necessary to discuss Clause 4(b).

AFTER the nationalisation of the insurance business, the Opposite Party is the only Corporation which is available to the citizens for taking life insurance policy. Therefore the Opposite Party is under duty to conduct its business of insurance fairly and reasonably and its policy should be guided by the consideration of service to the people keeping in mind the underlying objectives of nationalisation and not as a greedy commercial organisation.

IT may not be forgotten that a person has to necessarily approach the LIC for his/her insurance and has to accept whatever terms that may be imposed by LIC. LIC is considered to be a State and is also subject to fundamental rights guaranteed to the citizens under the Constitution. Therefore policy, purpose and acts should not be discriminatory but should be fair, just and equitable to every citizen. As stated by the Opposite Party in para 5 of the written statement that such Clause 4(b) is applicable when the proposer is a female below the age of 35 years and does not earn income of her own. If the female proposer below the age of 35 years in earning income of her own i.e. out of her personal skill or educational qualification or out of her own individual efforts Clause 4(b) will not be applicable to such case. This Clause is therefore applicable only to the married women who is paying same premium which an unmarried woman or a male insured pays but so far the married woman is concerned the liability of the Insurance Company will be excluded for the period of three years except the premium amount. The Clause therefore should be construed strictly. No material has been placed by the LIC as to why this Clause is made applicable to a married woman below the age of 35 years and not to other women or men. It has been argued before us by the parties - one party contending that late Kashmiraben had an income and was paying income tax whereas the LIC has contended that her income was Rs. 18,000/- and was not paying income-tax. Evidence has also been produced to show that Kashmiraben was filing income tax returns, her income was assessed which was exceeding Rs. 18,000/- and can be said to be incometax payer but the opposite party has stated in its reply in para 5 that "late Kashmiraben is, therefore, guilty of suppression of material facts and the complainant cannot now be permitted to take advantage of her wrong. In view of the fact that she expired on 14.6.89 within three years from the date of commencement of risk and the provisions of Clause 4(b) are clearly attracted." This submission of LIC is devoid of any merits because Kashmiraben is not guilty of suppression of material facts. The material facts must be the facts which gives her advantage. One can be said to be guilty of suppression of material facts only if that suppression gives the person an advantage which otherwise he is not entitled to. In the instant case it cannot be said on any ostensible reason for Kashmiraben not to disclose the material facts which gives her a clear advantage. We have therefore, no doubt that, she had not been informed, that if she was an income-tax payer Clause 4(b) will not be applied to her. In other words, the risk of the Company will be increased. If any person who can be said to be interested in not bringing these facts on records was the agent of the Insurance Company, who may be interested in reducing the risk of the Insurance Company though full payment of premium is recovered. We are still unable to understand as to how the Company can be permitted to recover a premium exceeding Rs. 5,000/- per annum without any reciprocal obligation to pay the insured amount for three years, only because the insured is a young woman, below the age of 35 years and is not an income-tax payer and had no earning. Though Clause 4(b) has been pressed into service by the opposite party, no copy of the rules, instructions or guidelines has been produced on file to show the legality and reasonableness of such provision. We are completely in dark as to why such a provision is made applicable to such cases of married woman only. Considering the evidence and particularly the affidavit of the Chartered Accountant, the facts disclosed before the Insurance Company prior to the filing of the petition and the evidence disclosed with the petition there is no doubt in our mind that the income of late Kashmiraben exceeded Rs. 18,000/- was an income-tax as well as wealth tax payer. In these circumstances we shall have to consider as to how the statement that her income was Rs. 18,000/- was noted on record. How Kashmiraben was interested in suppressing the correct facts when she was actually filing income-tax returns and was an income-tax and wealth tax payer having permanent account number. Mr. Desai, the learned advocate appearing on behalf of the opposite party has tried to find out some contradiction in the affidavit and the returns. But Mr. Desai could not say that she was not an income-tax payer, had no permanent account number, and the affidavit of the Chartered Accountant, and the copies of the returns were false. This could have been falsified by the Insurance Company by calling some clerk from the Incometax Department. The copies of statements of income for the Asst. Years 1986-87,1987-88,1988- 89and 1989-90 with certificate of Chartered Accountant have been produced with the complaint (Annx-G, Page 26).

If we put a strict interpretation of Clause 4(b) which we should, since it is an exemption from the liability, the Insurance Company should strictly prove that (1) Kashmiraben had no her own income, (2) her income is income from interest, (3) she was not an income-tax payer even though her income was Rs. 18,000/- Clause 4(b) was applicable to her.

IT may also be noted that the Insurance agent is also supposed to disclose all the material facts which are advantageous to the insured and disadvantageous to the Insurance Company. The Company has not examined the agent who has taken the proposal. The Insurance Company has not given any reason as to why Kashmiraben was interested in not disclosing the real income whether at that time of making the proposal was it pointed out to her that if she is an income-tax payer the liability of the Insurance Company will be increased without payment of extra premium for such increased liability. Having regard to the fact that the LIC is the only Corporation having exclusive insurance business, LIC is a state within the meaning of Article 12 of the Constitution, the agent of LIC are bound to disclose all the information which are relevant and advantageous to the insured. That the policy and purpose of creating a Corporation is to sub-serve the interest of the consumers. The Insurance Company has therefore failed to discharge their obligation towards the insured. It has been a settled position of law that the same criteria which are applicable to the insured are applicable to the Insurance Company also. Both have to be honest to each other. In other words, if the insured is supposed to disclose all the relevant facts which might reduce/increase the liability of the Insurance Company, to the Corporation, the Insurance Company is under the same obligation to disclose to the insured the advantages and increase of liability of the Corporation if the insured is an income tax payer and has her own personal income. The Corporation must also show good faith.

IT would be advantageous here to reproduce the speech of the then Finance Minister, Shri C.D. Deshmukh, from his broadcast to the nation on the eve of the promulgation of the Life Insurance (Emergency Provision) Ordinance, 1956. (reproduced by the Corporation in its Manual to the Agent). The Finance Minister stated that "the nationalisation of Life Insurance will be another milestone on the road the country has chosen in order to reach its goal of a socialistic pattern of society. In the implementation of the Second Five Years Plan, it is bound to give material assistance. Into the lives of millions in the rural areas, it will introduce a new sense of awareness of building for the future in the spirit of calm confidence which insurance alone can give. IT is a measure conceived in a genuine spirit of service to the people. IT will be for the people to respond, confound the doubters and make it a resounding success." (emphasis supplied) The Corporation has claimed in the Manual that "the Corporation has been fully carrying out the role assigned to it and justifying the confidence of the public by offering absolute security, better policy conditions, cheaper rates, dependable service, economic management and favourable returns to the nation at large." On perusing the income tax records it appears that the income of the insured was more than 20,000/- every year. The income mostly consisted of earning from shares and securities and there was deduction at source with the result that the insured had not to pay any income tax and in that sense she was not an income-tax payer. The insured may not be aware of the implication of stating less income though she was an income-tax payer but the Agent ought to have revealed this information that if her income exceeds Rs. 18,000/- she would be an income tax payer though she may not be required to pay any income-tax on account of deductions. We do not find any other reason as to why a person who intends to insure her life might wrongly state that she had no income and she was not income-tax payer which gives a distinct and clear benefit of not applying Clause 4(b) under which the liability for three years is exempted even if an accident occurs in a private place. The Insurance Company is directly the beneficiary and in such circumstances it was not only expected from the Agent that he reveals this advantageous information to the insured but it is also his duty to reveal this information to the insured. No averment has been made by the Insurance Company that this information was revealed to the insured.

IN the Manual for Agents at Page 6, the Corporation has stated that "A contract of insurance is a contract of utmost good faith technically known as uberrima fides. The doctrine of disclosing all material facts is embodied in this important principle which applies to all forms of insurance. The proposer, who is one of the parties to the contract, is presumed to have means of knowledge which are not accessible to the Corporation, who is the other party to the contract. Therefore, the proposer is bound to tell the insurer everything affecting the judgment of the insurer, no matter howsoever unimportant it may seem to him. IN all the contracts of insurance the proposer is bound to make full disclosure of all material facts and not merely those which he thinks material." The contract of insurance being a contract of utmost good faith based upon the principle known as uberrima fides its application is not merely restricted for the proposer but fully applies to the INsurance Company as well. It therefore necessarily follows that the INsurance Company is also under the same obligation which the proposer is to disclose all material information to the insured viz. that if she was an income tax payer Clause 4(b) was not applicable to her. We have no doubt that if this information had been revealed to the insured, she could not have any reasons not to disclose that her income was exceeding Rs. 18,000/- especially when she had permanent account number, she was filing the return every year and had in fact income exceeding Rs. 20,000/-.

BE it as it may, the agent might have made a mistake but when it came to the notice of the Corporation, the Corporation which claims to be carrying out the role assigned to it and justifying the confidence of the public by offering absolute security, better policy conditions, cheaper rates and dependable service ought to have considered the real facts and should have waived Clause 4(b) by making full the payment to the insured. Mr. Desai tries to justify the action of the Corporation by pointing out one letter wherein some words alleged to have been added by the insured that she accepts Clause 4(b), to our opinion this does not help the Corporation but supports our reasoning that the Corporation is more interested in augmenting their revenue rather than sub-serve the interest of the insured. This document which Mr. Desai relies is a subsequent document after the policy came into force, which means that in order to justify their illegal application of Clause 4(b), the officers of the Corporation try to make it still stronger by suggesting the insured to add such sentence which was not necessary for the insured to do. It appears to us that the whole exercise of the Corporation is to get away from the liability of payment of a rightful claim of the insured for which she had paid a huge amount of exceeding Rs. 15,000/-. This is not to our opinion honest, bonafide and equitable approach. This is a commercial approach of a greedy merchant and not the approach of a State Corporation created with a chosen object to reach its goal of socialistic pattern of society. We have therefore no hesitation in arriving at a conclusion that the deceased Kashmiraben had no knowledge that she was acting against her own interest for want of information from LIC officers or agent. She was not covered at least for three years though she was obliged to pay premiums for three years because she was a married woman and being educated she could have easily understood her interest if the correct information was given to her by the agent

In this country there is no other agency to which you can go for life insurance. LIC has an exclusive right of business and if you want to get yourself insured you have necessarily to accept whatever terms offered by the LIC. In such circumstances, to our opinion the Corporation should have come out with full information. The Manual which contains this information is meant for the Agents only and treated as confidential means that the insured has no access to it. It is not available in the market and, therefore, whatever partial information advantageous to the Corporation is revealed by the Agent one has to accept the same or go without insurance.

HAVING arrived at a conclusion that Clause 4(b) applied by the Corporation was applied without revealing the information and when the insured was actual income tax payer the same was not applicable to the insured and her consent had been obtained by non-disclosure of the material information is not binding to the insured on a principle of uberrima fides as accepted by the Insurance Company in its Manual. In the instant case the policy was in force, the insured died during the continuance of the Policy by an accident and the policy also being an accident benefit policy, under the terms of policy the complainant is entitled to get Rs. 2 lakhs (including accident benefits) and the Insurance Company was supposed to make this payment within reasonable time which we consider to be three months maximum. Thereafter the LIC is bound to pay interest on the outstanding amount at the rate of 18% p.a. and cost. The question whether Clause 4(b) was applicable or not was a legal question and, therefore, we are not inclined to give any compensation except the compensation by way of cost. ORDER

THE Opposite Party - LIC shall pay Rs. 2 lakhs with running interest @ 18% p.a. after three months from the date of death of the insured till the payment is made. THE opposite party shall also pay the cost which is quantified at Rs. 2,000/-. THE aforesaid amount shall be paid within 4 weeks from the date of receipt of this order by the Insurance Company. Complaint allowed.