Consumer Education and Research Society vs Life Insurance Corporation of India

IN this complaint, the well-known Consumer Organisation in Gujarat has prosecuted the cause of a consumer who has been deprived of the insurance claim in respect of an insurance policy of life of the husband of second complainant.

SHORTLY stated, the facts are that one Jasavantrai Shah had obtained four insurance policies for the total value of Rs. 1,00,000/- from the Life Insurance Corporation of India. The insured Jasvantrai Shah died in a road accident and, therefore, his widow who is 2nd complainant Filed this complaint. It is alleged that opposite party No. 3 Chaturbhuj Shah was appointed a General Agent by Life Insurance Corporation (L.I.C.) to secure business of life insurance. According to complainants four policies on the life of the deceased Jasavantrai were for Rs. 25,000/- each with double accident benefits. These policies were obtained through O.P. No. 3 the General Agent of 1st Opponent. It is the case of the complainants that the premiums in respect of the insurance policies were fully paid on 6.3.86 and 6.9.86 for which the receipts are at Annexure ''2''. The 3rd half yearly premium was due on 6.3.87. It was not paid by the deceased on due date and, therefore, the third opponent Chaturbhuj Shah obtained a bearer cheque from deceased for Rs. 2,730/- on 4.6.1987 towards the due premium amount for 4 policies drawn on Bank of India, Malad Branch, Bombay. According to complainants, the payment by cheque was made to 3rd opponent in his capacity as a General Agent of L.I.C. The facts further show that the said cheque was enchased by Deepak Chaturbhuj, the son of 3rd opponent on 5.8.87. Despite the receipt of the amount of premium of Rs. 2,730/-, towards the due premiums on 6.3.87,3rd opposite party did not deposit the same in the Office of L.I.C. Unfortunately on 9.8.87, Jasanvantrai Shah met with an accident and died. Moment, the 3rd opponent learnt about the death of Jasanvantrai, deposited the said amount of Rs. 2,730/- on 10.8.1987 with Life Insurance Corporation of India. The Life Insurance Corporation despite repeated efforts on the part of the complainant treated Insurance Policies of Jasavantrai as "lapsed" with effect from 6.3.87 due to non-payment of half yearly premium which was due on 6.3.87 within grace period and before the death of the assured. Hence, the complainant presented this complaint alleging the deficiency in the service of the opposite parties in as much as although the amount of premium was paid to the General Agent of the L.I.C. insurance policies were wrongly declared as "lapsed". It is the case of complainants that the amount of premium collected by 3rd opponent was on behalf of the L.I.C. and, therefore, any negligence on their part for non-payment of premium amount will not in any way affect the 2nd complainant''s claim as regards the claim for the policies of her husband. The complainant, therefore, presented this complaint on 9.4.91 before the Gujarat Consumer Disputes Redressal Commission at Ahmadabad. It was registered as a complaint No. 150/91. The opposite parties were noticed by the Gujarat Stale Commission. The opponents 1 and 2 filed their joint written reply on 20.8.91 denying the liability to make the payment in respect of the Insurance Policies in question. According to the L.I.C. the amount of premium collected by the General Agent cannot be said to be received on behalf of the Life Insurance Corporation. The opposite party No. 3 did not file any reply. The learned President and Members of the Gujarath State Consumer Disputes Redressal Commission after hearing both the parties took the view on the basis of the decision of the National Commission that since the Life Insurance Corporation of India is having its principal Office at Bombay, the complaint be returned to the complainant for filing it before the Maharashtra State Commission and directed both the parties to appear before this Commission on 22.11.91. In view of the aforesaid order the complainant withdraw that complaint from Gujarat State Commission and submitted it before this State Commission on 15.11.91. This Commission issued notices to both the sides to appear before this Commission on 9.1.92. On 9.1.92, the complainants were represented by Shri Shirish Deshpande and opposite parties 1 and 2 were represented by Shri S.M.S. Diwan, Regional Manager of L.I.C. The O.P. 3 was absent. We fixed this complaint for hearing on 6.2.92. On that date, we heard Shri Shirish Deshpande for the complainant and Shri S.M.S. Diwan for the opposite parties 1 and 2, After hearing both the sides and after going through the allegations of the complainant and the written replies the following points arise for our consideration and decision: (1) Whether the complaint is maintainable under the provisions of the C.P. Act? (2) Whether the complainant Nos. l and 2 have authority to file this complaint although under the provisions of the C.P. Act? (3) Whether the complainants are the consumers within the meaning of C.P. Act? (4) Whether there is any deficiency in the service of the O.P.? (5) Whether the complainant No.2 is entitled for the claim arising out of the insurance policies of her husband? (6) Whether the payment of premium made to the General Agent of the L.I.C. is the payment made to the Principal L.I.C.? (7) Whether there is negligence on the part of the opposite parties to settle the complainants claim? (8) Lastly, what relief?

As regards the point No.1 about the maintainability of the complaint is concerned, the law has been well settled. Apart from the various decisions from the National Commission of India, the definition of "service" appearing in Section (o) of the CP. Act squarely includes within its ambit of generic term, "insurance". The L.I.C. renders service to the insured for consideration till the policy holder survives and in the event of policy holders death to his beneficiaries. Therefore, this complaint is perfectly maintainable against the L.I.C. as it has been filed by the beneficiary of deceased policy holder. In the case of Divisional Manager, L.I.C. v. Uma Devi II (1991) CPJ 516 (NC) The National Commission has held that activities relating to insurance constitute service within the definition of Act and nominee of the insured is a consumer and repudiation of claim arising out of insurance cannot take away the jurisdiction of Redressal Agencies.

AS regards the second point, the L.I.C. has unsuccessfully challenged the capacity of the complainants to file this complaint. The complainant No. 1 is a social organisation and has been pursuing the cause of consumers. The Consumer Protection Act permits any voluntary consumer association to be a complainant in any consumer dispute u/Sec. 2(1)(b)(ii) of the Act. Similarly, 2nd complainant is the wife of the deceased Jasavantrai Shah. She is the direct beneficiary in the assets left by Jasavantrai Shah. Section 2(1)(d)(ii) of the Act provides that any beneficiary of services other than the person who hires the services for consideration can be legally recognised as a consumer. In the instant case, the 2nd complainant being a direct beneficiary of assets left by deceased Jasavantrai Shah is legally competent to file the consumer disputes under the C.P. Act. In our view, therefore, the technical objection raised by the L.I.C. does not hold any water. The point No. 3 is the main issue to be decided in this complaint. Deceased Jasavantrai had obtained the four insurance policies described in the complaint and that he died in an accident on 9.8.87 and that the amount of premium of Rs. 2,730/- towards his policies were deposited with L.I.C. on 10.8.87 by 3rd opponent are admitted facts. It is also an admitted fact that the half-yearly premium was due on 3.6.87. It is also an admitted fact that till the termination of his General Agency on 16.3.89, 3rd opponent was the General Agent of the L.I.C. It is also an admitted fact that the L.I.C. vide their communication dated 19.5.89 informed the complainant that the L.I.C. has decided the policies in question as lapsed with effect from 6.3.87 due to non-receipt of half-yearly premium due on 6.3.87. According to L.I.C. the dispute is between the Agent and the complainant and Law should take its own course. The said letter Annexure ''8'' is on record. We are, therefore, to decide the issue that whether the payment of premium amount made to the General Agent of L.I.C. is the valid payment towards premium made to the L.I.C. It is clear from the termination of the General Agency of the 3rd opponent on 16.3.89 that on 5.6.87 when deceased Jasavantrai Shah made the payment of Rs. 2,730/- by cheque, 3rd respondent was General Agent of L.I.C. The allegations of the complainants are that Jasavantrai Shah made the payment of premium to 3rd opponent in his capacity as General Agent of L.I.C. and not in his individual capacity. The only defence of the L.I.C. appears to be that the Agents are not authorised to collect the premium amount. It appears that these are departmental instructions issued by the L.I.C. to their Agents, as a caution to avoid any misappropriation of the amount. However, in our view, these instructions are not binding on the insured persons as the instructions are in the nature of departmental instructions for internal working and are not binding on the consumers. The responsibility of the L.I.C. is not over by merely issuing instructions to their Agents but it must carefully pursue that the instructions are scrupulously and strictly followed by the staff of L.I.C. to avoid the instances of temporary misappropriation and there- by affect the interests of the policy holders. It is important to note in the instant case that despite the aforesaid instructions, the 3rd respondent collected premium amount from Jasavantrai. More surprising fact is that L.I.C. accepted the same amount from 3rd respondent as premium amount of Jasavantrai. We fail to understand as to how the L.I.C. accepted the amount of premium on 10.8.87 from their agent towards the policy premium of a dead person in contravention of their own instructions that Agents were not to collect premiums? This instance, therefore, demonstrates the hollowness and ineffectiveness in the aforesaid instructions and also shows the practice prevalent in L.I.C. In our view, therefore, when the practice of accepting money by L.I.C. Agent from Policy holders is in existence and whereas the money is collected by Agent in his capacity and authority, the reasonable inference is that the L.I.C. was negligent in its service towards the policy holder.

THE L.I.C. did not place before us any Rules dealing with the liability of a Principal for the negligence committed by the General Agents by their Omissions and Commissions when they are acting in their capacity and authority from L.I.C. as Agents with Policy holders. THE Supreme Court of India in the case of Sitaram Motilal Kalal v. Santanu Prasad Bhatt, 1976 Aug. 89 (95) (SC) has laid down the proposition of Law as regards the liability of Principal for the Tortious acts of Agent. It has been held that "just as the tort must be committed by a servant either under the actual control of his master or while acting in the course of his employment, the act of the Agent will only made the Principal liable if it is done within the scope of his authority." In other words, the Law on this point has been stated to be that "an Agent will make the Principal responsible so long as the Agent does the act within the scope of his authority or does sounder the actual control of the Principal." It hardly needs to be stated that the L.I.C. in this case is liable for the wrongful act of O.P..3 which has been committed by him in his authority as Agent of the L.I.C. and ratified by L.I.C. by accepting the money on 10.8.87 from third opposite party in his capacity as an Agent of L.I.C. towards premium amount of deceased Jaswantrai Shah. It is common knowledge that in order to expand its business, the L.I.C. has appointed numerous Agents to sell as many policies as they can within the shortest possible period. There are incentives provided for the Agents to sell maximum policies. In order to collect more business the agents of L.I.C. collect the premiums from the consumers either in cash or by cheque and then deposit the money collected from consumers in the Offices of the L.I.C. This practice has been going on directly within the knowledge of the L.I.C. administration despite the departmental instructions that the Agents are not authorised to collect the premiums. In our view, when the General Agent of the L.I.C. is permitted by L.I.C. to earn the business by selling the insurance policies he is equally permitted to collect the premiums from consumers by virtue of his capacity as an agent of L.I.C, The relationship of Principal and between the L.I.C. and Agents clearly is established. Third respondent was precisely acting as an Agent between the L.I.C., within the scope of his apparent authority. It has been proved beyond doubt that he collected the premium amount from the deceased Jasavantrai Shah on 5.6.1987 and credited it with the L.I.C. on 10.8.1987 in his capacity as Agent of L.I.C. The Insurance Company now cannot say that the insurance policies are ''lapsed'' on account of the non-payment of the premiums by the deceased. The premium amount paid by deceased Jasavantrai to third opponent on 5.6.1987 was paid before the expiry of grace period hence should be treated as valid payment to L.I.C. within the grace period when the policies were surviving. An agent appointed by the L.I.C. "is meant to render service to the policy holder. The appointment of an Agent is indicative of the fact that the L.I.C. through him proposes to render after sales service to the consumers. It is found that LJ.C. has been ignoring the instructions that Agents are not authorised to collect the amounts of premiums. It is implied in the appointment of the General ''Agents by L.I.C. that he should render necessary service to a consumer on behalf of the L.I.C. He is supposed to inform the consumers about the due dates of payment of premiums, about any default or any such incidental matters to a policy holder. The Agent receives regular commission from the L.I.C. for rendering the after sales service of the policies to the policy holders. As Agent of the L.I.C. gets the commission by way of remuneration till the policy subsists. The essential off- shoot of this concept of after sales service by the Agent is that his job is not over the moment he sells an insurance policy but his job is to gain further business by keeping good relations and rapport with the consumers. We are sure that the L.I.C. has this uppermost consideration in its dealings but when any such incident occurs the L.I.C. forgets its solemn duty to assist and help the consumers trapped in difficulties and neglect its pledge to render required service to the policy holders. The L.I.C tries to repudiate the claims of consumers without any justifiable and convincing reasons and reject the claims of consumers on flimsy and technical grounds. The present case is a typical example of disowning the liability in respect of a policy holder when his widow has been caught in a helpless situation. The first complainant has been doing really a yeomen service to the needy consumers who are trapped under helpless circumstances and, there- fore, in the instant case on 31.8.88 wrote a detailed letter making appeal to the L.I.C. on compassionate grounds to consider the claim of 2nd complainant. The aforesaid letter is self-explanatory. It has been stated that the L.I.C. has been taking compassionate and humane view of such cases. It has been also stated that in Dog bite case of Smt. Jyotiben Patil, the L.I.C. has taken a compassionate view and paid Rs. 35,000/- as accident benefit. It is also stated that L.I.C. policies are contracts of good faith and Uberrimae Fidei. In other words, it has been pleaded that the L.I.C. should not take technical and rigid view of the provisions of Law and consider the cases of complainant on compassionate grounds. It is further found that 1st complainant wrote several letters on 27.1.89, 18.4.89, and so on. But the L.I.C. firmly stood on technical grounds. In our considered view, the technical and rigid attitude exhibited by L.I.C. is totally unwarranted. in view of the facts and circumstances of this case. The payment of premium accepted by General Agent of L.I.C. is deemed to be the premium paid to the LIC. The payment was made within the-grace period of three months. The policies of the deceased" Jasavantrai Shah could be kept alive had the administration of L.I.C. been efficient and up to date. We fail to understand when the policy was lapsed according to L.I.C. on 6.3.87, why after a period of 5 months, the payment of Rs. 2,730, was accepted on 10.8.87. We also fail to understand why a policy holder should suffer due to the mal-administration and mismanagement of the affairs of the L.I.C. We are also pained to note why the consumer should suffer due to the criminality on the part of their L.I.C. Agents. We further find that if this is not a fit case to be considered on compassionate grounds what could be the circumstances for the L.I.C. to consider the cases on compassionate and humanitarian grounds? We are also at a loss to know when the third O.P. has committed a criminal negligence and temporary misappropriation of the amount of a policy holder, why belated action was taken on 16.3.89 by terminating his agency? Considering the totality of the circumstances and the facts appearing in this case, we arc firmly of the view that payment of the premium amount of Rs. 2,730/- on 5.6.87 to 3rd O.P. is deemed to be the payment made to the L.I.C. within the grace period. The L.I.C. has laid down some conditions and privileges in respect of whole Life Insurance Policies. Condition 3 reads as under:- "When the premium is not paid within the days of grace the policy lapses. It may be revived during the life time of the life assured, but within a period of 5 years from the first unpaid premium and before the date of maturity, on submission of proof of continued insurability to the satisfaction of the Corporation and the payment of all the arrears of premium together with interest at such rate as may be prevailing at the time of the payment but not exceeding 9% per annum compounding half yearly. At the end of condition No. 4 below the table following rule is very important. It states "notwithstanding what is stated above, if after at least three full years premiums have been paid in respect of the policy, any subsequent premium be not duly paid, in the event of the death of the life assured within six months from the due date of the first unpaid premium the policy moneys will be paid as if the policy had remained in full force after deduction of (a) the premium or premiums unpaid with interest thereon to the date of death on the same terms as a for reviewing of the policy during such period and (b) unpaid premiums falling due before the next aniversary of the policy." In this view of the matter, the decision of the L.I.C. to treat the policies of Jasavantrai Shah as lapsed is contrary to facts and circumstances of this case. We, therefore, find that the decision of L.I.C. to treat all the policies of deceased Jasvantrai Shah as lapsed is contrary to law, facts and rules and, therefore, cannot be sustained. It is against the interest of consumers who obtained policies in question placing his full faith in L.I.C. We further find that failure to settle (he genuine legitimate and admissible claim of second complainant amounts to deficiency in the service of the opposite party".

WE have now to consider whether on the basis of the facts and circumstances of this complaint, there is deficiency in the service of the opposite parties 1 and 2.

FROM our discussion in the preceding paragraphs, it is now crystal clear that there was negligence on the part of the opposite parties in not crediting the amount promptly toward the insurance premium in relation to the policies of deceased. The L.I.C. was negligent in not giving credit to the money paid by deceased toward his policies and further negligence on the part of the L.I.C. is to connive and acquise the act of the third O.P. There is also the deficiency in the part of the 1st and 2nd opposite parties in their administration to treat the policies of deceased Jasavantrai as lapsed even though the policy premiums were paid and collected by its Agent during the life time of Jasavantrai. We also find that the L.I.C. has committed inordinate delay in the settlement of the claim of complainant. We find that despite the efforts of 1st complainant, there was inordinate delay on the part of L.I.C. to take the decision in this case. The manner and attitude of the L.I.C. has clearly violated the Principles of Natural Justice and Fair Play. We, therefore, hold the L.I.C. liable for the negligence and lack of good faith as well as Chaturbhuj Shah, the 3rd Opposite Party, for his criminal negligence and, therefore, in our view, all the three opposite parties are liable to compensate the complainant''s claim. It, is, therefore, necessary to direct the L.I.C. to settle the claim of complainant No. 2 in respect of the four policies of deceased Jasavantrai Shah by treating the policies as surviving. If according to the calculations of the L.I.C., the complainant is required to pay interest for the delayed payment of dues of premium according to their Rules, it maybe collected from the complainants or be deducted from his total claim. We further find that all the opposite parties are jointly and severally liable to compensate the complainant''s loss. We also hold that the opposite parties jointly and severally shall pay to the 1st complainant the Social Organisation for prosecuting the cause of consumers. The cost of Rs. 2,500/- and further pay the cost of Rs. 1000/- to 2nd complainant. Hence, We pass the following orders:- ORDER The Life Insurance Corporation, Bombay is directed to settle the claim in respect of the four insurance policies of deceased Jasavantrai Shah within 30 days from the receipt of this order and shall pay the amount of the claim to Mrs. Harshada Jasavantrai Shah after deducting the amount of interest if any, necessary to treat the policies as surviving. The opposite parties also shall pay jointly and severally the amount of Rs. 2500/- as costs to complainant No. 1 and Rs. 1000/- as cost of complaint to complainant No.2. It is ordered that if the amount of claim and the costs are not paid within 30 days from the receipt of this order, the amount of claim and the costs shall carry interest at the rate of 18% p.a. from that date till the payment. Complaint allowed with costs.