Life Insurance Corporation Of India & Anr vs Padmini Rao

This revision petition has been filed by the petitioners, Life Insurance Corporation of India and another against the order dated 6.1.2017 passed by the State Consumer Disputes Redressal Commission, Karnataka, Bangalore (for short, 'State Commission') in Appeal No.949 of 2015.

Brief facts of the case are that on 15.1.1998, respondent /complainant obtained a Jeevan Asha Policy (Plan-129/15) without profits bearing Policy No.7207254448 with sum assured of Rs.1,00,000/- payable after the term of 15 years from Mysore Branch office of LIC of India. The yearly premium payable under the said policy was Rs.8,543/-. The said policy was due to be matured on 15.1.2013 and the last premium was to be made on 15.1.2012. As per the terms and conditions of the policy, the policy holder was entitled for payment of Guaranteed additions @ Rs.70/- per thousand of sum assured as well as loyalty additions. In 2013, admittedly, the Mysore Branch Office of Petitioner Corporation after calculating the Guaranteed addition paid the maturity value (i.e. basic sum assured + Guaranteed addition) to the respondent in conformity with terms and conditions stipulated in the policy bond.

When enquired by the respondent about loyalty addition, the petitioner corporation vide its letter dated 22.2.2013 stated that the valuation results of March, 2012 were announced by the Actuarial department of the corporation wherein the loyalty addition was not declared for Jeevan Asha Policy due to various unfavourable factors. Hence, loyalty addition was not paid under any of the Jeevan Asha Policies of the corporation. On 1.1.2015, being aggrieved by non-payment of loyalty addition, the present respondent filed a consumer complaint being Complaint No.2/2015 before District Consumer Disputes Redressal Forum, Mysore. On 9.3.2015 the petitioner filed their reply to the complaint of the respondent mentioning that the corporation has not declared any loyalty addition for Jeevan Asha Plan for the year ending 31.3.2012. Vide its order dated 9.10.2015, the District Forum dismissed the complaint of the respondent stating that the District Forum has no authority to direct the opposite party to declare loyalty addition.

Aggrieved by the order of the District Forum dated 9.10.2015, the present respondent filed First Appeal No.949/2015 before the State Commission which allowed the appeal by directing the petitioner to declare loyalty addition for Jeevan Asha Policies for the year 2013 at Rs.500/- per Rs.1,000/- on sum assured alongwith 12% p.a. interest from 15.1.2013 till actual payment.

Hence, the present revision petition.

Heard the learned counsel for the parties and perused the record.

Learned counsel for the petitioner stated hat as per Special Provision no.4 of the policy, there is a provision for paying loyalty addition at the time of maturity of the policy or at the time of paying death claim of the insured. The Special Provision no.4 reads as under:

"4. Loyalty Addition: If after at least 5 full years premiums have been paid in respect of his policy, on the life assured surviving the stipulated date of maturity or on his earlier death and provided the policy is in full force on the stipulated date of maturity or on the date of death, then depending upon the Corporation's experience with regard to mortality, interest rate and expenses in respect of its life insurance business, this policy may be eligible for payment of a loyalty addition at such rate and on such terms as may be declared by the Corporation. Provided further that no loyalty addition will be payable in the event of policy being surrendered or discounted or being made paid-up before the date of maturity or the date of death of the life assured."

On the basis of the above provision, learned counsel for the petitioner stated that it is not mandatory to award loyalty addition at the time of maturity of the policy rather it depends on the experience of the insurance company with regard to mobility, interest rate and expenses in respect of its life insurance business. This policy may be eligible for payment of loyalty addition at such rate and on such terms as may be declared by the Corporation.

Learned counsel for the petitioner has stated that based on the results of this policy and on the report of the Actuary, the Board of petitioner Corporation has decided not to declare any loyalty addition for the Jeevan Asha Plan . The State Commission cannot assume the role of the Board of Directors of the Corporation for declaration of loyalty addition at a rate of Rs.500/- per Rs.1,000/- of the sum assured. The State Commission has considered the total profit and loss account of the Corporation and has come to the conclusion that there was profit in the life insurance business of the Corporation and therefore, the Corporation was required to pay the loyalty addition. The State Commission failed to appreciate that based on the actuarial valuation and distribution of surplus as per the provisions, the Actuary of the Corporation has recommended to the Board that no loyalty addition could be declared for Jeevan Asha Plan 129 because of negative contribution to the surplus, which was accepted and approved by the Board. The State Commission further failed to take note of the fact that the valuation report as on 31st March, 2012 prepared by the Actuary and sent to Government clearly mentions that no loyalty addition was declared under Jeevan Asha Plan because of negative contribution by Jeevan Asha Plan to the generation of surplus. The learned counsel invited attention to the following:

Tabular excerpt of the result for the period ending 31.3.2012 :

Plan

Loyalty addition for term 15 years

113

Rs.30/-

124

Rs.30/-

125

Rs.20/-

126

Rs.15/-

128

Rs.15/-

135

Rs.500/-

136

Rs.40/-

It was contended by the learned counsel for the petitioner that State Commission has not given any reason for giving loyalty addition @ Rs.500/- per Rs.1,000/- of the sum assured and the decision is totally arbitrary. From the results above, in most of the plans the loyalty addition has been declared @ Rs.15-40 per Rs.1,000/- of the sum assured, except Plan 135 where the loyalty addition has been declared @ Rs.500/- per Rs.1,000/- of the sum assured. Plan 135 was a special high end plan where the amounts were quite high. The plan no. 129 of the complainant cannot be compared with the plan no.135.

On the other hand, learned counsel for the respondent/complainant stated that the policy was issued by showing a rosy picture before the complainant that in addition to the guaranteed additional of payment of Rs.70/- per Rs.1,000/-. of sum assured per year, there will be loyalty addition that will be paid to the complainant at the time of maturity or at the time of death of the insured. No loyalty addition was paid by the insurance company and therefore the complaint was filed. The results of the financial year 2011-2012 clearly show that the insurance business of the petitioner corporation had positive surplus and therefore, the State Commission has rightly allowed the complaint. It is true that it was within the powers of the Board of the Corporation to declare the loyalty addition in each plan but that power has to be exercised judiciously and the court can definitely examine the decision of the Board of the Corporation based on the documents. The State Commission has found that there was surplus in the life insurance business of the Corporation and therefore, there was no ground to refuse payment of loyalty addition. Though the State Commission has not mentioned in its order, but the State Commission was guided by the loyalty addition declared by the Corporation for Plan no.135 where loyalty addition of Rs.500/- per Rs.1,000/- of the sum assured was declared. Thus, the decision of the State Commission is not arbitrary. Plan no.135 was also a plan which was to mature after 15 years and therefore, there is a similarity in both the plans. No illegality or material irregularity has been committed by the State Commission in ordering the payment of loyalty addition @ Rs.500/- per Rs.1,000/- of the sum assured.

I have given a thoughtful consideration to the arguments advanced by learned counsel for both the parties and have examined the material on record.

The provisions relating to payment of loyalty addition clearly states that the Corporation shall declare the loyalty addition on the basis of its experience relating to mortality, interest rate and expenses in respect of its life insurance business. It is true that based on these aspects, the Corporation was to decide about the loyalty addition and based on the negative results of the plan in question, the Board decided not to declare any loyalty addition for the plan in question. It is seen from the Results of Valuation as on 31st March, 2012 by the Corporation dated 1.9.2012 that the Corporation declared loyalty addition for different plans . However, it is seen from the Table as mentioned above and also from the Results of Valuation as on 31st March, 2012, that except for Special Policy Plan 135, and Plan 112, in most of the plans declared loyalty addition is not much . In the Plan 129 no loyalty addition has been declared by the Corporation. From the point of view of the policyholder, it is important that if loyalty addition is declared for other similar policies/plans, he would also expect the loyalty addition for his plan, it could have been in the interest of the Corporation and for expansion of their business that they would have declared some loyalty addition for other remaining plans as well. The same has not been done.

A common policy holder may think and interpret "loyalty addition" as some payment for keeping his association with the insurance company for a long time by way of continuing his policy by paying premium regularly. It would be thought by him that he has been associated with the company for 15 years like other policy holders getting the loyalty addition and therefore he is also entitled to loyalty addition. Once the insurance company has made a promise to pay loyalty additions under certain circumstances, declaration of no loyalty addition comes as a breach of the contract to the policy holder. Keeping interest of the consumer in mind, the State Commission has analysed the financial results of the Corporation and has reached to the conclusion that the life insurance business has made profits and therefore, the loyalty addition was payable. Keeping in view the average loyalty addition declared for different policies, it seems appropriate that in the Plan 129 of the complainant also, loyalty addition @ Rs.30/- per Rs.1,000/- of the sum assured is paid to the complainant.

Based on the above discussion, the revision petition is partly allowed and the order of the State Commission is modified to the extent that loyalty addition shall be paid @ Rs.30/- per Rs.1,000/- of the sum assured instead of Rs.500/- per Rs.1,000/- of the sum assured as ordered by the State Commission. Except this modification, rest of the order of the State Commission is upheld.