Circular can't override contract

The Commission held that LIC can't be allowed to wake up after 11 years and then issue a circular that would violate the sanctity of the contract of insurance issued by it

Deepak Rajmal Kothari had taken LIC's Jeevan Saral Policy (with profits). The policy mentioned the maturity value as Rs 25 lakh,  death benefit as Rs 3,94,900, and accident benefit as Rs 15 lakh. The yearly premium was Rs 1,24,100, and its tenure was for 11 years, from March 28, 2004 to March 28, 2015, over which period Deepak paid a total premium of Rs 13,65,100.

Upon maturity, LIC did not pay Rs 25,00,000 as promised, but merely Rs 3,94,000 alo­ng with profit or loyalty addition of Rs 1,67,832. When Deepak protested, LIC justified the short payment by contending that the maturity and death benefit values had got interchanged due to a typographical error. The Corporation also issued a circular dated July 27, 2015 directing all its offices to retrospectively correct all the Jeevan Saral Policies issued from 2003 onwards.

Deepak approached the Maharashtra State Commission, which pointed out that during the tenure of the policy, LIC never mentioned about there being any mistake. Even when the policy was sent for change in nomination and remained with LIC for ten days, LIC did not say that the policy contained typographical mistakes. It was only after the claim was lodged on maturity that LIC tried to renege out of its contractual obligation on the ground that there was a mistake in mentioning the sum assured.

The Commission observed that the circular dated July 27, 2015 for correction of the policy right from 2003 onwards indicated that there was no typographical error in the policy. Still, it was a case of massive irregularities in the policies issued throughout the country. 

In a judgment delivered by Usha Thakare, it held that a contract of insurance would prevail over internal circulars and statutory guidelines, as laid down the Supreme Court in United India Insurance v/s M.K.J. Corporation. It also held that LIC could not be allowed to wake up after 11 years and then issue a circular which would violate the sanctity of the contract of insurance by avoiding the contractual liability under the policy. It ordered LIC to pay the maturity value of Rs 25 lakh stated in the policy along with profits/loyalty of Rs 1,67,832, totalling Rs 26,67,832, together with 9 per cent interest from the date of maturity. Also, Rs 25,000 was awarded as compensation and Rs 25,000 towards litigation cost.

LIC's appeal to the National Commission was dismissed by Prem Narain on December 11, 2018. Yet, LIC refused to comply with the order under the pretext that it had set up a High-Level Committee to look into the issue. 

When follow-up over several months failed to yield any result, Kothari filed execution proceedings for disobedience of the order. Justice A.P. Bhangale, President of the Maharashtra State Commission issued summons to LIC's Chairman, which were served by the police. It was then that LIC immediately paid-up.

The writer is a consumer activist