Insurer held liable for misleading advertisements

The Citizens' Rights Association (CRA), a consumer rights organisation, noticed agents and officers of Life Insurance Corporation of India (LIC) were cheating consumers through misleading pamphlets of its Money Plus Plan policy. The pamphlets promised money invested under the plan would multiply 50 times in 20 years. Luring gullible customers, huge sums of money were collected. This benefited the agents who earn commissions. As LIC's business prospered, its officials turned a blind eye to the shady business.

Despite repeated appeals LIC did not take any action to stop the unfair trade. According to CRA, there was no proper public grievances redressal mechanism to deal with the issue.

The organisation approached Delhi's Consumer Grievance Redressal Commission against LIC, the Insurance Regulatory and Development Authority of India (Irdai) and the secretary of the ministry of finance. It wanted LIC to scrap the policy with immediate effect and the money be returned to the policyholders along with interest.

The group also sought cancellation of licences of agents who duped customers. It also wanted an inquiry against LIC's officers who were responsible. CRA also sought the imposition of punitive damages and costs of litigation.

LIC challenged the locus standi of the consumer association to file the complaint when none of the policyholders had joined to voice a grievance. The insurer claimed it was aware about the circulation of the pamphlets but these had not been published by it. It could be the work of some competitor, it argued. One such pamphlet mentioned the name of Kripal Singh as agent. Singh was called for investigation, but feigned ignorance about the pamphlet. LIC claimed it had strictly followed Irdai's directions and could not be held liable for the pamphlets.

The state Commission accepted the complaint. It directed LIC to educate consumers by giving right information about the policy. The Commission asked LIC to allow people who had been misled, to withdraw from the scheme and claim a refund. LIC was also directed to conduct an inquiry into the whole affair and take action against those found responsible for the malpractice. Besides, LIC was ordered to pay Rs 25,000 as punitive damages to CRA.

LIC challenged the order in the National Consumer Commission. CRA argued LIC was liable as it had failed to take action against the persons who were responsible for making claims.

The National Commission observed that though LIC was aware of circulation of the pamphlets, no action was taken. The Commission observed LIC ought to have considered taking criminal action against the persons responsible for misusing its name. No such action was taken.

The bench of B C Gupta and Prem Narain upheld the order of the state Commission and slapped Rs 10,000 more as legal charges payable to CRA.

(The author is a consumer activist)