Insurer is liable for delayed decision

Failure to communicate the rejection on policy revival application within 15 days would mean approval

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Sanjay Bare had taken a policy from Life Insurance Corporation of India (LIC). For a cover of Rs 39 lakh, the yearly premium was Rs 1,68,609. The policy was for 24 years starting November 25, 2004. The policy lapsed for non-payment of premium. But, a clause in the policy permitted its revival within five years, subject to undergoing a medical check-up. Sanjay applied for revival of the policy on September 1, 2009, and also underwent a medical check-up by LIC's panel doctor on payment of the requisite charge.

According to the Insurance Regulatory and Development Authority of India's (Irdai's) guidelines, LIC was required to inform Sanjay about the acceptance or rejection of his request for renewal within a period of 15 days. LIC did not do so. Instead, the insurer wrote to Sanjay informing him that his request for revival had been deferred by six months without assigning any reason. Sanjay received the letter on January 1, 2010. He died the very next day due to an accident.

Sanjay's widow, Meena, filed a complaint before the Maharashtra State Commission alleging deficiency in service for failure to take a decision on the revival application, and demanded that LIC must pay the benefits under the policy.

LIC contested the complaint, stating that the policy had lapsed without acquiring any guaranteed surrender value, due to the non-payment of premium. The reports of the medical check-up undergone at the time of applying for renewal had been forwarded to the Nasik Divisional Office, which in turn had referred them to the zonal office. The decision "without commitment postponed for six months" was taken by the zonal office. LIC contended that there was no coverage in force on the day when Sanjay expired. Since the request for revival was not accepted, it should be considered a deemed rejection, argued LIC. The insurer's stand was that in the absence of any communication confirming the acceptance of the proposal, there could be no concluded contract. It sought a dismissal of the complaint.

The State Commission observed that the Irdai regulations cast an obligation on the insurance company to decide on a proposal within a period of 15 days. The Commission also differentiated between a fresh proposal where there was no concluded contract till its acceptance, and an already concluded contract where a policy which had already been issued was pending for revival.

In a landmark ruling by Narendra Kawde for the bench along with A P Bhangale, the Maharashtra State Commission concluded that the failure to communicate the rejection of the revival application within 15 days as provided under the Irdai regulations would constitute a "deemed approval". Accordingly, the State Commission directed LIC to pay Rs 39 lakh towards the sum insured, with additional equivalent amount towards double accident benefit, totalling Rs 78 lakh. This amount was ordered to be paid within 45 days, else it would carry nine per cent interest for the period of delay. In addition, litigation costs of Rs 30,000 were also awarded.

The author is a consumer activist