Should You Pay Your Lic Premium To An Agent?
Does paying the premium for a life insurance policy to a general agent of the Life Insurance Corporation of India (LIC) amount to payment to LIC?
This question arose before the Supreme Court in an appeal in the case of Harshad J Shah & Anr v LIC of India & Ors which was decided on April 4, 1997.
One Jaswantrai G Shah took out four insurance policies for Rs 25,000 each with double accidental benefits on March 6, 1986 through Chaturbhuj H Shah, a general agent of LIC. The premium was payable on a half-yearly basis. He deposited the first half-yearly premium on March 6, 1986 and the second half-yearly premium on September 6, 1986. The third half-yearly premium, due on March 6, 1987, was not deposited within the prescribed period. On June 4, 1987 the LIC agent met Shah and obtained from him a bearer cheque dated the same day for Rs 2, 730 towards the half-yearly premium on all four policies. The cheque was encashed by the agents son the next day, June 5, 1987. The premium was actually deposited by the agent with LIC only on August 10, 1987. In the meanwhile on August 9, 1987 Jaswantrai Shah died in a fatal accident.
The claim submitted by his widow to LIC was repudiated on the ground that the policies had already lapsed because the half-yearly payment due on March 6, 1987 had not been paid within the grace period.
The Consumer Education and Research Society (CERC) lodged a complaint with the Gujarat State Commission on behalf of the widow, under the Consumer Protection Act, 1986 claiming the amount payable under the four policies plus interest and compensation. The complaint was subsequently transferred to the Maharashtra State Consumer Disputes Redressal Commission which directed the LIC to settle the claim for all four policies.
Appeals were filed against the order of the State Commission to the National Consumer Disputes Redressal Commission (NCDRC) which dismissed the appeal filed by the CERC and the widow of the insured and allowed the appeal filed by LIC and its agents.
The NCDRC held that the insurance agent in receiving a bearer cheque from the insured towards payment of the premium was not acting as an agent of LIC. Nor could it be deemed that LIC had received the payment on the date on which the bearer cheque was received by the insurance agent June 4, 1987 even though he deposited it with LIC on August 10, 1987, a day after Jaswantrai Shahs death.
It was against this decision of the NCDRC that an appeal was filed before the Supreme Court.
The matter came up before a division bench of the SC. LIC drew on the LIC (Agents) Regulations, 1972 and the terms and conditions of Chaturbhuj Shahs appointment as a general agent to contend that he had not been authorised by LIC to collect the premium. Therefore, his action in receiving the cheque from the insured could not be regarded as receipt of premium by LIC. So, as far as LIC was concerned the premium had only been paid on August 10, 1987, after the death of the insured.
The SC observed that under Section 186 of the Indian Contract Act, 1872 the authority of an agent may be express or implied. An authority is said to be express when it is given by words, spoken or written, and is said to be implied when it is to be inferred from the circumstances of the case and things spoken or written, in the ordinary course of dealing.
The Court also observed that the premium may be paid to the insurers or to an insurance agent acting on behalf of the insurers and if the agent has the authority to receive it, the payment binds the insurers.
However, the Court found that in this case, the agent had no express authority to receive the premium because the letter of appointment issued to him on December 5, 1962 contained a condition expressly prohibiting him from collecting premium on LICs behalf. Moreover, a regulation in the 1872 Act, which became a rule in 1981, prohibits agents from collecting premium on behalf of LIC.
In view of this express prohibition, the apex court held that it was not possible to infer implied authority by LIC authorising its agents to collect premium on its behalf.
The Court also rejected the plea put forward by the appellants that LIC, by receiving the premiums through its agents, had induced policyholders to believe that the agents were authorised to receive premium on its behalf. The Court observed: We are unable to hold that the doctrine of apparent authority underlying Section 237 of the Indian Contract Act can be invoked in the facts of this case especially when LIC has been careful in making an express provision in the Regulations/ Rules... indicating that the agents are not authorised to collect any monies or accept any risk on behalf of LIC and they can collect the premiums etc only if they are expressly authorised to do so... The said provision has been made in public interest in order to protect the Corporation from any fraud on the part of the Agent...
But even though the Supreme Court upheld the NCDRC order that Chaturbhuj H Shah was not acting as an agent of LIC, it also directed LIC to refund the entire amount of premium paid to the widow of the insured along with interest at 15 per cent per annum payable from the date of receipt of the premium.
From the SCs categorical pronouncement, it is clear that insurance agents cannot collect any money or premiums or accept any risk on behalf of LIC, and they collect these only if expressly authorised to do so. But the larger point remains. In a country like India where illiteracy levels are high, it is a tall order to expect policy-holders to be aware of this clause which is buried in the fine print of the policy.
(The author is an advocate and editor of the Consumer Protection and Trade Practices Journal)