The Supreme Court yesterday ruled that Life Insurance Corporation (LIC) agents cannot collect premium from the insured, and if they do so the insurance company would not be liable for lapsing of the policy.
The court delivered the judgment while dismissing an appeal of the Consumer Education & Research Society of Ahmedabad and a widow against the recent verdict of the National Consumer Commission which exempted the LIC from such liability in her claim.
A division bench of the apex court consisting of Justice S C Agrawal and Justice G B Patnaik stated that the payment of premium to the general agents could not be regarded as payment to the LIC.
The judgment pointed out that the LIC had prohibited its agents from collecting premia in a 1982 regulation.
That provision was made in public interest to protect the corporation from any fraud on the part of the agents.
The society had argued that the corporation, by its conduct in receiving the premium through its agents, had induced the policyholders to believe that the agents acted validly on behalf of the LIC. This was a widespread practice.
The society invoked the doctrine of apparent authority under the Indian Contract Act (Section 237) to press the point.
Rejecting this argument, the court stated that when the agent accepted the premium amount, it could not be said that the corporation had induced the insured to believe that the agent was authorised to do so.
In this case, the deceased took out four policies and paid the first three instalments of the premia. The next payment fell due on March 6. He paid a cheque dated June 4 and the son of the agent deposited it on August 10. The insured died on August 9, a day earlier.
When the widow claimed the amount, the LIC maintained that the policy had lapsed due to non-payment of the premia within the period of grace.
