Consumer protection: Bank held liable for changing policy without consent

Shri Sanwar Mal Sharma, sole proprietor of Sunil Timbers in Banswara, had approached ICICI Bank for a business loan of ₹34 lakh. As part of the loan process, a policy had to be purchased to insure the stocks and goods against the risk of fire and burglary. A loan of ₹34,85,632 was sanctioned on June 9, 2007, which included the total insurance premium of ₹85,632. The EMIs were calculated on the entire sanctioned amount. The bank also procured a Home Safe Plus Merchant Insurance Policy from ICICI Lombard General Insurance.

 

On August 4, 2009, a fire broke out, destroying the stocks and goods stored in the insured premises. Sharma lodged a claim, but it was repudiated on the ground that the policy did not cover the risk of fire. It was subsequently discovered that the bank had not renewed the Home Safe Plus Merchant Insurance Policy after it expired in 2008. Instead, it had obtained a Home Safe Plus–Secure Mind Policy without Sharma’s consent. Terming this a deficiency in service, Sharma filed a complaint before the Rajasthan State Commission. The bank and the insurer contested the complaint.

 

The State Commission allowed the complaint and directed the bank and the insurer to be jointly and severally liable for compensating the loss, along with interest at 10 per cent from the date of filing the complaint. It also awarded ₹2 lakh as compensation and ₹21,000 as litigation cost.

 

Both the bank and the insurer appealed against the order. The bank attempted to deflect responsibility by contending that the complaint was not maintainable as the policy covered goods used for commercial purposes. The National Commission rejected this argument, reiterating that an insurance policy serves to indemnify against unforeseen contingencies and is not for generating profit.

 

The National Commission noted that the original policy had been issued correctly with the borrower’s consent. However, upon expiry, the bank’s officials, without informing Sharma or securing his consent, and disregarding his interests, obtained a different policy — Home Safe Plus–Secure Mind Policy — purely because it was more beneficial to their own careers. The Commission indicted the bank for its failure to produce the original proposal forms pertaining to the policy change and drew an adverse inference against it. It further observed that the altered policy had never been shared with the insured, indicating a deliberate attempt to keep him in the dark.

 

The Commission agreed with the State Commission’s view that the so-called consent letter, produced in lieu of the proposal form, appeared to be forged as it did not bear a date, and appeared to have been fabricated in defence of the bank. The Commission also held that the bank’s insistence on procuring insurancefrom its own group company amounted to an unfair 

trade practice.

 

In its order dated July 15, 2025, delivered by Dr Sadhna Shanker for the Bench headed by Dr Inder Jit Singh, the National Commission modified the order of the State Commission and directed the bank to pay ₹5 lakh as lump sum compensation within four weeks, failing which the amount would attract interest at 9 per cent.

 

The appeal filed by ICICI Lombard General Insurance was dismissed, as the company had refused service of notice and later changed its address without providing intimation. With the dismissal of the appeal, the State Commission’s order stood confirmed, holding the insurer liable to reimburse the loss and to pay the awarded interest, compensation, and costs.

 

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  The writer is a consumer activist