Consumer Protection: Don't risk renewal by handing cheque to agent

The Supreme Court held that an agent had neither express nor implied authority to receive premiums on the insurer's behalf, and hence upheld the repudiation of claims

The premium had been paid to the agent well before the fatal accident. For Harshad J Shah’s widow, that was reason enough to expect the insurer to honour her claims. The insurer disagreed. The money had not reached it on time, and the policies had lapsed, it contended.

 

The dispute, which went all the way to the Supreme Court, holds a lesson for policyholders who leave renewal payments to their agents. Handing over the money may feel like the job is done. But if the agent does not deposit it, the policyholder could lose cover.

 

Dependence has consequences

 

Agents commonly collect renewal premiums as part of their service. Customers often see this as the agent’s duty. After all, the agent earns a commission when the policy is renewed. It may seem a legitimate expectation, but it leaves a crucial question unanswered: Who bears the loss if the premium never reaches the insurer?

 

An agent may simply forget to deposit the money or become caught up in a personal problem. In rare instances, an agent may collude with the insurer to deliberately let a policy lapse when a high claims ratio makes it economically unviable. Whatever the reason for the lapse, the policyholder suffers.

 

Courts have delivered conflicting judgments on whether an insurer must renew a policy when its agent has collected the premium. This crucial issue has been put to rest by the Supreme Court in Harshad J Shah and Anr v Life Insurance Corporation of India (LIC).

 

Shah had taken four policies of ₹25,000 each from LIC, with premiums payable half-yearly. One instalment did not reach the insurer by the due date. Shah subsequently died in an accident. His widow, the nominee under the policies, lodged claims. LIC repudiated them on the ground that the policies had lapsed on account of non-payment of the premium on time.

 

Shah’s widow approached the Maharashtra State Consumer Disputes Redressal Commission (Maharashtra State Commission) with a consumer complaint. She contended that the claim should  be settled, as the premium had been paid to the agent much before her husband’s fatal accident. LIC’s defence turned on the agent’s authority. Its agents, it argued, are not authorised to collect premiums on its behalf. Paying an agent therefore does not amount to paying the insurer. The dispute ultimately reached the Supreme Court.

 

The apex court examined the Life Insurance Corporation of India (Agents) Regulations, 1972. Regulation 8(4), it noted, bars an agent from collecting money or accepting any risk on behalf of the insurer. The letter of engagement issued to an agent or broker also incorporates this condition.

 

The court held that an agent had neither express nor implied authority to receive premiums on the insurer’s behalf. It upheld the repudiation of the claims and concluded that LIC was not liable to settle them.

 

Ensure payment reaches insurer

 

The practical lesson is straightforward. Pay renewal premiums directly to the insurer and ensure the money reaches it on time. You can pay online or send a cheque by registered post or speed post.

 

If you use a cheque, what matters is when the insurer receives it, regardless of when it presents or encashes it. A cheque that arrives before the policy expires and is subsequently encashed maintains the continuity of the policy. Handing over the renewal payment to an agent could leave you without the protection you thought you had paid for.

 

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The writer is a consumer activist