Sbi Life Insurance Company Ltd Vs Asha Lata Parida

1. THIS order will govern the disposal of Revision Petition Nos. 3945 of 2009, 347 of 2010 and 348 of 2010.

2. IN the order the parties are referred as they were arrayed in the complaint.

3. R.P. No. 3945 of 2009 filed by SBI Life Insurance Company Ltd. , opposite party No. 1 and R.P. No. 347 of 2010 preferred by Smt. Asha Lata Parida, complainant are directed against the same order dated 21.8.2009 in F.A. No. 213 of 2008 passed by the Consumer Disputes Redressal Commission, Orissa, Cuttack. R.P. No. 348 of 2010 is filed by the complainant against the order dated 31.3.2009 passed in FA No. 196 of 2008 by the same State Commission. Said two appeals were filed against the order dated 14.2.2008 of a District Forum.

4. FACTS giving rise to these revision petitions lie in a narrow compass. Prasant Kumar Parida, husband of the complainant had taken house building loan of Rs. 12,50,000 from opposite party No. 2-Bank on 8.7.2004. At the instance of the bank, the said borrower proposed to cover the loan against the risk of death under "S.B.I. Life Super Surakhya for House loan borrowers of S.B.I." for the sum equivalent to loan amount including interest as per E.M.I. schedule during the tenure of loan w.e.f. 12.7.2004 by opposite party No. 1. The borrower submitted necessary papers duly filled in to opposite party No. 2-Bank who in turn sent the same to opposite party No. 1 together with a demand draft of Rs. 55,288 dated 12.7.2004 and the declaration of borrower''s good health. Bank draft was prepared by debiting the loan account. Prasant Kumar Parida died on 27.3.2005. After his death the complainant asked the opposite parties to settle the claim. However, the claim was repudiated on ground of the policy being at the stage of proposal due to medical requirements by opposite party No. 1 by the letter dated 29.12.2005. Complainant, therefore, filed a complaint before the Insurance Ombudsman, Bhubaneswar who by the order dated 29.1.2007 held that the repudiation was valid. The complainant was however, permitted to initiate legal action, if she so desired, against the concerned official(s) of opposite party No. 1 who was responsible for keeping the premium amount on hold for more than 8 months without processing for medical examination of the borrower. Thereafter, alleging deficiency in service and unfair trade practice the complainant filed complaint against both the opposite parties seeking certain reliefs which was contested by them by filing separate written versions. Opposite party No. 2-Bank alleged that the proposal form together with a draft of Rs. 55,288 dated 12.7.2004 towards premium and good health declaration furnished by the borrower were forwarded by it to opposite party No. 1. It was not the responsibility of the Bank to get the deceased borrower medically examined. Complaint thus, deserves to be dismissed against the bank. In its written version, it was admitted by opposite party No. 1 that the deceased submitted the proposal form duly filled in along with the Declaration of good health and a bank draft of Rs. 55,288 through opposite party No. 2 to cover the loan advanced against the peril of death. After the submission of these papers it was the duty of the deceased to have enquired from opposite party No. 1 as to when he has to appear for medical examination but he remained silent till his death. It was further alleged that though sufficient information was given to the borrower to appear for medical examination still he remained silent. Borrower was working as a Forest Ranger and the death report obtained from the Conservator of Forest revealed that he was having chronic heart problem and was on leave before death. Since the deceased avoided medical examination, non-acceptance of proposal did not amount to deficiency in service or unfair trade practice on the part of answering opposite party No. 1.

5. TO be only noted that the complaint was allowed by the District Forum with direction to opposite party No. 1 to remit the entire loan amount minus Rs. 55,288 which was remitted to opposite party No. 2. Opposite party No. 2-Bank was also directed to pay compensation of Rs. 50,000 to the complainant vide order dated 14.2.2008. Dissatisfied with Forum''s order the opposite party No. 2-Bank filed F.A. No. 196 of 2008 which has been allowed by the State Commission exonerating the bank from paying compensation of Rs. 50,000. F.A. No. 213 of 2009 has been partly allowed ordering the opposite party No. 1 to pay a compensation of Rs. 5 lakh to the complainant by the State Commission.

6. WE have heard Mr. Rohini Kanta Pattanaik, Advocate for the complainant and Mr. G.L. Chawla, Advocate for opposite party No. 1 and have also been taken through the records.

7. IT is the admitted case of the parties that Prasant Kumar Parida had obtained house building loan of Rs. 12,50,000 from opposite party No. 2-Bank on 8.7.2004 and to secure the loan amount against the risk of death, he proposed to take from opposite party No. 1 the "S.B.I. Life Super Surakhya for House loan borrowers of S.B.I." for a sum equivalent to the loan amount including interest as per E.M.I. w.e.f. 12.7.2004; Sri Parida submitted the necessary papers for that purpose duly filled in to opposite party No. 2-Bank along with Declaration of his good health and those were forwarded with a draft of Rs. 55,288 towards premium on 12.7.2004 to opposite party No. 1 by opposite party No. 2-Bank; borrower died on 27.3.2005 and the claim made by the complainant was repudiated by opposite party No. 1 by the letter dated 29.12.2005 on ground of the policy being at the stage of proposal due to medical requirements. Fora below have returned the finding that the defence taken by opposite party No. 1 that the deceased did not turn up for medical examination in spite of sufficient information is not supported by any documentary evidence and cannot be believed. We are inclined to endorse this finding. Thus, the controversy revolves around the issue whether failure to take decision on part of opposite party No. 1 regarding acceptance or otherwise of the insurance cover applied for by the deceased, can be validly taken as a ground to deny the claim made by the complainant? To answer this issue, it will be profitable to refer to the following paras of the Group Life Insurance Cover for Housing Loan Borrowers of State Bank Group and its enclosures (copy at pages 44 to 51). The same read thus:

"1. Objective: To provide life insurance cover to housing loan of the Bank as protection against the risk of death due to any reason during the tenure of the loan. The scheme will be operated as a group insurance scheme. 2. Amount of life insurance cover-The insurance cover will be available to all housing loan borrowers on payment of the applicable premium amount and completion of required formalities. The minimum amount of housing loan to be covered would be Rs. 25,000 and the minimum single premium amount should not be less than Rs. 1,000. The maximum amount would be as per the maximum permissible loan under the State Bank Group Housing Loan Scheme. In the event of the death of the borrower at any time during the tenure of the loan, SBI Life will assume the liability towards the repayment of the outstanding loan amount including interest as per the original EMI schedule. SBI Life would pay the outstanding loan amount to the branch upon receipt of documents evidencing the death of the borrower (in case of loans granted on floating rate of interest basis, the amount payable and the term of insurance would not exceed the outstanding amount and term calculated on the basis of a fixed interest rate of 11% p.a. ) In case of premature repayment of any loan instalment by the borrower, and subsequent death of the borrower during the tenure of the loan, SBI Life would pay the outstanding loan amount as per the original EMI schedule to the bank. The bank would in turn pay any surplus amount after liquidation of the loan outstanding to the nominee of the borrower. 3. Life Insurance cover as an option to housing loan borrowers-The life insurance cover on the above lines is an optional facility that will be available at the branches of State Bank Group. In other words, the borrower is free to avail the insurance protection arrangement as a separate facility at his/her option. ................................................ 6. Effective date of Life cover-Effective date of the commencement of life cover for a Member admitted to the benefits of the Scheme would be from the date the final draft is issued to SBI Life and 100% insurance premium payable (including the extra premium if applicable based on medical reports) is debited. 7. A. Exclusion-The insurance will not cover death due to reasons other than an accident during the first 45 days from the date of commencement of cover and death due to suicide during the first 12 months, as specified in the Master Policy document. B. Cessation of cover-The insurance cover under the Scheme will cease on occurrence of any of the following events: (i) until liquidation of the housing loan; or (ii) the final EMI date as per the agreed repayment schedule; or (iii) until the 71st birthday of the insured borrower; or (iv) upon invocation of the insurance cover consequent to the death of the borrower due to any reason; whichever is earlier.

8. MODE of payment of insurance premium-Lump sum, as a single premium payment at the beginning, covering the entire duration of the housing loan.

9. FOR housing loan amount upto Rs. 7.5 lakh-The borrower will be required to sign a Good Health Declaration (GHD) which is a part of the letter of consent-cum-authorization-cum-good Health Declaration (Annexure IV), to the effect that at the time of availing the insurance cover he/she is in sound health and does not suffer from any critical illness (critical illnesses as defined in the consent letter). For a housing loan amount exceeding Rs. 7.5 lakh-The borrower would be required to undergo a complete medical examination as per underwriting procedure, (for details please refer the paragraph 2(B) of Operational Procedure at Annexure I).

10. DOCUMENTATION-There will not be any detailed insurance proposal form required from the housing loan borrowers. The cover will be available based on a consent letter from the borrower addressed to the branch where he/she avails the housing loan expressing his consent to join the Group Insurance and an acceptable proof of age (Annexure-V). The format of the letter of Consent-cum-Authorization-cum-Good Health Declaration is at Annexure IV.

11. MASTER Policy-SBI Life will issue a single Master Policy in favour of the Bank and all housing loan borrowers opting for the Group Insurance Scheme at any branch of the Bank will be covered under the same. All benefits under the Master Policy will automatically stand assigned to State Bank Group as per the mandate in the letter of Consent-cum-Authorisation-cum-Good Health Declaration. There is no need to obtain separate assignment deeds from the borrowers. No separate policy document will be issued in respect of each borrower covered under the Scheme. However, SBI Life will issue to every borrower insured under the scheme, a Premium-Receipt-cum-Certificate of Insurance indicating the extent of insurance cover, period of cover and the other terms and conditions of the Scheme.

12. CLAIM Procedure-In the event of the death of the insured borrower, the concerned branch will complete a simple claim form as the assignee of the insurance benefit under the. Scheme and send it to SBI Life. The claim form will include the confirmation of the branch that the insured borrower was a member of the Scheme along with details of the outstanding loan amount (Please see Annexure XI). After a claim has been settled, the branch will have to acknowledge the receipt of benefits and send back to SBI Life the Discharge Form (Annexure XII).

13. THE Operational Procedures to be followed by branches is given in Annexure-I". Paras of the Operational Procedures for Implementing the Scheme (Annexure-1) (copy at pages 52 and 53) being material, are reproduced below:

"2. Medical Requirement A. For loan amount upto 7.5 lakh (i) There are no medical examinations. The Borrower signs the Consent-cum-Authorisation-cum-Good Health Declaration (GHD) (Annexure IV). (ii) The Bank sends the statement of particulars of the borrower (Annexure X) as and when a borrower is enrolled under the Scheme along with the draft for the gross premium amount, a copy of Annexure IV and a copy of proof of age by courier to SBI Life. B. For loan amount in excess of Rs. 7,50,000 1. Since the loan amount exceeds 7,50,000 the branch informs the borrower that he needs to undergo medical tests before getting the insurance cover. It is also to be explained to the borrower that depending upon the medical reports there could be a possibility of an extra premium that may need to be remitted to SBI Life over and above the premium as per the table. 2. The borrower signs the consent-cum-authorisation-cum-good health declaration (GHD) (Annexure IV) and is referred to the empanelled doctor/Third Party Administrator (TPA) for undertaking the medical tests. The Bank also issues a letter to the borrower on behalf of SBI Life (Annexure VII), requesting the borrower to undergo a medical examination. A covering letter addressed to SBI Life to be signed and returned by the authorized Doctor/Clinic, enclosing the completed medical reports of the borrower, direct to TPA/SBI Life (Annexure VIII) Note: The branch should inform the customer that the TPA would be getting in touch with them for the medicals. 3. Simultaneously the branch calls the TPA if any, and gives details of that particular borrower (including contact details). 4. After details are given to the TPA, the branch records the TPA reference No. on the Annexure X. 5. The branch also formally sanctions loan limit if applicable, that will include insurance premium (+25% additional amount to provide for Extra Medical Premium if required), as per the table rates and the loan documents are executed accordingly for the cumulative amount. 6. Simultaneously, the branch should debit the account of the borrower to the extent of the insurance premium as per the table rates (100% insurance premium) and send the statement of particulars of the borrower (Annexure X) as and when a borrower is enrolled under the Scheme along with the draft for the premium amount, a copy of Annexure IV and a copy of proof of age by courier to SBI Life. 7. On receipt of the Annexure X at SBI Life Mumbai office, the Operations Deptt. will intimate/follow up with the TPA for the necessary medical reports of the borrower. 8. On receipt of the medical test reports at SBI Life Mumbai office, the Underwriting Deptt. will take a decision regarding the acceptance or otherwise of the insurance cover. The decision is conveyed to the concerned branch, through Annexure VI. 9. If the decision is to accept the borrower without any medical extra, the Certificate of Insurance will be printed and sent to the respective branch. The borrower will be given insurance cover from the cover start date, which will be the date of the final draft remitted to SBI Life, towards the insurance premium. 10. In the event of the borrower being accepted with an increase in premium SBI Life will ask the branch to debit the customer''s account and remit the same. If the customer does not use loan facility for the insurance premium, he/she will be required to pay the balance amount and the branch will remit the requisite amount to SBI Life. 11. If the medical reports of the borrower do not conform to the underwriting norms of SBI Life, the branch will be faxed/couriered a letter informing that the borrower cannot be admitted under the scheme. The same would be conveyed to the borrower by the branch. SBI Life will refund the premium amount received earlier to the branch".

14. ONLY two paras at page-56 of this letter are material and the same are reproduced as under:

"The insurance risk is underwritten by SBI Life. We are responsible for settling all valid claims. No insurance liability will attach to the Bank. Please note that the Branch administering the Group Insurance Scheme is not an agent of SBI Life. SBI Life takes full responsibility for all the statements contained herein and for the timely settlement of all claims under the Scheme."

15. IT being a case of housing loan exceeding Rs. 7,50,000, under the said ''Operational procedure for implementing the scheme'', the deceased borrower was to undergo medical tests. Plea raised by opposite party No. 1 of the deceased borrower having not turned up for medical examination despite sufficient information has been disbelieved by the Fora below. Opposite party No. 1 admittedly kept the proposal pending without taking a decision regarding acceptance or otherwise as required by para 8 of the aforesaid operational procedure for over 8 months and it was for the first time that through the repudiation letter dated 29.12.1995 it came forward with the plea that the matter was at the stage of proposal due to medical requirements. At this juncture Regulations 4(6) of the Insurance Regulatory and Development Authority (Protection of Policy Holders'' Interests) Regulations, 2002 framed by IRDA need be referred to. These regulations apply to all proposals for grant of a cover, either for life business, or for general business except marine insurance. Said Regulation 4(6) provides that ''the proposal shall be processed by the insurer with speed and efficiency and all decisions thereon shall be communicated by it in writing within a reasonable period not exceeding 15 days from receipt of proposal by the insurer''. Opposite party No. 1 cannot take advantage of the inaction of its concerned official(s) in keeping the proposal pending for a long time of more than 8 months to the detriment of the deceased and/or the complainant. Also considering the ambit of the aforesaid scheme the opposite party No. 1 cannot evade the payment of the claim on ground of the proposal not having been accepted. Mr. Chawla, Advocate for fully exonerating the opposite party No. 1 has relied upon the decision in Life Insurance Corporation of India v. Raja Vasireddy Komalavalli Kamba and Ors., (1984) 2 SCC 719. As may be seen from para No. 15 of this judgment, it was decided on the premise that general rule is that the contract of insurance will be concluded only when the party to whom an offer has been made, accepts it unconditionally and communicates the acceptance to the person making the offer. Reading of the aforesaid scheme and operational procedure would show that insurance cover is to be effective from the date of the draft of one time premium is issued and sent to opposite party No. 1. In this case draft of Rs. 55,288 was sent on 12.7.2004 to opposite party No. 1 by opposite party No. 2-Bank. In our view, liability of opposite party No. 1 has to be determined vis-a-vis said Regulations 4(6) and the scheme and operational procedure. Obviously, the repudiation of claim by opposite party No. 1 was bad in law and opposite party No. 1 is guilty of gross deficiency in service. Order of the State Commission in awarding amount of Rs. 5 lakh as compensation by modifying the order of the District Forum cannot be legally sustained. In fact the order of District Forum has to be restored.

16. AS regards opposite party No. 2 - Bank, on given facts, case of deficiency in service/unfair trade practice is not made out and the State Commission has rightly set aside award of compensation of Rs. 50,000 against it by the order dated 31st March, 2009.

17. FOR the foregoing discussion, R.P. Nos. 3945 of 2009 and R.P. No. 348 of 2010 are dismissed. While allowing R.P. No. 347 of 2010, the aforesaid order of the State Commission dated 21st August, 2009 is set aside and the order of District Forum dated 14.2.2008 qua opposite party No. 1 is restored. Opposite party No. 1 will pay cost of Rs. 50,000 to the complainant who has been unnecessarily harassed by it. Order will be implemented by opposite party No. 1 within four weeks. Revision Petition 347/2010 allowed. Revision Petitions 3945 of 2009 and 348 of 2010 dismissed.