Dating back of insurance policy

LIFE INSURANCE CORPORATION OF INDIA Vs. MANI RAM
DATE OF JUDGMENT: 05/08/2005
Appeal (civil) 4806 of 2005
SUPREME COURT OF INDIA

HELD THAT

If Life Insurance Policy dated back , the next premium will fall due on such date to which the policy dated back. The date on which risk under the policy commenced is different from the date of policy.

BRIEF FACTS

1. This appeal is filed by the Life Insurance Corporation of India ("Insurance Company" for short) against the order passed by the District Consumer Disputes Redressal Forum, Bilaspur (Himachal Pradesh), confirmed by the Himachal Pradesh State Consumer Disputes Redressal Commission, Shimla and also confirmed by the National Consumer Disputes Redressal Commission, New Delhi.

2. Mani Ram-respondent herein son of one Budhu Ram, resident of village Khatehar, Pargana and Tehsil Sadar, District Bilaspur (HP) filed a complaint under Section 12 of the Consumer Protection Act, 1986 (hereinafter referred to as "the Act"), before the District Consumer Forum, Bilaspur.

3. In the complaint, it was inter alia alleged by the complainant that his son Ashok Kumar had been insured with the appellant-Insurance Company on August 21, 1995 and premium amount of Rs. 5215/- was paid on the same day. According to the complainant, the next instalment of premium was due on August 21, 1996.

4. Ashok Kumar insured, however, died in an accident on August 2, 1996 at Barmana as the boundary wall of the D.A.V. School fell on him and he was crushed under the debris.

5. The complainant, in view of the subsisting policy, requested the appellant-Insurance Company to pay the insurance claim amount of Rs.2,50,000/- to the complainant, but under the lame and false excuses, the Insurance Company did not pay the amount.

6. Finally, by a communication dated August 11, 1997, the Insurance Company refused to pay any amount.

7. The deceased was unmarried. It was asserted by the complainant that he was the nominee of deceased Ashok Kumar as the father. Since the amount was not paid, the complainant was constrained to approach the District Forum. Accordingly, a claim of Rs.2,50,000/- was made along with interest and damages on account of mental torture and financial loss suffered by the complainant.

8. The appellant-Insurance Company resisted the claim of the complainant by filing a written reply. A preliminary objection was raised against the maintainability of the complaint on the ground that the policy had lapsed due to non-payment of premium within the prescribed period and hence, the complainant had no right to claim anything. The complaint was, therefore, liable to be dismissed. It was stated that deceased Ashok Kumar was insured with the Insurance Company. It was also admitted that the premium amount was paid to the Insurance Company on August 21, 1995 but the policy holder got the policy effected from a back date, i.e., from April 28, 1995. According to the Insurance Company, therefore, the next premium was due and payable after one year, i.e., on April 28, 1996. Giving benefit of grace period of one month, the premium amount was required to be paid latest by May 28, 1996. No premium, however, was paid on April 28, 1996 nor till May 28, 1996 and the policy lapsed. Since the deceased Ashok Kumar met with an accident on August 2, 1996, there was no subsisting policy in favor of the insured inasmuch as it lapsed on May 28, 1996, the Insurance Company could not be held liable and the complainant was not entitled to any amount.

9. The District Forum considered the rival contentions of the parties and held that the deceased was assured for Rs.50,000/- on August 21, 1995. It observed that no doubt the policy was back- dated to April 28, 1995, but as the premium was paid on August 21, 1995, next premium became due on August 21, 1996. Since Ashok Kumar met with an accident and died on August 2, 1996, the Insurance Company was liable. It accordingly awarded an amount of Rs.50,000/- with interest @ 12% p.a. and costs of Rs.500/-.

10. Being aggrieved by the order passed by the District Forum, both, the complainant as well as Insurance Company filed appeal before the State Commission. The grievance of the Insurance Company was that since the policy lapsed on April 28, 1996, it could not have been held liable for an accidental death of Ashok Kumar on August 2, 1996 and the District Forum had committed an error of law in holding the Insurance Company liable.

11. The grievance of the complainant, on the other hand, was that since Ashok Kumar died due to accidental death, as per the terms and conditions of the Policy, the complainant was entitled to a sum of Rs.2,50,000/- and the District Forum was in error in awarding Rs.50,000/- only. The State Commission heard both the appeals and dismissed them by a common judgment. The State Commission relied upon the decision of this Court in Life Insurance Corporation of India and Another v. Dharam Vir Anand, (1998) 7 SCC 348 : JT (1998) 7 SC 167.

12. The Insurance Company approached the National Commission against the orders passed by the Fora below. The National Commission, however, dismissed the Revision Petition by observing that concurrent findings had been recorded that the policy was subsisting and the Insurance Company was liable under the said policy. According to the National Commission, since the first premium was paid on August 21, 1995, the next premium was due on August 21, 1996.

OBSERVATIONS & DECISION OF APEX COURT

13. The counsel admitted that the first premium was paid on August 21, 1995, but in the proposal dated August 19, 1995, a request was made to make the policy effective with back date from April 28, 1995. The request was granted by the Insurance Company and the policy was issued. The period of policy was thus from April 28, 1995 to April 28, 1996. The counsel submitted that deposit/payment of premium amount was not at all relevant as the policy was for a period of one year from April 28, 1995. It was submitted that the next premium was due on April 28,1996 and the amount ought to have been paid. Grace period of one month was available to the insured and payment ought to have been made by May 28, 1996. It is not disputed even by the complainant, submitted the counsel, that no payment was made on or before May 28, 1996. The policy, therefore, lapsed on May 28, 1996. Since the assured died on August 2, 1996, the Insurance Company was not liable. It was also submitted that the ratio laid down in Dharam Vir Anand does not apply to the facts of the case.

14. The question for our consideration, therefore, is whether on August 2, 1996, the policy could be said to be valid and subsisting. If the reply is in affirmative, obviously, the complainant was entitled to the amount awarded. If, on the other hand, the policy lapsed, as contended by the Insurance Company, no claim could have been put forward by the complainant and the Insurance Company was right in rejecting the claim.

15. So far as the factual position is concerned, there is no dispute between the parties. Deceased Ashok Kumar was insured by the Insurance Company and the first premium was paid on August 21, 1995. At the request of the insured, however, the policy was back-dated with effect from April 28, 1995. In our opinion, therefore, the learned counsel for the Insurance Company is right in submitting that one year came to an end on April 28, 1996 and the insured was liable to pay premium on that date as it became due and payable. Taking into account grace period of one-month, premium amount ought to have been paid latest by May 28, 1996. Admittedly, no such payment was made either in April, 1996 or in May, 1996. We are impressed by the argument of the learned counsel for the Insurance Company that in the circumstances, the policy lapsed on May 28, 1996.

16. In this connection, it may be profitable to refer to the terms and conditions of the policy. The policy stated that the date of commencement was April 28, 1995 and the date of maturity would be April 28, 2010 as it was for a period of fifteen years. It is further stated that the policy of assurance "shall be subject to the conditions and privileges" printed on the back of the policy. On the back of the policy, those conditions and privileges have been printed. Condition 2 thereof, is material for our purpose and reads thus:

2. "Payment of premium: A grace period of one month i.e., not less than 30 days will be allowed for payment of yearly, half-yearly, or quarterly premiums and 15 days for monthly premiums. If death occurs within this period and before the payment of the premium then due, the Policy will be valid and the sum assured paid after deduction of the premium as also the unpaid premium/s falling due before the next anniversary of this Policy. If the premium is not paid before the expiry of the days of grace, the Policy lapses." (emphasis supplied)

From the above condition, it is abundantly clear that payment of premium due had to be made within a grace period of one month. If such payment was made within the said period, the policy would be treated as valid and the assured would be paid the amount to which he was entitled after deducting the premium amount. But it was also made clear that if the premium was not paid before the expiry of the days of grace, the policy would lapse.

As we have already observed hereinabove, the material date was not the date of deposit/payment of premium amount which was August 21, 1995, but the date of policy which was April 28, 1995. Since it was yearly, the payment was due on April 28, 1996, but the assured was entitled to grace period of one month up to May 28, 1996. Neither the premium was paid on April 28, 1996 nor on May 28, 1996. As per condition No. 2, policy lapsed on May 28, 1996. In the eye of law, there was no subsisting policy, on August 2, 1996. Insurance Company was, therefore, wholly justified in rejecting the claim of the complainant and no exception can be taken against such a decision.

17. The appeal is allowed to the extent indicated above. In the facts and circumstances of the case, however, there shall be no order as to costs.

CONCLUSION

It may be possible in various insurance policies that date of commencement of risk is decided with the mutual consent of insurer and the insured. If in any insurance policy the date of commencement of risk specifically decided and mentioned in the policy then that date will be taken for calculation of period of limitation or the date of lodgment of claim. In case of back dated policies the date of commencement of risk is the date back dated , as in the above case it was 28th April, 1995 and not the date of payment of the premium i.e., 21st August, 1995.