Whether medical examination was compulsory for issuance of Policy to take place prior to accepting premium

D. SRINIVAS—Appellant

versus

SBI LIFE INSURANCE CO. LTD. & ORS.—Respondents

Civil Appeal No. 2216 of 2018—Decided on 16.2.2018

Date of Judgement: February 16, 2018

,

Whether medical examination was compulsory for issuance of Policy to take place prior to accepting premium, was the question before the Hon’ble Supreme Court Bench in view of the facts and circumstances of the case that the insurance company accepted the premium, waived the condition precedent of medical examination. In such circumstances the Respondent Insurance Company could not reject the claim on the ground that the medical examination of insurer was not done and  the Contract of Insurance was not complete.

 

Brief Facts of the case:Consumer, his wife and son Mr. D. Venugopal had obtained a housing loan of Rs.30,00,000/- from Life Insurance Company for construction of a house in Hyderabad. The proposal was accompanied by good health declaration by the insured. D. Venugopal expired in 2009. Consequently, the said life insurance obtained in his name came into force, obligating the insurer to pay the outstanding amount in their loan account. The consumer approached the insurer and the bank informing them about the demise of D. Venugopal and requested them to settle the insurance claim and to discharge the outstanding loan amount in their house loan account. Since the insurer did not accede to his request, he filed a consumer complaint before the State Commission.

The insurer contested the complaint mainly on the ground that the proposal for the policy was not accepted as the insured did not present himself for medical examination in spite of repeated requests made by the insurer. Thus, the insurer pleaded no deficiency in service and denied its liability in connection with the payment to the insured. The State Commission allowed the complaint. However, the National Commission, by majority, allowed the appeal. Aggrieved by the National Commission’s order, the Appellant approached the Supreme Court

The respondents company  have contended that there is no concluded contract between the parties. Therefore, the insurer was not bound to discharge loan merely on the ground of receipt of premium for issuing policy. The deceased did not appear for medical examination. Therefore, the policy could not be completed on receipt of the death intimation.

The Supreme Court in the case allowed the appeal and made the following observations:

·         That facts and circumstances indicate that the insurer was only trying to get out of the bargain, which they had willfully accepted. Thus, the Policy was accepted by the Insurer.In the instant case there was a complete contract as there was clear presumption of the acceptance of the proposal in favour of the proposer

·         The specific condition in the policy was that in case the loan amount exceeds Rs.7.5 lacs the medical examination was compulsory. That if the medical examination was compulsory for such cases it should have been done along with filing of the proposal form before the payment of the premium. If the proposal was not accepted for any reason the premium would have been credited to the account of the proposer. The premium has not been refunded. From this, it is clear that the insurance company had not rejected the proposal.

·         It is further part of the scheme of the policy that in the case of joint housing loan the full loan amount will be insured even if the policy is issued in the name of only one loanee. In this case, the insured was D. Venugopal son of the appellant, whereas the loan is the joint loan in the name of the appellant, his son – the insured and wife of the appellant.

·         That the insurance contract being a contract of utmost good faith, is a two-way door. The standards of conduct as expected under the utmost good faith obligation should be met by either party to such contract.

·         That in the instant case the condition precedent for acceptance of the premium was the medical examination. It would be logical for the insurance company  to accept the premium based on the medical examination and not otherwise. Therefore, by the very fact that they accepted the premium waived the condition precedent of medical examination.

·         That the rejection of the policy must be made in a reasonable time so as to be fair and in consonance with the good faith standards. In the case, it could not be held that such enormous delay was reasonable.With reference to the facts of the present case, the Court remarked that the premium was paid in 2008. That it was only in 2011 that the respondent insurance company informed the appellant that the policy was not accepted by them.

 

 Dr Prem Lata

 

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