Delhi High Court
Harbhajan Singh Bagga vs Life Insurance Corporation Of ... on 31 January, 2018
IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 31.01.2018
+ W.P.(C) 6945/2012
HARBHAJAN SINGH BAGGA ..... Petitioner
Versus
LIFE INSURANCE CORPORATION OF INDIA
AND ORS ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Ms Sagari Dhanda.
For the Respondents : Mr V.C. Mittal and Ms Suhani
Dhingra.
CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
VIBHU BAKHRU, J
1. The petitioner has filed the present petition, inter alia,
impugning a circular dated 26.07.2011 (hereafter „the impugned
circular‟) passed by the Life Insurance Corporation of India (hereafter
„the LIC‟).
2. The petitioner is aggrieved by the impugned circular inasmuch
as it clarifies that the procedure followed for payment of full maturity
claims under endowment type of policies, where the last year‟s
premium remains unpaid, would not be applicable to "Jeevan Shree
policies".
3. Admittedly, the procedure followed by the LIC for settling
claims under the endowment type of policies, where the last year‟s
premiums remains unpaid, is to pay the entire maturity amount after
deducting the last year‟s unpaid premium alongwith late fee/interest.
In this manner, the policyholder who has failed or neglected to pay the
last year‟s premium on the policy, is not deprived of the full maturity
amount and the unpaid premiums are recovered alongwith late fee. In
terms of the impugned circular, it was clarified that the said procedure
was not to be followed in case of „Jeevan Shree policies‟. In such
cases, the maturity amount would be settled on the reduced paid up
value and not on the full sum assured. According to the petitioner, this
is a material change in discharging the claims of the policyholders and
therefore can be applied only for the policies purchased after the issue
of the impugned circular and not in respect of the policy purchased by
the petitioner.
4. Briefly stated, the relevant facts necessary to address the present
controversy are as under:-
4.1 The petitioner had taken an insurance policy (Jeevan Shree
Policy - hereafter „the Policy‟) dated 05.01.1996 from the LIC in the
sum of ₹10,00,000/-. The maturity period of the Policy was fifteen
years; that is, the Policy would mature on 05.01.2011. The petitioner
was required to pay half yearly premiums of ₹58,782/- for a period of
10 years. Thus, in all, the petitioner was required to pay 20 tranches
of premium of ₹58,782/- each, over a period of 10 years.
4.2 The petitioner failed to pay the last premium of ₹58,782/-; in
other words, the petitioner paid nineteen instalments of half yearly
premiums of ₹58,782/- each but failed to pay the last premium.
4.3 On maturity, the LIC paid the sum of ₹10,21,201/- on
22.03.2011 by treating the value of the Policy as paid up to the extent
of ₹9,50,000/- after deducting the loan and interest taken by the
petitioner against the Policy. A tabular statement indicating the
calculation of the amount paid by the LIC is set out below:-
S.A./S.B. Amt/P.U. Rs. 9,50,000=00
Value of the policy
Vested Bonus Rs.7,12,500=00
Total Rs.16,62,500=00
Loan amount due Rs.5,88,348=00
against the policy as
on 22/03/2011
Interest due on loan Rs.52,951=00
amount
Total amount due Rs.6,41,299=00
with interest in loan
account
Balance paid as on Rs.10,21,201=00
22/03/2011
4.4 The petitioner claims that in terms of the Policy, he was also
entitled to certain guaranteed additions of ₹75/- per thousand per
annum. However, such additions were not paid to the petitioner in
entirety. In the circumstances, the petitioner made a representation
dated 04.07.2011 before the Claims Review Committee. Since the
petitioner did not receive any response to his representation, he filed a
complaint dated 26.12.2011 before the Insurance Ombudsman. The
said complaint was also dismissed by an order dated 06.07.2012. The
Insurance Ombudsman accepted the contention advanced by the LIC‟s
representative that the petitioner‟s claim was decided as per the
existing provisions and the impugned circular.
5. It is in the aforesaid backdrop that the petitioner has filed the
present petition, inter alia, challenging the impugned circular.
6. Ms Sagari Dhanda, the learned counsel appearing for the
petitioner referred to clause 4 of the Policy, which expressly provided
that the Policy would not be wholly void if at least three full year‟s
premium had been paid. She contended that in terms of clause 4 of
the policy, it could not be treated as void. She also relied upon the
LIC‟s Claims Manual in support of her contention that the petitioner
was entitled to full maturity amount after deduction of the amount of
last premium alongwith late fee / interest.
7. She also submitted that in a similar case - case of one Smt
Sangeeta Khera (Policy No. 372067394) - the claim of the
policyholder was settled in the manner as set out in the Claims Manual
and as canvassed by the petitioner. She stated that in that case, the
Zonal Office of the LIC at Bhopal had referred to the Claims Manual
and had opined that the unpaid premiums alongwith interest at the rate
of 12% per annum should be deducted from the maturity value and the
balance amount should be paid to the policyholder.
8. Mr V.C. Mittal, the learned counsel appearing for the LIC
countered the submissions made on behalf of the petitioner. He stated
that the petitioner had been given full credit for the premium paid by
him and the Policy was not treated void. He contended that the
guaranteed additions as accruing to the petitioner had also been paid
on pro-rata basis; however, the petitioner was not entitled to receive
the guaranteed additions accruing after the Policy had lapsed. Insofar
as the case of Ms Sangeeta Khera is concerned, he submitted that the
same was a "special case" and could not be treated as a precedent.
However, he was unable to point out any material difference between
the case of the petitioner and that of Ms Sangeeta Khera.
Reasoning and conclusion
9. The central issue that falls for consideration of this Court is
whether the petitioner is entitled to guaranteed additions as per the
policy after the petitioner had failed to pay the last half yearly
premium.
10. Before proceeding, it would be relevant to refer to the relevant
provisions of the Policy as relied upon by both the counsel. Clause 4
of the Policy, which provides for non-forfeiture in certain cases, is set
out below:-
"4). Non-Forfeiture Regulations: If after at least three
full years premiums have been duly paid in respect of
this policy, any subsequent premium be not duly paid,
this policy shall not be wholly void, but the sum assured
by it shall be reduced to such a sum as shall bear the
same ratio to the full sum assured as the number of
premiums actually paid shall bear to the actual number
originally stipulated in the policy. The policy so reduced
shall thereafter be free from all liability for payment of
the within mentioned premium, but shall not be entitled
to the future Guaranteed Additions. The existing vested
Guaranteed Additions, if any, will remain attached to the
reduced paid up policy.
Notwithstanding what is above stated, if after at least
three full years premiums have been paid in respect of
this policy, any subsequent premium be not only said to
the event of the death of the Life Assured within six
months from the due date of the first unpaid premium,
the policy moneys will be paid as if the policy had
remained in full force after deductions of (a) the
premium or premiums unpaid with interest thereon to the
date of death on the same terms as for revival of the
policy during such period and (b) the unpaid premium
being due before the next anniversary of the policy.
Notwithstanding what is above stated, if after at least
five full years premiums have been paid in respect of this
policy, any subsequent premium be not duly paid, in the
event of the death of the Life Assured within 12 months
from the due date of first unpaid premium, the policy
moneys will be paid as if the policy had remained in full
force after deduction of (a) the premium or premiums
unpaid with interest thereon to the date of death on the
same terms as for revival of the policy during such
period and (b) the unpaid premiums falling due before
the next anniversary of the Policy."
11. The Policy also contains the special provisions for guaranteed
additions, which are set out below:-
"Special provisions:
1) Guaranteed Additions: Provided the policy is in full
force, a Guaranteed Addition of Rs.75 per thousand Sum
Assured will be added to the policy at the end of each
policy anniversary and will be payable when the sum
assured become payable."
12. As is apparent from the plain language of clause 4 of the Policy
as quoted above, in the event three full year‟s premium has been paid,
the Policy would not be treated as void but the sum assured would be
proportionately reduced. In other words, the Policy would be treated to
be in force, albeit, with the reduced sum assured.
13. The Claims Manual also contains the similar clause except the
minimum premium payable is specified as 1/10th of the term. The
relevant extract of the Claims Manual is set out below:-
"If under Jeevan Shree (Table 112, 151, 162) policies,
premiums have been paid at least for 1/10th of the term
(subject to a minimum of one full year‟s premium) and
any subsequent premiums be not duly paid, the policy
shall not be wholly void but shall acquire paid-up value.
The paid-up value shall be worked out equal to a sum
that shall bear the same ratio to the full Sum Assured as
the number of premiums actually paid shall bear to the
total number originally stipulated in the Policy. Any
vested Guaranteed Additions shall also remain attached
to such Reduced Paid Up value. Such paid-up value shall
become payable on maturity or earlier death."
14. There is no dispute that the LIC has not treated the Policy in
question as void and also paid the guaranteed additions that had
accrued upto the date of default in payment of premium.
15. However, in so far as guaranteed additions post default in
payment of the last premium is concerned, the LIC disputes that the
same is payable. The LIC rests its case on clause 4 of the Policy,
which provides that in certain cases where all the premiums are not
paid but at least three or more premiums have been paid, the sum
assured by it shall be reduced to a sum as shall bear the same ratio to
the full sum assured as the number of premiums actually paid shall
bear to the actual number originally stipulated in the Policy. It also
provides that the Policy so reduced shall thereafter be free from all
liability for payment of within mentioned premium, but shall not be
entitled to the future guaranteed additions.
16. Thus, on a plain reading of clause 4 of the Policy, the petitioner
would not be entitled to future additions if the policyholder fails to pay
further premiums after making payment of at least three full years
premium. Clause (1) of Special Provisions also expressly provides that
guaranteed additions would accrue at the rate of ₹75/- per thousand
provided the Policy remains in full force. Clause (1) of the Special
Provisions also expressly provides that guaranteed additions would be
added "Provided the Policy remains in full force". Thus, on a plain
reading of the terms of the Policy, the guaranteed additions after the
petitioner has defaulted would not be payable.
17. The learned counsel appearing for the petitioner contended that
paragraph 3.4 of the Claims Manual contained certain special
provisions in respect of cases where the premiums in the last policy
year have not been paid. The relevant extracts of paragraphs 3.4 and
3.5 of the Claims Manual are set out below:-
"3.4 Where premium/s in the last policy year has/have
not been paid:
If any premium due in the last policy year has not
been paid but the policy was in full force on the policy
anniversary prior to the maturity date the claim should
be paid for the full sum assured subject to deduction of
unpaid premium/s for the last policy year together with
late fee up to the date of maturity.
3.5 Discounted Value of Claims:
(A) Except for a Double Endowment Policy and the
Pure Endowment policy, when an Endowment type of
policy is desired to be surrendered within a period of one
year before the date of maturity, the surrender
transaction, if and when settled before the date of
maturity, should be treated as a settlement of Maturity
claim, the amount payable being the amount at maturity
less discount at 5% / 9% p.a. compound interest using
surrender value Table 7 or 7A.
The following procedure should be followed in this
behalf.
xxxx xxxx xxxx xxxx
8) If the policy is in force but has not become fully paid
up and only one full year‟s or less than one full year‟s
premium (that is 1 yearly or 2 or 1 half yearly or 4 or
less quarterly or 12 or less monthly premiums) remain to
be paid to make the policy a fully paid-up one, such
unpaid premium/s should be taken as paid and the policy
treated as fully paid for the purpose of calculation of
discounted value in the last policy year. If the policy is
under With Profits Plan and becomes entitled to interim
bonus by virtue of its having been treated as fully paid
the amount of interim bonus, if any, is to be added to be
aggregate of full Sum Assured and the vested bonus and
then Surrender Value should be calculated by
discounting the total amount at the aforesaid rate. The
unpaid premiums which are taken as paid in order to
treat the policy as fully paid-up should be deducted from
the Discounted Value with interest or late fee on those
premiums which have fallen due and remain unpaid on
the date of settlement of the discounted value, in addition
to any other deductions, such as, the amount of
outstanding loan and interest thereon, indebtedness, etc.
if any."
18. Mr Mittal did not dispute that in terms of clause 3.4(A) of the
Claims Manual, the policyholder who has failed to pay the premium
for the last year (in whole or in part) of the Policy, would be entitled to
the full maturity amount less the unpaid premium and the applicable
late fee. He, however, stated that the provision of paragraph 3.4 of the
Claims Manual was not applicable to the petitioner as the Policy was
not an endowment type of policy. He stated that paragraph 3.4 of the
Claims Manual referred to the policies where the premium was
payable till the maturity. In other words, the premium paying term and
the term of the policy are the same. However, in the case of the said
policy, twenty half yearly premiums were to be paid for a period of ten
years and the said policy would mature five years later.
19. A plain reading of clause 3.4(A) of the Claims Manual indicates
that it is not strictly applicable. First of all, it provides for the
procedure for premature surrender of Policy and not computation of
the amount payable at maturity; and secondly, the clause does not
apply for Pure Endowment Policy.
20. However, it is material to note that Mr Mittal also did not
dispute that provisions of paragraph 3.4 of the Claims Manual had
been applied in case of policies similar to one provided to the
petitioner, prior to the issuance of the impugned circular.
21. In the case of Ms Sangeeta Khera, the policyholder had failed to
pay the last two quarterly installments. It is not disputed that her case
was referred to the Zonal Office at Bhopal. The affidavit filed on
behalf of the LIC in compliance of the orders passed by this Court on
02.03.2015 indicates that Smt Sangeeta Khera‟s case to be treated as a
"special case". However, it is not disputed that the provisions of
paragraph 3.4 of the Claims Manual had been applied in the case of
Smt Sangeeta Khera and the Central Zonal Office at Bhopal had
opined that the two unpaid premiums alongwith interest at the rate of
12% should be deducted from the maturity value and the claim should
be settled treating the policy as fully paid and the guaranteed additions
attached to the Policy should also be paid for the full term of the
Policy.
22. The petitioner had asserted that not only he was being deprived
of the guaranteed additions on the maturity value but he was also
being deprived of the pro-rata guaranteed additions on the premium
already paid. During the course of arguments, the learned counsel
appearing for the LIC had disputed the same. Plainly, if the LIC had
considered the policy to be fully paid albeit in the sum of ₹9,50,000/-
instead of ₹10,00,000/- and had provided the guaranteed additions on
the said basis, it would be equally equitable option as the procedure
followed in terms of paragraph 3.4 of the Claims Manual (that is, to
make the payment of the full maturity value of the Policy after
deducting the unpaid premium with interest).
23. The Executive Director of the LIC had also made an
unequivocal statement before this Court that "respondent no.1
corporation has paid to the petitioner not only the policy value but
also the guaranteed addition, albeit on a proportionate basis".
However, it transpires that this is not correct.
24. The petitioner has not been provided any guaranteed additions,
on a pro-rata basis on the premiums paid by the petitioner for the
period of five years, that is, the period after the premium paying
period had expired.
25. This Court had also called upon the LIC to furnish an affidavit
clearly indicating the amount that would be payable to the petitioner
had the petitioner‟s case been processed in the same manner as
Sangeeta Khera‟s case; that is, in terms of paragraph 3.4 of the Claims
Manual. The affidavit filed on behalf of the LIC in compliance with
the aforesaid directions indicated that the petitioner would have been
paid a sum of ₹6,22,676/- more than what was disbursed to the
petitioner. The tabular statement indicated the difference in the
calculations as set out in the affidavit filed on behalf of the LIC, which
is reproduced below:-
"
Particulars Amount computed as Amount actual
per Sangeeta Khera?s paid by the LIC as
case, as directed by per policy terms
Hon‟ble High Court and conditions.
Rs,
Sum Assured 10,00,000=00 09,50,000=00
Guaranteed 11,25,000=00 07,12,500=00
additions
Loyalty additions 02,50,000=00
Total 23,75,000=00 16,67,000=00
Less
Premium for the 00,58,782=00
half year 07/2005
to 01/2006
Interest on 00,31,042=00
premium up to
01/2011 i,e, up to
the date of
maturity
Loan amount due 05,88,348=00 05,88,348=00
Interest accrued on 00,52,951=00 00,52,951=00
loan
Total amount 07,31,123=00 06,41,299=00
deductible
Net amount 16,43,877=00 10,21,201=00
payable
Amount paid 10,21,201=00 10,21,201=00
Difference 06,22,676=00 Nil
"
26. Concededly, there is no difference in the case of the petitioner
and that of Smt Sangeeta Khera. Thus, the petitioner‟s grievance that
he has been discriminated against is understandable. However, given
the plain language of the Policy, it is not possible to accept that the
LIC has any obligation to pay guaranteed additions after the default in
payment of the last premium. As observed above, the provisions of the
Claims Manual that are relied upon by the petitioner are not
applicable. The fact that the LIC settled the claims in the case of Ms
Sangeeta Khera contrary to the terms of the Policy, does not entitle the
petitioner to claim higher amount than payable under the Policy.
27. The petition is, accordingly, dismissed. The parties are left to
bear their own costs.
VIBHU BAKHRU, J
JANUARY 31, 2018
RK
