Denial Of Insurance Claim Justified In Case Death Occurs Before Commencement Of Risk Cover: NCDRC

Brief facts:

The complainants were the wife and minor son of Late Antony Issac who died on 05.11.2007. A loan was availed by Late Antony Issac and his wife under the SBT Home Loan Scheme of State Bank of Travancore (“Bank”) for Rs. 18,94,000 in order to purchase a flat in Thiruvananthapuram. A loan agreement was entered into among the bank, builders and complainants according to which the loan amounts were to be repaid in 180 installments of Rs. 21,715 per month. An initial sum of Rs. 11 lakhs was also paid by the bank to the builders.

Subsequently, Late Antony Issac (“insured person”) got himself insured under the Super Suraksha Home Loan Scheme by State Bank of India Life Insurance (“Insurer”) which was specifically for borrowers of the State Bank group. As per the insurance coverage, in case of death of the insured person, the entire loan amount would be paid using the insurance amount and the surplus amount will be paid to the nominee. After submitting the insurance form, the insured person and his wife inquired about the insurance proposal to which the bank responded that it has been forwarded to the Insurer with the premium amount. The insurance certificate was not received by the complainants and the policy number was also not disclosed. The bank and the insurer were bound to take action on the proposal within 15 days.

The policy certificate was finally issued on 09.10.2007 with a delay of 97 days. On 05.11.2007, the insured person died pursuant to which a claim was lodged with the insurer by the wife of the deceased insured person. On 14.03.2008, a letter was issued by the insurer repudiating the claim amount due to the reason that death occurred within 27 days from the date of commencement of the policy and as per the exclusion clause, if death occurs within 45 days from date of commencement of risk , the claim is liable to be rejected.

Aggrieved by the act of repudiation by the insurer, the complainants filed a complaint with the State Consumer Commission, Kerala which granted partial relief to the complainants. It was held by the State Commission that the amount which would have been due to the complainant as per the policy would be the loan amount released by the bank and not the entire amount of Rs. 18,94,000 paid by the complainants to the builders. Thus, the State Commission awarded an amount of Rs. 6,53,260 in favor of the complainants. Hence, the order of the State Commission was challenged by the complainants before the NCDRC.

Submissions of the complainants:

It was the contention of the complainants that the proposal form was sent on 31.07.2007 and the bank and the insurer were bound to take decision within 15 days. However, the insurance certificate was issued only on 09.10.2007 i.e after a delay of 97 days. The complainant submitted that a premium of Rs. 70,482 was remitted for a sum assured of Rs.18,94,000 fixed at the stage of proposal itself and the same was also admitted by the insurer.

It was argued that the bank is holding the loan amount as a trustee of the complainant and hence the benefit under the insurance policy has no bearing on the disbursal of loan amount to the builder. It was further argued that the gross delay in non-issuance of policy certificate along with loan sanction and non-payment of the entire sum assured under the policy constitutes 'deficiency in service'.

Submissions of the Bank:

The bank argued that the policy in question was not a 'life insurance policy' and the only purpose of the policy is to secure the interest of the bank. The interest of the bank is only the amount that is outstanding in the loan account of the insured person. Thus, the insured person cannot be a beneficiary of any amount which the bank cannot claim from the insurance company. It was further contended that the bank cannot be made liable for any delay in the issuance of the policy certificate.

The bank argued that the complainant was not the consumer of the bank for the purposes of insurance cover from SBI Life Insurance and thus, there is no deficiency in service by the bank. It was the specific contention of the bank that in any case, if the complainant could have been entitled to any "sum on the death of her husband”, it would have been the 'Sum Assured' under the Policy which is the outstanding home loan amount and not sanctioned home loan amount.

Submissions of the Insurer:

The insurer submitted that the policy came into effect only on 09.10.2007 and the insured person died on 05.11.2007 i.e within 27 days from the date of commencement of the policy. The insurer placed reliance on the exclusion clause in the policy to submit that since there is no risk cover during the first 45 days of the policy, the repudiation of claim was valid and well within the terms of the contract. It was further submitted that the exclusion clause will be inapplicable only when death occurs due to accident. However, in the present case, the death is natural and therefore, the complaint is not maintainable.

Observations by the Commission:

The bench, on an examination of the '45 days exclusion clause' stated as Condition No. 6 in the policy upheld the repudiation of claim by the insurer. It was observed that the insured person died within 27 days from the date of the policy coming into effect when the risk cover did not even commence. Hence the findings of the State Commission were upheld.

However, the order of the State Commission holding the bank and the insurer liable for delay in processing the proposal of the insured person and subsequent delay in issuance of insurance certificate was also upheld by the bench.

Thus, the well-reasoned order of the State Commission was not interfered with and the appeal was dismissed.

Case Title: Sophia & Anr. vs State Bank of Travancore & Anr.

Case Number: First Appeal No. 43/2012

Advocates for Appellants: Shyam Pdman, with Jaimon Andrews, Piyo Harold Jaimon and Aswati Shyam

Advocates for the Bank: Ritesh Khare, Siddharth Sangal, Saksha Jha and Namrat Chandorkar

Advocates for the Insurer: Bharat Malhotra and Taksh Suri

Date of Judgment: 29.04.2025