Insurance Policy Effective From Date Of Issuance, Not From Date Of Proposal Or Date Of Issuance Of Receipt: Supreme Court

In the context of insurance protection, the Supreme Court held that the policy issuance date would be the relevant date for all purposes.

The issue before the Court was what would be the date from which the policy becomes effective; whether it would be the date on which the policy is issued or the date of the commencement mentioned in the policy, or it would be the date of the issuance of the deposit receipt or cover note.

The Court held:

“In the present appeals, we do not find any such issue of backdating but the date of issuance of the policy would be the relevant date for all the purposes and not the date of proposal or the date of issuance of the receipt.,” observed Justices Vikram Nath and Justice Rajesh Bindal

While holding so, the Court rejected the view taken by the Consumer forums that the date of issuance of the initial deposit receipt of premium is the date of commencement of the Policy. 

In its judgment, the Court also explained that the date of proposal cannot be treated as the date of policy unless there is an initial deposit. It also clarified that merely tendering a cheque (for the deposit) may not be enough.

“The date of proposal cannot be treated to be the date of policy until and unless on the date of proposal, initial deposit as also the issuance of policy happens on the same date where, for example, the premium is paid in cash then, immediately, the policy could be issued. Merely, tendering a cheque may not be enough as till such time the cheque is encashed, the contract would not become effective. The drawer of the cheque may, at any time, after issuing, stop its payment or there may not be enough funds in the account of which the cheque is issued and there could be many other reasons for which the cheque could be returned without being encashed.”

Under adjudication were two sets of appeals wherein the life assured had committed suicide. The District Forum, State Commission, and National Commission held that the appellant (Reliance Life Insurance Company Limited) is liable to pay the amount of the sum assured on the death of the assured. Against this backdrop, the matter travelled to the Supreme Court.

At the outset, the Court examined clause 9 of the Policy conditions and privileges and the terms and conditions. The same states:

“9. Suicide: The Company will not pay any claim on death if the Life Assured, whether sane or insane, commits suicide within 12 months from the date of issue of this Policy or the date of any reinstatement of this Policy.”

Basis this, the Court observed:

“Once it is mentioned in the Policy that the 12 months period is to commence from the date of the issuance of the policy or the date of any reinstatement of the policy, the reinstatement aspect ought to have been considered.”

The Court derived its strength from several precedents, including Life Insurance Corpn. of India vs. Mani Ram. Therein, it was held that the date of issue of policy would be the relevant date even if there was backdating.

In view of these facts and circumstances, the Court made the above-mentioned observations while setting aside the impugned order.

Case Title: RELIANCE LIFE INSURANCE COMPANY LTD vs. JAYA WADHWANI., Diary No.- 12162 - 2019

Citation : 2024 LiveLaw (SC) 19

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