The present case D. Srinivas Vs. SBI Life Insurance Co. Ltd. and Ors, decided by the supreme Court on 16th February 2018 . D. Srinivas (the Appellant) along with his wife and son obtained housing loan of Rs. 30, 00,000 in the month of September, 2008 from the SBI Life Insurance Co. Ltd. and Ors. for construction of a house in Hyderabad. On 29th September, 2008, a sum of Rs. 78,150 was debited from their loan account towards SBI Life Insurance Cover under Group Insurance Scheme for home loan borrowers, through master policy holder i.e. State Bank of Hyderabad, covering the Life of Mr. D. Venugopal, who was one of the joint loanees. The proposal form dated 29th September, 2008 was accompanied by good health declaration by the insured. D. Venugopal (son of Appellant) expired on 17th December, 2009 due to a massive heart attack. Consequently, the said life insurance obtained in his name came into force, obligating the insurer, the first Respondent herein, to pay the outstanding amount in their loan account. The Appellant 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. It was asserted that, the amount of premium of Rs. 78,150 was refunded by cheque dated 10.12.2008 to the State Bank of Hyderabad. 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 by its order. However, the National Commission, by majority, allowed the appeal and dismissed the complaint filed by D.Srinivas.
The proposer was willing to join the life insurance coverage from the SBI Life Insurance Co (Respondent insurance company) subject to his undertaking medical examination and for his willingness he authorized the bank to debit his account for payment of the premium. This clearly implies that, medical examination was to take place prior to the premium being debited from the bank account of the proposer. The specific condition in the policy is that in case the loan amount exceeds Rs. 7.5 lacs the medical examination was compulsory. 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 been refunded after 23rd February, 2011. From this, it is clear that the insurance company had not rejected the proposal before 23rd February, 2011.
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. As per the Clause, the condition precedent for acceptance of the premium was the medical examination. It would be logical for an underwriter 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.
It was an admitted fact that the premium was paid on 29th September, 2008. That it was only in 18th January, 2011 that, the Respondent insurance company informed the Appellant that the policy was not accepted by them. 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 this case, it cannot be held that such enormous delay was reasonable. Moreover, it is borne from the records that the premium was only re-paid on 24th February, 2011, after a delay of more than one year five months. The policy was accepted by the insurer.
In such circumstances, there is no reason to believe that, there was no complete contract. There is clear presumption of the acceptance of the proposal in favour of the proposer. Therefore, the majority view of the Commission would not sustain. The order of the National Commission was set aside and the order of the State Commission is restored. The Supreme Court therefore allowed the appeal.