SC Asks Max Life Insurance To Settle Home Loan Insurance Claim for Which It Accepted Premium before Death of Insured
Moneylife Digital Team 31 December 2022
Coming down heavily on Max Life Insurance Corp for postponing insurance for six months after accepting the premium before the death of the insured, the Supreme Court asked the insurer to pay home loan insurance money to the family of the borrower. The apex court also dismissed orders passed by the National Consumer Disputes Redressal Commission (NCDRC) and Haryana State Consumer Disputes Redressal Commission. In this case, the insured died of a heart attack 15 days after paying premium mandated by Axis Bank for a home loan. A week before his death, he also cleared a treadmill test (TMT) for the life insurance policy.  
In an order issued on 15 December 2022, the bench of justice KM Joseph and justice Hrishikesh Roy says, "The case at hand shows clear malafide on the part of Max Life Insurance in the manner they dealt with the insurance policy, after learning of the death of the insured person on intimation from the affected persons. The way the issue was addressed by Max Life Insurance following the information conveyed does fail, in our opinion, the test of reasonable conduct. On top of that, to cover up their late reaction, most tellingly, the ante-dated letter under the garb of an unfounded medical reason was dispatched. These, in our opinion, amount to a clear case of deficiency of service and non-bonafide conduct by Max Life Insurance. The contrary finding in the impugned order (of NCDRC) do not pass our judicial scrutiny."
The case is related to the death of Haryana-based Gokal Chand after obtaining a home loan from Axis Bank and paying a premium to Max Life Insurance for life insurance as mandated by the lender.  
Mr Chand obtained a home loan of Rs70.99 lakh from Axis Bank. As mandated by Axis Bank, he accepted the life insurance provided by Max Life Insurance. On the same day, the loan was disbursed, and Rs6.24 lakh was paid as an insurance premium to Max Life Insurance by Axis Bank from the loan amount. 
Mr Chand had undergone a TMT on 30 July 2017 as a pre-condition for life insurance and securing the home loan. However, soon after that, he died of cardiac arrest on 8 August 2017. Max Life Insurance refused to settle the loan account when the insurance claim was made. Mr Chand's wife filed a complaint with the Haryana state consumer disputes redressal commission and approached  NCDRC. However, observing "there was no privity of contract between the insurer and the insured," the consumer commission dismissed the complaint. 
During the hearing before the apex court, Ms Chand contended that when the medical or treadmill test result of Mr Chand was normal, there was no reason to either postpone or reject the insurance policy when the payable premium was ascertained and debited by the Bank to the insurance company. She argued that the act of the insurance company was an afterthought triggered only after the intimation of death and a request for processing the claim. "Moreover, such an action was unreasonable, which would amount to malafide action."
In its submission, Max Life Insurance says the proposal was postponed by six months, and eventually, the policy was declined. It says it refunded the premium sum to the Bank with intimation to the appellant (Mr Chand); therefore, no concluded life insurance policy existed in this case. "...unless the acceptance of the proposal leads to the issuance of an insurance policy, there can be no relationship of the insurer and the insured for a valid claim," the insurer contended.
Supporting the stand of the insurance company, Axis Bank submitted that it forwarded the proposal to Max Life Insurance well before Mr Chand died. It says it had already remitted the payable insurance premium; therefore, it cannot be said to be deficient in rendering service to Ms Chand or Mr Chand.
After hearing all parties, the SC bench observed that the reason for the postponement is surprisingly shown as a treadmill test finding, although no abnormality was detected in the said test report. "Yet, the insurance company dispatched an antedated letter (written after getting intimation about the death of the insured), informing about six months postponement of the proposal."
"...the insurance company hurriedly dispatched the ante-dated letter, purporting to postpone the proposal, only after getting information about the death of Gokal Chand on 16 August 2017. Interestingly, even in this first ante-dated communication of the insurance company, there was no mention of rejection of the proposal or refund of the insurance premium (Rs6,24,172), remitted by the bank to the insurance company on 25 July 2017, i.e., the date when the loan amount was sanctioned."
The apex court observed that it was a prerequisite for the home loan borrower to obtain life insurance coverage, and the records show that the loan amount was sanctioned on 25 July 2017. "On that very day, Rs6,24,172 was remitted towards insurance premium by the bank to the insurance company. This would suggest that all the requirements for the policy as prescribed by the insurance company were satisfied at that stage," it says.
The insurance company, however, contended that there was no binding life insurance contract between it and Mr Chand.
On 30 July 2017, the bench says that Mr Chand, the insured, was called for a medical examination and his treadmill test did not flag any health issue.
"In such backdrop, the communication of the insurance company for postponing the life insurance coverage by six months by adverting to the treadmill test report and that too at a stage after intimation about the death of the insured to the respondents appears to be a malafide act. Moreover, the decision by the insurance company declining the policy by unilaterally refunding the insurance premium in the given circumstances would suggest that Max Life Insurance was deficient in rendering services to the appellant."
According to the SC, what needed to be focused upon in the interest of justice, is the trigger and surrounding circumstances which led to the rejection of the proposal by the insurance company. 
In that light, it says, "the conduct of Max Life Insurance cannot be countenanced against the good faith standards that an insurance contract warrants." 
In this case, the precondition for the home loan, as stipulated by Axis Bank, was that the life of the borrower would have to be insured. Only after assessment of the applicant's credentials was the loan approved. When the loan amount was sanctioned, the premium amount was kept aside and credited to the insurance company, and the insured was subjected to a medical test that showed normal health status. 
"Thus, the premium was accepted and retained for the life insurance and no change of this position was found necessary even after the treadmill test result of the insured. This entire procedure would suggest, at least from the insurer's perspective, that the insurance process was complete and all mandatory requirements were met. Significantly, there was no contrary communication by Max Life Insurance indicating otherwise as well. Moreover, when the death information was conveyed to the respondents, most surprisingly, that was the trigger that led to the insurance company to issue a back-dated letter deferring the insurance process, which was followed by a refund of the premium a few days later, and then the repudiation after that," the apex court says.
While setting aside orders passed by the consumer commission, the SC asked Max Life Insurance to process the insurance claim and remit the payable sum.
(Civil Appeal No._ of 2022 (Arising out of SLP (C) No14140 of 2020)  Date: 15 December 2022)
3 months ago
Hon. Supreme Court has given Very Good Judgement. The Insurance Companies are Very quick in accepting the premium pending Medical Tests etc. BUT once the premium has been accepted by the Insurance Company, the Liability against the Insured is established.
I and hundreds others have suffered at the hands of Birla Sunlife. Policy for which premium paid in Nov. 2007, was reduced to Zero, with no liability. The innumerable correspondence , all be different people and phones by different people from different locations , many by Registered Post brought in equal no. of responses, but all bogus.
Then through the District Forum, where I won the case, The Case extended by the Insurance Company by filing in the State Forum in 2014. The case met its end by refund of Rs. 5,70,000/- the sum paid in Mid 2022, that is after almost 15 years. When I had first posted on internet, there were Many Many cases posted, people lost Millions. All these cases need review.
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