In a significant ruling, the District Consumer Dispute Redressal Commission (Central District), New Delhi, has ordered the Life Insurance Corporation of India (LIC) and the Municipal Corporation of Delhi (MCD) to pay insurance claims along with compensation to the family of a deceased policyholder. The case, Santosh Devi & Anr. vs. Life Insurance Corporation of India & Anr. (CC No. 259 of 2017), was presided over by Inder Jeet Singh (President) and Rashmi Bansal (Member). The court’s decision emphasized the duty of employers to ensure proper premium deduction under the Salary Saving Scheme (SSS) and clarified the liability of insurers in case of communication failures.
Background of the Case
The complainants, Santosh Devi and her daughter, K.M. Tanushree, filed a complaint alleging a deficiency in services by LIC and MCD. The deceased, Joginder Kumar, was employed as a Safai Karamchari with the MCD and had enrolled in three LIC policies under the Salary Saving Scheme. The policies were initiated in 2014 and 2016, with Santosh Devi and Tanushree listed as beneficiaries.
Following Joginder Kumar’s death in October 2016, LIC settled one policy amounting to ₹2 lakh but denied claims under two other policies with sums insured at ₹1.6 lakh and ₹3.2 lakh. LIC cited non-payment of premiums for several months during 2014 and 2015, leading to the lapse of the policies.
Legal Issues Involved
The central legal question was whether LIC could deny the claim due to non-payment of premiums that were supposed to be deducted by the employer (MCD) under the SSS. The complainants contended that the lapse in premium payment was not their fault but resulted from the employer’s failure to deduct and remit the premiums.
The complainants argued that:
– The employer was solely responsible for premium deductions under the SSS.
– LIC had not communicated the lapse in premium payments directly to the insured.
– The denial of claims violated the principles laid down by the Supreme Court in Delhi Electric Supply Undertaking vs. Basanti Devi and Chairman, LIC vs. Rajiv Kumar Bhasker.
LIC, in its defence, claimed that the policies had lapsed due to non-payment of premiums and that it had no further liability. The insurer also argued that the insured had undertaken responsibility for timely premium payments.
Court’s Decision and Observations
The Commission found both LIC and MCD jointly liable for failing to ensure regular premium deductions under the SSS. The judges emphasized that:
– “The contract was between LIC and MCD; the insured was unaware of their internal working under the Salary Saving Scheme.”
– The responsibility to ensure regular premium deductions rested with the employer (MCD), while LIC had the duty to notify policyholders of any lapses.
– The employer acts as an agent of LIC for the purpose of premium deductions under the SSS, as per the principles established under the Indian Contract Act, 1872.
The court observed that the employer’s failure to deduct and remit premiums, combined with LIC’s failure to notify the insured, constituted a clear deficiency in service. It stated:
– “The entire responsibility lies with LIC to raise the demand, and with MCD to pay the same. Therefore, it is not permissible for LIC and MCD to deny benefits under the policies.”
Compensation Awarded
The court ordered LIC and MCD to:
1. Pay ₹1.6 lakh to Santosh Devi and ₹3.2 lakh to K.M. Tanushree with interest at 6% per annum from October 13, 2016, until realization.
2. Provide additional compensation of ₹40,000 each for mental agony, harassment, and inconvenience caused by the denial of claims.
3. Cover litigation expenses amounting to ₹20,000.
The order also imposed a penalty of 9% per annum interest on the claim amount if not settled within 45 days.
