Insurance Law | Acceptance of Premium and Issuance of Receipt Signify Commencement of Insurance Coverage: Supreme Court Holds in LIC Dispute

In a landmark ruling, the Supreme Court has reinstated the orders of the District Forum and State Commission that were in favor of Mrs. Bhumikaben N. Modi & Ors., in their insurance claim dispute with Life Insurance Corporation of India (LIC). Justices A.S. Bopanna and C.T. Ravikumar overturned the National Consumer Disputes Redressal Commission’s (NCDRC) decision that had dismissed the appellants’ claims following the policyholder’s death.

The core legal issue addressed by the Supreme Court centered on whether the acceptance of a first premium by LIC, followed by the issuance of a policy receipt, established a binding insurance contract prior to the policyholder’s untimely death.

The dispute originated when Mr. Narender Kumar Kantilal Modi, the deceased, submitted his life insurance proposal and premium shortly before dying from an accidental electric shock. Although LIC issued an Acceptance-cum-First Premium Receipt, it later contested the policy’s validity, arguing that the formal acceptance of the proposal had not occurred before Mr. Modi’s death.

The Supreme Court scrutinized the sequence of events and documentary proofs, affirming that the initial forums had rightly determined the existence of a binding contract from the actions of LIC, which included the acknowledgment of premium payment and policy effectuation before Mr. Modi’s demise. The apex court criticized the NCDRC’s contrary decision, underscoring that LIC’s subsequent attempt to block the policy post-death was irrelevant to the contract’s validity.

Justice Ravikumar emphasized, “The issuance of a receipt and acceptance of the premium unequivocally placed the insurer on risk from that date, thereby binding them to the contract terms regardless of subsequent internal actions.”

Decision: By setting aside the NCDRC’s order, the Supreme Court directed LIC to adhere to the original favorable orders and settle the claims according to the policy terms within two months.

Date of Decision: May 8, 2024.

Mrs. Bhumikaben N. Modi & Ors. Vs. Life Insurance Corporation of India,