LIC Agent Certified Cancer Patient's Health As 'Good' Without Meeting Him: Punjab & Haryana High Court Upholds Termination

"Respondents Have Failed To Establish That Petitioner Acted In Connivance With The Insured Or Played Any Fraud With The Corporation", In a finely balanced ruling that distinguishes between negligence and fraud in the context of an insurance agent's duties, the Punjab and Haryana High Court on March 16, 2026 upheld the termination of a Life Insurance Corporation of India agent who certified a 16-year-old cancer patient as healthy — but simultaneously directed LIC to release all withheld renewal commission to the agent, holding that mere negligence without proof of fraud or connivance cannot justify forfeiture of earned commission.

Justice Suvir Sehgal, partly allowing the petition filed by Lakhbir Singh, held that while the agent had clearly failed his statutory duty of inquiry under Regulation 8(2)(b) of the LIC (Agents) Regulations, 1972, LIC had not discharged its burden of proving fraud or collusion — the only ground on which renewal commission can be legally withheld under Regulation 19. The Court additionally directed removal of the stigma attached to the termination orders so as not to affect the petitioner's future prospects.

Background of the Case

Lakhbir Singh had been working as an LIC agent since 1992, accumulating approximately 700 policies with a total sum assured exceeding Rs. 6 crores over sixteen years of service and earning various club memberships. In December 2002, he recommended an insurance proposal for Harmandeep Singh, a 16-year-old boy, submitting an Agent's Confidential Report in which he certified that he had known the insured for the past one year and that the boy's general state of health was good. A policy of Rs. 1 lakh was issued with effect from November 28, 2002.

Thirteen days after issuance of the policy, the insured expired on December 23, 2002. LIC investigated the early death claim and repudiated it upon discovering that the young boy had in fact been suffering from sinonasal cancer, had undergone surgery at PGI Chandigarh in July-August 2000, and had been receiving cancer treatment at Mohan Das Oswal Cancer Hospital, Ludhiana for over two years prior to the proposal — a fact entirely unknown to the policy.

LIC issued a show cause notice to the petitioner in August 2008 under Regulation 16 of the 1972 Regulations. His reply was rejected and his agency was terminated by order dated December 31, 2008. An appeal was rejected in November 2018 and a memorial was dismissed in August 2019. Aggrieved by all three orders, the petitioner approached the High Court seeking quashing of the termination orders, restoration of his agency, and release of the forfeited renewal commission.

Legal Issues and Court's Observations

On Whether the Termination Was Justified

The Court examined Regulation 8(2)(b) of the 1972 Regulations, which expressly obliges an agent to make "all reasonable enquiries" with regard to the lives to be insured before recommending a proposal for acceptance, and to bring to LIC's notice any circumstance that may adversely affect the risk to be underwritten.

The Court found the petitioner's conduct squarely in breach of this duty. The Agent's Confidential Report, Annexure R-1, recorded the petitioner's personal satisfaction that the insured's general state of health was good. However, the insured had been suffering from cancer for nearly three years and had undergone surgery weeks before the proposal was submitted. The Court observed that "a visual examination of the insured would have clearly shown that he was ailing" — indicating that the certification was made without even a basic physical meeting with the proposed insured. The Court concluded that the petitioner had given the Confidential Report "without even meeting the insured" and had thereby failed to discharge the functions mandated under Regulation 8 of the 1972 Regulations. The termination was accordingly affirmed.

On Whether the Commission Could Be Withheld — The Crucial Distinction Between Negligence and Fraud

This formed the core legal question and the fulcrum of the Court's decision to grant partial relief. The Court turned its attention to Regulation 19 of the 1972 Regulations, which provides that upon termination of an agent's appointment — except for fraud — commission on premiums received in respect of business secured by the agent shall be paid to such agent, subject to specified conditions.

The Court noted a crucial fact that LIC had not been able to address satisfactorily: the insured boy had been medically examined by an authorized medical practitioner before the policy was issued. The doctor too had failed to detect the cancer — and yet no action had been taken against the medical practitioner. As the Court observed, "there is nothing on the record to show that any action has been taken against the medical practitioner, who examined the insured. It is not clear as to whether any criminal proceedings have been initiated or the doctor has been penalized by LIC."

The Court held that the entire blame could not be placed upon the petitioner's shoulders alone, particularly since the authorized medical examiner had also cleared the insured. Critically, LIC had failed to produce any material on record to demonstrate that the petitioner had acted in connivance with the insured or played any fraud upon the Corporation. The termination itself was not on the ground of fraud. Since Regulation 19 protects an agent's entitlement to renewal commission in all cases except fraud, and since no fraud was established, LIC's withholding of the commission was held to be legally impermissible.

On Restoration of Agency — The Contractual Relationship and Passage of Time

The petitioner had sought restoration of his agency along with setting aside of the termination. The Court declined this relief, relying on the principle settled by a coordinate bench of this Court in Shamsher Singh v. Life Insurance Corporation of India (CWP-13106-2007, decided February 16, 2024), which held that the relationship between an agent and LIC is contractual in nature, and that "there is no vested right to claim continuation of an agency especially when an employer does not intend to continue so."

The Court noted that the agency had been terminated as far back as December 31, 2008 — over seventeen years prior to the date of this judgment. After such an extended lapse of time, with LIC having lost confidence in the petitioner, restoring the agency would not be in the interest of the Corporation. The Court distinguished the petitioner's reliance on Gajender Yadav v. LIC, where the agency had been restored within six years of termination and where there had been no loss of faith.

On Removal of Stigma

In a humane and forward-looking gesture, the Court directed that the stigma attached to the impugned termination orders be removed, so that it does not adversely affect the future career prospects of the petitioner. Though the termination itself was upheld, the Court recognized that carrying the mark of a stigmatized order would unfairly penalize the petitioner beyond what was warranted by the facts of the case.

The Court partly allowed the writ petition. The termination of the petitioner's agency by the impugned orders of December 31, 2008, November 20, 2018 and August 20, 2019 was affirmed. However, the petitioner was held entitled to payment of all renewal commission on policies secured by him, along with arrears, to be disbursed within two months. The stigma attached to the impugned orders was directed to be removed.

The ruling sends an important signal to LIC and insurance regulators: the consequences of an agent's negligence and the consequences of an agent's fraud are not legally equivalent. Termination may follow from a serious dereliction of duty. But forfeiture of earned commission — money representing the agent's work on policies that had nothing to do with the delinquent transaction — requires proof of fraud or connivance, and that burden rests squarely on the Corporation.

Date of Decision: March 16, 2026