Supreme Court Restores LIC Liability After Holding Insurance Contract Was Concluded Before Policyholder's Death

In Mrs. Bhumikaben N. Modi & Ors. v. Life Insurance Corporation of India (2024 Latest Caselaw 317 SC), the Supreme Court restored the compensation awarded to the legal heirs of a deceased policyholder after holding that LIC had accepted the insurance proposal before his death. The Court ruled that the surrounding circumstances clearly established a concluded insurance contract and that the National Consumer Disputes Redressal Commission (NCDRC) had exceeded its limited revisional jurisdiction in overturning concurrent findings of the consumer forums.

The deceased submitted a proposal for a life insurance policy, paid the first premium by cheque, and was issued an Acceptance-cum-First Premium Receipt. Unfortunately, he died due to accidental electrocution before the policy document was formally delivered. LIC repudiated the claim, contending that the proposal had not been accepted before the policyholder's death and, therefore, no concluded contract of insurance existed. The District Consumer Forum allowed the complaint and directed LIC to pay the policy benefits. The State Commission affirmed the order. However, the NCDRC reversed these concurrent findings in revision and dismissed the complaint, while directing LIC to pay ₹1 lakh on an ex gratia basis. The legal heirs challenged the NCDRC's order before the Supreme Court. 

Whether LIC had accepted the insurance proposal before the death of the proposer, thereby creating a concluded contract of insurance, and whether the NCDRC was justified in interfering with concurrent findings of the consumer forums in exercise of its revisional jurisdiction. 

The Supreme Court allowed the appeal and held that: •The Acceptance-cum-First Premium Receipt clearly indicated that LIC had accepted the proposal and assumed the risk from the specified date, subject only to cheque realisation. •The premium cheque had been honoured prior to the policyholder's death. •LIC had allotted a policy number, issued the premium receipt, prepared the policy documents and even paid commission to its insurance agent, all of which demonstrated acceptance of the proposal. •The surrounding circumstances gave rise to a clear presumption that the insurance contract had been concluded before the policyholder's death. •The NCDRC incorrectly relied upon LIC v. Raja Vasireddy Komalavalli Kamba without appreciating the later decision in D. Srinivas v. SBI Life Insurance Co. Ltd., which recognised that acceptance may be inferred from the insurer's conduct and surrounding circumstances. •The NCDRC exceeded its limited revisional jurisdiction under Section 21(b) of the Consumer Protection Act, 1986 by upsetting concurrent findings of fact without any jurisdictional error or material irregularity. •After dismissing the complaint, the NCDRC could not simultaneously direct payment of ₹1 lakh as ex gratia since such payment is voluntary and not enforceable as a legal right. 

The Supreme Court: •Allowed the appeal. •Set aside the NCDRC's order. •Restored the District Consumer Forum's order, as affirmed by the State Commission. •Directed LIC to pay the policy benefits together with the relief awarded by the consumer forums within two months. 

This judgment reinforces that the existence of a concluded insurance contract depends on the overall conduct of the insurer and the surrounding circumstances, rather than merely on the formal issuance of a policy document. It also reiterates the limited scope of the NCDRC's revisional jurisdiction and emphasises that concurrent factual findings of consumer forums should not ordinarily be disturbed unless they suffer from jurisdictional error or material irregularity.