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Gokal Chand (Deceased) Thr. LRs vs. Axis Bank Ltd.

Civil Appeal · 2022 INSC 1287Decided 15 Dec 2022
Civil Appeal No. 9237 of 2022
K.M. Joseph · Hrishikesh Roy

Background

Gokal Chand took a home loan from Axis Bank, which required him to obtain life insurance from Max Life Insurance; the bank deducted the premium from the loan amount and paid it to the insurer on 25.7.2017. Gokal Chand underwent a medical (treadmill) test on 30.7.2017 that showed no abnormality, but died of cardiac arrest on 8.8.2017. Only after his family informed the bank of his death on 16.8.2017 did the insurer send an ante-dated letter (purportedly dated 3.8.2017) claiming the proposal was postponed for six months, and then unilaterally refunded the premium and later repudiated the claim. The State and National Consumer Commissions had both rejected the family's complaint.

Decision Breakdown

The Supreme Court found the insurer's conduct suspicious: the postponement letter, though backdated, was actually couriered only after the death was reported, and the medical test on which the postponement was supposedly based had shown normal results. Relying on its precedent in D. Srinivas vs. SBI Life Insurance, the Court held that once the insurer accepts the premium after a required medical examination, a presumption of a concluded insurance contract arises, and any rejection of the claim must follow the standards of good faith expected in insurance contracts. Since the insurer acted only after being informed of the death, issuing a backdated letter and refunding the premium as an afterthought, this amounted to bad faith and deficiency of service. The Court set aside the National Commission's order and directed the insurer to process and pay the claim.

Lesson Learnt

Once an insurer collects the premium and completes required formalities like a medical test, it cannot escape liability by manufacturing a backdated rejection letter after learning of the insured's death: insurance contracts demand utmost good faith from both sides, and courts will scrutinize the timeline closely when an insurer's conduct looks like an afterthought triggered by a death claim.

Official source (sci.gov.in)View Judgment (PDF)

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