LIC of India v. Insure Policy Plus Services Pvt. Ltd. & Ors.
Background
Insure Policy Plus is a company that buys lapsed life insurance policies from policyholders and then takes over the policy as assignee, usually to trade it for profit. LIC refused to register such assignments, relying on circulars issued in 2003 and 2005 that treated this trading as wagering and against the purpose of life insurance. The company challenged the circulars in the High Court, which ruled in its favour, and LIC appealed to the Supreme Court.
Decision Breakdown
The Court dismissed LIC's appeal and upheld the High Court. It held that, under Section 38 of the Insurance Act, 1938 as it stood before the 2015 amendment, a life policy assignment made in the prescribed form and notified to the insurer had to be accepted, and the insurer had no discretion to refuse it. LIC's circulars, which effectively reversed that statutory right, were held ultra vires, meaning beyond the power of an insurer to make by internal instruction. The Court declined to import vague "public policy" arguments into a contract that LIC itself had drafted, and noted that the 2015 amendment, which gives insurers discretion, was not retrospective and protects earlier assignments.
Lesson Learnt
An insurer or regulator cannot override a statute through internal circulars, and a company's own policy rules cannot defeat a legal right the law already gives. For policyholders, the right to transfer a life policy depends on the law in force when the transfer was made, and a later amendment does not automatically change earlier transactions.