Individual Assignment

“Case Study”

Submitted to: Submitted by:

Prof. Manoj Kumar Pandey Akshay Jain
Faculty Mentor, BIMTECH 24IN604
Life Insurance Corporation of India vs.
Sunita (LL 2021 SC 617)

1. Reason for Dispute

The dispute arose when Sunita, the respondent, filed a claim for the Accident Benefit Sum Assured
following the death of her husband, Pradeep Kumar. LIC paid the basic sum assured of ₹3,75,000 but
denied the additional accident benefit of ₹3,75,000, citing that the policy had lapsed due to non-
payment of the premium due on 14th October 2011. Pradeep Kumar had met with an accident on 6th
March 2012 and subsequently paid the overdue premium on 9th March 2012 without informing LIC
about the accident. He succumbed to his injuries on 21st March 2012. LIC contended that the policy
was not in force at the time of the accident, and the revival was done without disclosure of the
material fact of the accident.

2. Rules, Regulations, or Acts Violated

 Principle of Utmost Good Faith: Insurance contracts require complete honesty and the
insured's disclosure of all material facts. Failure to disclose significant information, such as an
accident before policy revival, violates this principle.
 Conditions No. 11 Violated: The Accident Benefit Sum Assured (ABSA) will only be paid if
the policy is active at the time of the accident. This means that if the policy has lapsed due to
non-payment of premiums and an accident occurs during that period, no accident benefit will
be paid, even if the policy is later revived.
 Section 45: The policyholder did not inform LIC about the accident when reviving the policy,
violating the duty of full disclosure.

3. Summary of the Case

Pradeep Kumar purchased a life insurance policy from the Life Insurance Corporation of India (LIC)
under the Jeevan Suraksha Yojana on April 14, 2011, providing a sum assured of ₹3,75,000 and an
additional accident benefit of the same amount. He failed to pay the premium due on October 14,
2011, causing the policy to lapse.
On March 6, 2012, Pradeep was involved in an accident and sustained serious injuries. He paid the
overdue premium on March 9, 2012, without informing LIC about the accident. Unfortunately, he
died from his injuries on March 21, 2012. Sunita, his nominee, filed a claim. LIC paid the ₹3,75,000
sum assured but denied the accident benefit, stating the policy was not in force at the time of the
accident.
Sunita challenged LIC's decision at the District Consumer Disputes Redressal Forum, which ruled in
her favour. However, the State Consumer Disputes Redressal Commission (SCDRC) overturned this,
citing the failure to disclose the accident. Sunita then appealed to the National Consumer Disputes
Redressal Commission (NCDRC), which reinstated her claim.
LIC took the case to the Supreme Court of India, which ruled that the policy had lapsed due to non-
payment and was not in force during the accident. The Court stated that reviving the policy without
disclosing the accident violated the principle of utmost good faith. Consequently, the Supreme Court
ruled in favour of LIC, denying Sunita the accident benefit. This judgment highlighted the importance
of timely premium payments and transparent disclosure in insurance contracts.

4. Decisions of the Judges from Each Level of Court in Detail

1. District Consumer Disputes Redressal Forum:
a. Decision: Ruled in favour of Sunita, directing LIC to pay the accident benefit.
b. Reason: The District Consumer Forum ruled in favour of Sunita, reasoning that LIC’s
Ready Reckoner guidelines stated that if a lapsed policy is revived, all benefits,
including accident benefits, should be reinstated. Since Pradeep Kumar paid the
overdue premium on March 9, 2012, after the accident, the court viewed the revival
as restoring all policy benefits without considering whether the accident happened
before or after the revival. As a result, LIC was ordered to pay ₹3,75,000 as accident
benefit.
2. State Consumer Disputes Redressal Commission:
a. Decision: Reversed the District Forum's order, siding with LIC.
b. Reason: Stating that as per Condition No. 11, accident benefits are payable only if the
policy is in force at the time of the accident. Since the policy had lapsed before the
accident on March 6, 2012, and was revived only on March 9, 2012, the court held
that revival could not retroactively restore accident benefits. It strictly followed the
policy terms, ruling that Sunita was not eligible for the claim.
3. National Consumer Disputes Redressal Commission (NCDRC):
a. Decision: Set aside the State Commission's order, reinstating the District Forum's
directive for LIC to pay the accident benefit.
b. Reason: The court reasoned that since LIC accepted the revival premium without
objection, all benefits, including accident benefits, should be restored. Emphasizing a
consumer-friendly approach, it stated that claims shouldn't be denied on technical
grounds if the policy was revived. Ultimately, it ruled that LIC must honor Sunita's
claim, as her husband paid the revival premium before his death, leading to an order
for LIC to pay the accident benefit.t.
4. Supreme Court of India:
a. Decision: Ruled in favor of LIC (Accident benefit denied, LIC not liable to pay)
b. Reason: The Supreme Court ruled in favor of LIC, emphasizing that insurance
contracts must be strictly followed. The court found that since the accident occurred
after the policy had lapsed and Pradeep Kumar did not inform LIC of the accident
while reviving the policy, accident benefits could not be claimed. According to
Condition No. 11, benefits are only payable if the policy was active at the time of the
accident. Thus, the court rejected Sunita's claim and established a precedent that
reviving a policy does not reinstate eligibility for past claims.
5. Opinion
Sunita is not eligible for the accidental benefit claim due to several contract and regulatory violations.
The main reason is that the insurance policy lapsed before her husband's accident on March 6, 2012,
because the premium was not paid in October 2011. Since the accident happened during the lapse
period, the Accident Benefit Sum Assured (ABSA) does not apply. According to Condition No. 11
of the policy, the policy must be active at the time of the accident for the benefit to be paid.

However, Sunita can receive the basic sum assured because Pradeep Kumar passed away after the
policy was revived on March 9, 2012. Reviving the policy restored the basic insurance coverage, but
it does not cover accidents that occurred while the policy was lapsed.

Under Section 45 of the Insurance Act, 1938, an insurance policy can be challenged within three
years of issuance, risk commencement, revival, or rider addition if there is misrepresentation or
suppression of material facts. In this case, Sunita did not inform the insurer about her husband’s
accident when reviving the policy, which goes against the principle of utmost good faith.

Another critical issue is that accidental death benefits apply only when the insured dies due to a
sudden accident occurring while the policy is in force. Since Pradeep Kumar succumbed to his
injuries 15 days after the accident, it does not qualify as an instantaneous accidental death, further
disqualifying the claim under the accident benefit rider’s terms.

The Supreme Court supported the insurance company’s decision, stating that revival does not apply to
accidents that occurred during the lapse period. Additionally, Sunita's failure to disclose important
information when reviving the policy gives the company the right to reject her accident benefit claim.