In CIVIL APPEAL NO.35 OF 2024-SC- Date from which insurance policy becomes effective would be date of issuance of policy & not date of proposal or date of issuance of receipt, clarifies Apex Court
Justices Vikram Nath & Rajesh Bindal [03-01-2024]

Read Order: RELIANCE LIFE INSURANCE COMPANY LTD. & ANR v. JAYA WADHWANI & ANR

LE Correspondent

New Delhi, January 8, 2023: The Supreme Court has set aside the judgments of the District Consumer Disputes Redressal Forum, State Consumer Disputes Redressal Commission and National Commission whereby it was held that the date of issuance of the initial deposit receipt of premium was the date of commencement of the Policy.

The sole question, before the Division Bench of Justice Vikram Nath and Justice Rajesh Bindal, was as to what would be the date from which the policy becomes effective; whether it would be the date on which the policy is issued or the date of the commencement mentioned in the policy or it would be the date of the issuance of the deposit receipt or cover note.

The District Forum, State Commission and the National Commission had proceeded on the basis that the date of issuance of the initial deposit receipt of premium was the date of commencement of the Policy and had accordingly allowed the complaint filed by the respondent.

From the documents on record in the case of Usha Soni, the Bench found that that the first cheque was issued on 26.09.2012. The policy issuance and commencement date in the Policy is mentioned as 28.09.2012. Further, the next premium due was on 28.09.2013. Grace period was 30 days under Clause 1(iv) of the terms and conditions. Clause 5 mentioned that the policy would lapse and Clause 6 provided for reinstatement. However, since the renewal amount was not paid within the time allowed, the policy stood lapsed and subsequently, upon payment of the premium against the lapsed policy on 25.02.2014, the policy was reinstated from the said date. The life assured committed suicide on 03.06.2014, which was well within the period of 12 months.

After a perusal of the orders passed by the District Forum, the State Commission, and the National Commission, the Bench found that although clause 9 of the terms and conditions had been referred to but the aspect of reinstatement of a lapsed Policy had not been considered. They had wrongly taken the date of issue of policy only as the relevant date to count 12 months, i.e., from 28.09.2012.

“Once it is mentioned in the Policy that the 12 months period is to commence from the date of the issuance of the policy or the date of any reinstatement of the policy, the reinstatement aspect ought to have been considered. The date of reinstatement of the policy is clearly stated to be 25.02.2014 and that is also the date of commencement of policy, both the dates being the same. Thus, the date of incidence of suicide being 03.06.2014, it was well within 12 months”, the Bench held.

Coming to the case of Jaya Wadhwani, the proposal form was submitted on 14.07.2012 with respect to the cheque dated 13.07.2012 of the premium amount wherein also it was mentioned that the receipt was issued subject to the clearance of the cheque and further that the insurance protection shall only be provided effective from the date of acceptance of the risk, which happened on 16.07.2012, when the policy was issued and the date of commencement was notified to be the same date.

“14th July 2012, therefore, cannot be taken to be the date of issuance of policy. It is only the date of issue of receipt of the initial premium. The date of issue of policy being 16.07.2012 is actually the date from which the policy commences and becomes effective”, the Bench opined.

In the present case, period of 12 months from 16.07.2012 would complete on 15.07.2013. It would be the last day of 12 months as from the next day, i.e., 16.07.2013 the next month will start. Unfortunately, the incidence of suicide was on 15.07.2013, the last day of 12 months, the Top Court noticed.

The Bench said, “…the date of proposal cannot be treated to be the date of policy until and unless on the date of proposal, initial deposit as also the issuance of policy happens on the same date where, for example, the premium is paid in cash then, immediately, the policy could be issued. Merely, tendering a cheque may not be enough as till such time the cheque is encashed, the contract would not become effective. The drawer of the cheque may, at any time, after issuing, stop its payment or there may not be enough funds in the account of which the cheque is issued and there could be many other reasons for which the cheque could be returned without being encashed.”

The Bench also referred to Life Insurance Corporation of India and Another vs. Dharam Vir Anand [LQ/SC/1998/1016]  & Life Insurance Corpn. of India vs. Mani Ram [LQ/SC/2005/766] in order to reiterate that the date of issue of policy would be the relevant date even if there was backdating.

“In the present appeals, we do not find any such issue of back dating but the date of issuance of the policy would be the relevant date for all the purposes and not the date of proposal or the date of issuance of the receipt. In view of the above, the stand taken by the appellant is approved”, the Bench held while allowing the appeal.