Contract prevails over circular
Deepak Rajmal Kothari had taken Life Insurance Corporation of India’s (LIC’s) Jeevan Saral Policy (with profits) from its Udhna Branch. It stipulated the maturity sum assured as ~2.5 million, death benefit as ~394,900, and accident benefit as ~1.5 million. The tenure was 11 years, from March 28, 2004, to March 28, 2015. The annual premium was ~124,100.
Over a period of 11 years, Kothari paid a total premium of ~1.4 million. When the policy matured, LIC did not pay the maturity amount of ~2.5 million. Instead paid him ~394,000, along with profit/loyalty of ~167,832. When Kothari sent a representation to the LIC's branch office as well as the head office in Mumbai, the corporation claimed that the figures had got interchanged due to a typographical error. The corporation then issued a circular dated July 27, 2015, directing all its offices to retrospectively correct all the Jeevan Saral
Policies issued from 2003 onwards.
Kothari filed a complaint before the Maharashtra State Commission. LIC argued that the claim had been properly settled, and accused Kothari of trying to take unfair advantage of a typographical mistake. It relied on its internal circular of July 27, 2015, directing the correction of mass scale discrepancies in the Jeevan Saral Policy issued right from 2003 onwards till 2015. While rejecting LIC's contentions, the Commission observed that during the 11 year-tenure of the policy, LIC had never mentioned this mistake. Even when the policy was sent for a change in nomination, it remained with LIC for 10 days and was sent back without any change in the coverage benefits. It was only on maturity when the claim was lodged, LIC tried to renege out of its contractual obligation by saying that there was a typographical error.
Even in its July 27, 2015 circular, it did not indicate any typographical error, but called it a discrepancy. Relying on the Supreme Court's decision in United India Insurance vs MKJ Corporation that a contract of insurance would prevail over any internal circulars or statutory guidelines, the State Commission held that LIC's circular could not deprive the insured of getting the maturity value stated in the contract.
Accordingly, by its order of June 6, 2018, delivered by Usha Thakare for the Bench along with PB Joshi, the Maharashtra State Commission concluded that LIC could not be allowed to avoid its contractual liability. If this were permitted, it would violate the sanctity of any contract at any point of time at the whims and fancies of one of the parties. Hence, LIC was directed to pay the maturity value of ~2.5 million stated in the policy along with profits/loyalty of ~167,832, totalling ~2,667,832, together with 9 per cent interest from the date of maturity. Also, ~25,000 was awarded as compensation and ~25,000 towards litigation costs.
An insurer cannot change the contract by issuing circular and depriving the customer of stated benefits