Issuance Of First Premium Payment Receipt To Insured Would Provide Presumption Of Policy Acceptance By Insurer: Supreme Court

May 11,2024

In a recent decision concerning insurance law, the Supreme Court observed that the issuance of a receipt of the first premium payment by the insurer would provide a presumption of the acceptance of the policy by the insurer.

Reversing the findings of the National Consumer Dispute Redressal Commission (“NCDRC”), the bench comprising Justices AS Bopanna and CT Ravikumar, while interpreting the terms and conditions of the insurance contract, noted that the risk of the insured is deemed to be covered from the date of the issuance of the first premium amount receipt by the insurer.

In the instance case, the respondent/Life Insurance Corporation (“LIC”) denied the claim of the appellant’s husband/insured on the ground that the policy wouldn’t be deemed to come into force from the date of the issuance of the receipt towards the payment of the first premium amount.

However, the appellant contended that the policy would be deemed to be commenced from the date of the receipt of the first premium amount payment made to the LIC.

The uncontroversial fact was that the first premium towards the insurance policy was accepted and a duly signed receipt was issued by the LIC on 09.07.1996. The cheque issued by the appellant against the payment of the premium amount was encashed on 12.07.1996. The appellant’s husband died on 14.07.1996 and the policy was prepared on 15.07.1996.

Taking reference to the case of D. Srinivas v. SBI Life Insurance Co. Ltd. & Ors, the court framed a question as to whether issuance of receipt towards the first premium payment to the LIC would provide a presumption of the acceptance of the policy by the LIC.

Rather than strictly interpreting the terms and conditions of the contract, the Supreme Court in the D. Srinivas case laid down a flexible formula for the court to see whether there was a clear indication of acceptance of the insurance.

After noting that the LIC has not disputed the issuance of the First Premium Receipt carrying the assurance, the court while relying upon the dictum of D. Srinivas inclined to hold that there exists a presumption of acceptance of the policy by the LIC since the issuance of First Premium Receipt.

Source: Livelaw

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