Court’s Decision
The Kerala High Court, through Justice Mohammed Nias C.P., dismissed HDFC Life Insurance Company’s writ petition challenging the Insurance Ombudsman’s award directing the company to pay ₹1.4 crore with 8.75% interest to the widow of a deceased borrower insured under a housing loan-linked policy.
The Court ruled that failure to communicate non-acceptance of the insurance proposal within 15 days, as required under the Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests) Regulations, 2017, fastens liability on the insurer. The Court held:
“The insurer cannot remain silent during the proposer’s lifetime and later defeat the claim by raising a plea of non-acceptance after death. Such a course cannot be countenanced.”
It found that HDFC Life’s prolonged retention of the premium for over two years without issuing the policy or refunding the amount constituted a violation of statutory duty and a breach of utmost good faith, thereby upholding the Ombudsman’s direction to honour the claim.
Facts
The insured, a borrower from HDFC Bank, had availed a housing loan of ₹1.73 crore in November 2018. To secure the loan, he took two life insurance policies from HDFC Life Insurance Company, as required by the bank. The premium amounts were financed through a separate loan of ₹2,07,931.
- Policy 1 (No. 20910176) had a sum assured of ₹30 lakh.
- Policy 2 (Proposal No. 20924808) was for ₹1.40 crore.
Both premiums were debited directly from the borrower’s loan account. While the first policy was issued, HDFC Life failed to issue the second policy, despite collecting the full premium.
The insured died on 11 April 2021 due to COVID-19. His widow (the respondent) submitted claims for both policies. The company honoured the ₹30 lakh policy but rejected the ₹1.4 crore claim, citing that the second policy was never finalized due to non-completion of medical examination.
The insurer later offered to refund ₹57,931, claiming the proposal was withdrawn for want of underwriting requirements. Dissatisfied, the widow approached the Insurance Ombudsman, who found that the insurer had neither communicated rejection nor refunded the premium. The Ombudsman directed the company to pay ₹1.4 crore plus interest at 8.75%.
HDFC Life challenged this award before the High Court.
Issues
- Whether HDFC Life could validly deny the insurance claim by pleading non-acceptance of the proposal after the insured’s death.
- Whether the insurer’s failure to communicate rejection or refund within 15 days, as per the IRDAI Regulations, rendered the company liable.
- Whether mere retention of the premium constituted a presumption of acceptance and a concluded insurance contract.
Petitioner’s Arguments
HDFC Life contended that no valid contract of insurance ever came into existence because the insured failed to undergo a mandatory medical examination required under the proposal. It argued that the company was “not at risk” until acceptance was formally communicated in writing and that the premium was only a deposit, refundable if the proposal was not accepted.
The insurer stated that it had retained ₹57,931 in a suspense account and refunded it later through NEFT after the proposer’s death. It relied on precedents such as LIC of India v. Raja Vasireddy Komalvalli Kamba (1984) and LIC v. Prasanna Devaraj (1994), asserting that mere receipt of premium does not create a contract unless acceptance is communicated.
It also contended that the Insurance Ombudsman exceeded jurisdiction and ignored binding legal principles governing contract formation in life insurance.
Respondent’s Arguments
The respondent, the widow of the deceased, contended that her husband had completed all required formalities and submitted full premiums through the HDFC loan account. Both policies were processed simultaneously, and HDFC Life’s failure to issue one policy despite collecting the premium amounted to deficiency of service.
She argued that the IRDAI Regulations, 2017 imposed a mandatory obligation on insurers to communicate acceptance or rejection within 15 days, and the company’s silence for over two years constituted acceptance by conduct.
She relied on judicial precedents such as SBI Life Insurance Co. Ltd. v. Asha Latha Parida (2010), Srinivas D. v. SBI Life Insurance Co. Ltd. (2018), and Gokal Chand v. Axis Bank Ltd. (2022), to argue that retention of premium and non-communication of rejection implies presumption of acceptance.
It was also submitted that the insurer’s defence surfaced only after the proposer’s death, demonstrating mala fides and violation of the principle of utmost good faith inherent in insurance contracts.
Analysis of the Law
The Court referred extensively to Regulations 8 and 14 of the IRDAI (Protection of Policyholders’ Interests) Regulations, 2017, which require:
- Decision on proposals to be communicated within 15 days, and
- Refunds of proposal deposits within 15 days of underwriting decisions.
The Court emphasized that these provisions are mandatory, not directory, as they ensure transparency, fairness, and protection of policyholders’ interests. The insurer’s silence, it held, violates statutory obligations and the principle of utmost good faith.
The Court observed:
“Non-communication within the period prescribed is not a mere irregularity but a violation of statutory duty. The insurer cannot take advantage of its own omission by raising a plea of non-acceptance later.”
The retention of the premium for over two years without issuing the policy or refunding the amount was found to be a gross violation of these regulations.
Precedent Analysis
The Court relied on Srinivas D. v. SBI Life Insurance Co. Ltd. (2018), where the Supreme Court held that acceptance of premium and retention without prompt rejection creates a presumption of acceptance. The insurer’s conduct in delaying rejection was considered a breach of good faith.
It also referred to Gokal Chand (D) v. Axis Bank Ltd. (2023) and Mrs. Bhumikaben Modi v. LIC of India (2024), where the apex court reiterated that acceptance of premium amounts to waiver of preconditions like medical examination and creates a concluded contract.
These judgments distinguished the earlier ruling in Raja Vasireddy Komalavalli Kamba (1984), holding that it could not be mechanically applied where premiums were accepted and retained without communication of rejection.
Additionally, the Court cited A.M. Allison v. B.L. Sen (1957) to emphasize that writ jurisdiction is discretionary, and interference is unwarranted unless substantial injustice is shown—none being established here.
Court’s Reasoning
Justice Mohammed Nias observed that the insurer’s plea of non-acceptance was raised only after the insured’s death, which was impermissible. The Court noted that no medical examination request was ever proven, nor was the proposer informed of rejection during his lifetime.
“The insurer, having failed to act within the mandatory timeline and discharge its duty of bona fide communication, must be held liable.”
The Court found that HDFC Life’s conduct—retaining premium, remaining silent, and later refunding only after death—constituted clear acceptance under the law.
It held that IRDAI Regulations, 2017, having statutory force, overrode earlier precedents that did not account for these modern regulatory standards.
Thus, the Ombudsman’s award directing payment of ₹1.4 crore with 8.75% interest was held to be perfectly legal and free from arbitrariness.
Conclusion
The High Court dismissed HDFC Life’s writ petition and directed it to comply with the Ombudsman’s award forthwith, including interest, especially since SARFAESI proceedings had been initiated by HDFC Bank against the respondent.
The Court reaffirmed that insurance contracts are governed by utmost good faith, and an insurer cannot exploit technicalities or its own inaction to deny a genuine claim. The judgment serves as a warning that retention of premium without timely communication amounts to acceptance, and any deviation violates statutory obligations under the IRDAI framework.
Implications
This judgment has wide implications for loan-linked insurance policies and policyholder protection in India. It clarifies that:
- Insurers must strictly adhere to IRDAI-mandated timelines for proposal acceptance or rejection.
- Retaining premium beyond 15 days without communication creates a presumption of acceptance.
- Technical defences like non-completion of medical tests cannot defeat genuine claims once the insurer has remained silent.
The ruling strengthens consumer rights by holding insurers accountable for procedural lapses and ensuring that borrowers’ families are protected from posthumous denials.
FAQs
1. What was the main finding of the Kerala High Court in this case?
The Court held that HDFC Life’s failure to communicate rejection within 15 days under IRDAI Regulations made it liable to pay the full insurance amount, as retaining the premium implied acceptance of the proposal.
2. Why did the insurer’s defence fail?
Because the company remained silent for over two years, never communicated rejection, and only refunded the premium after the insured’s death, violating mandatory IRDAI norms and principles of good faith.
3. What precedent does this judgment set?
It establishes that retention of premium equals acceptance, and insurers are bound by statutory timelines, reinforcing the rights of borrowers and policyholders under loan-linked insurance schemes.
