Corporate Agent Bank Liable for Not Submitting Proposal Forms, Not Insurer: Odisha State Consumer Commission

Bank Found Deficient in Service for Failing to Forward Insurance Proposals, Not LIC: Odisha Consumer Commission

Cuttack, Odisha - The State Consumer Disputes Redressal Commission, Odisha, has ruled that a bank acting as a corporate agent for an insurance company is liable for deficiency in service if it fails to submit customers' proposal forms to the insurer, even after collecting the premium. The Commission modified a District Forum order, shifting the liability from the Life Insurance Corporation of India (LIC) to UCO Bank.

The bench, comprising President Justice Dr. D.P. Choudhury and Members Mr. P.K. Prusty and Miss S.L. Pattnaik, held that merely collecting a premium does not bind the insurance company if the corresponding proposal forms are never received.

Background of the Case

The complaint was initiated by Smt. Bayani Mallika Behera, representing the "Bania Sahi" Self Help Group (SHG). The SHG, comprising eleven women, had taken a loan from the UCO Bank, Dhamnagar Branch. As a condition for the loan, the bank, acting as a corporate agent for LIC, advised the members to take out life insurance policies.

In July 2010, the SHG members filled out the proposal forms and the bank debited a premium amount of ₹31,784 from their loan account. This amount was part of a larger Demand Draft of ₹53,462 sent to LIC. Despite the premium being paid and encashed by LIC, the SHG members never received their policy bonds. After their repeated inquiries to both the bank and LIC went unanswered, they filed a complaint with the District Consumer Disputes Redressal Forum, Bhadrak.

The District Forum found LIC deficient in service and ordered it to issue the policies, pay ₹5,000 in compensation, and ₹1,000 in litigation costs. LIC subsequently appealed this decision to the State Commission.

Arguments Presented

• LIC (Appellant): Argued that it never received the proposal forms for the complainant SHG members. While it acknowledged receiving the Demand Draft, it stated that the funds were applied to other proposals and renewal premiums for which it had received the necessary paperwork. LIC contended that without a proposal form, no contract of insurance can be created, and therefore, it could not be held liable for non-issuance of policies.

• UCO Bank (Respondent): Maintained that it had sent the duly filled proposal forms along with the premium amount to LIC. The bank admitted to debiting the premium from the SHG's account and forwarding it. It claimed to have followed up with LIC regarding the non-receipt of policy bonds and asserted that the sole responsibility for the lapse lay with LIC.

Commission's Analysis and Ruling

The State Commission meticulously examined the evidence and pleadings. It noted the undisputed fact that the premium amount of ₹31,784 was debited from the SHG's account and encashed by LIC as part of a larger transaction.

However, the pivotal issue was the submission of the proposal forms. The Commission observed that UCO Bank, despite claiming to have sent the forms, failed to produce any copies or acknowledgement of receipt from LIC. The Commission found the bank's record-keeping wanting, pointing out it had submitted an unclear, handwritten slip that did not even contain the complainants' names.

The judgment highlighted a critical legal principle: "It is settled in law that mere deposit of premium will not entitled the insured to get policy unless proposal form are submitted."

The Commission concluded that the "gross negligence" was on the part of UCO Bank for failing to forward the essential proposal forms to LIC. This failure was deemed a clear "deficiency in his service." Consequently, the liability for the non-issuance of policies could not be fastened upon LIC.

Final Order and Implications

The State Commission partly allowed LIC's appeal and modified the District Forum's order, ruling as follows: 1. UCO Bank is directed to submit the SHG members' proposal forms to LIC within 30 days. 2. Upon receipt, LIC must issue the policy bonds within 15 days. 3. If UCO Bank fails to submit the forms within the stipulated time, it must refund the premium of ₹31,784 to the SHG with 9% annual interest from the date of the original impugned order. 4. UCO Bank is further ordered to pay ₹5,000 as compensation for harassment and ₹1,000 for litigation costs to the complainants.

This judgment serves as a crucial reminder for financial institutions acting as corporate agents that their responsibility extends beyond mere premium collection. Proper submission of documents to the principal insurer is an indispensable part of their service, and any failure in this duty can result in direct liability.