New Perspective: Insurer's Tacit Agreement Assumed Upon Receipt of First Premium

In a landmark ruling that reshapes the landscape of insurance law, the Supreme Court has delivered a pivotal judgment underscoring the significance of the first premium payment receipt in determining policy acceptance by the insurer.

Dissecting the intricacies of an insurance contract, the bench, composed of Justices AS Bopanna and CT Ravikumar, upturned the conclusions of the National Consumer Dispute Redressal Commission (“NCDRC”). Their analysis illuminated that the very act of an insurer issuing a receipt for the initial premium payment signifies a presumption of policy acceptance.

In the case at hand, the respondent, Life Insurance Corporation (“LIC”), contested the appellant’s claim following the demise of her husband, the insured, citing the non-commencement of the policy from the date of the first premium payment receipt.

Contrary to LIC’s stance, the appellant argued that the policy’s effectiveness should be dated from the moment the first premium payment was received by LIC.

Undisputedly, a signed receipt acknowledging the first premium payment was tendered by LIC on 09.07.1996, with the appellant’s payment check being cashed on 12.07.1996. Tragically, the appellant’s husband passed away on 14.07.1996, and the policy documentation was finalized on 15.07.1996.

Drawing from precedent, notably the case of D. Srinivas v. SBI Life Insurance Co. Ltd. & Ors, the court deliberated on whether the issuance of the first premium payment receipt inherently implies acceptance of the insurance policy by LIC.

Unlike a strict textual interpretation of contractual terms, the court, referencing the flexible approach adopted in the D. Srinivas case, scrutinized whether there existed a clear indication of insurance acceptance.

Given LIC’s acknowledgment of the first premium receipt without contention, the court leaned on the principles outlined in D. Srinivas to infer LIC’s presumed acceptance of the policy since the issuance of said receipt.

The judgment, penned by Justice CT Ravikumar, underscored the significance of Annexure B, the first premium receipt, explicitly stating that the acceptance of payment would place LIC at risk from the receipt date, subject to the realization of funds and the undisclosed terms printed on the reverse side. This comprehensive analysis, coupled with documentary evidence and precedent, led the court to affirm the State Commission’s order and overturn the NCDRC’s decision, mandating LIC to settle the policy amount with the appellant within two months.

Thus, the appeal was granted in favor of the appellant, marking a pivotal shift in insurance jurisprudence.