The article accentuates on
a situation for payment of The First Premium to Life Insurance
through cheque. The article is considering here a question
What will happen if an applicant for life insurance policy, just
after depositing the first premium through cheque(s) /cash, and the cheque(s) has been encashed by the insurance company, dies after
that, without getting the policy? May be he has got a receipt or
acknowledgment of the money deposited.
In legal parlance, Is mere acceptance of premium amount and
issuance/non- issuance of receipt would mean acceptance of
proposal? This will follow two more questions regarding above
legal fact
1. In such cases could the deceased dependants get the benefit of
the policy?
2. Is it possible for the applicant or the one whose life is to be
insured, to make some strong point to escape from such situations,
before he dies?
As insurance is a social devise to reduce or eliminate risk of
losses to the life and property or we can say that it is a
provision that a prudent man makes against inevitable
contingencies, losses and misfortune. Life insurance is a contract
between the insurer and the insured and based on Utmost good faith
(on mutual trust and confidence between the insurer and insured.
Each should be legally obliged to reveal to the other all-material
fact, which would influence mutual decisions).
To take an effecting Life Insurance policy one follows a procedure
prescribed by life insurance:
1. Filling up the proposal form.
2. Declaration by the proponent.
3. Attachment of proof of age.
4. Presentation of proposals to the agent.
5. Medical examination
6. Report by the agent.
7. Scrutiny of proposal by the branch office.
8. Depositing of Premium.
9. Registration of proposal.
10. Sending the proposal to appropriate department.
11. Taking final decision to the proposal.
12. Issue of Acceptance or request letter.
13. Issue of insurance policy. etc.
After depositing the premium amount through cheque and after
encashing the cheque company may issue or send:
1. Receipt-Simple acknowledgment of money deposited by the
applicant.
2. Cover note or temporary policy- it is the evidence that the
insurer has accepted the policy and the insured has remitted the
premium.
3. Referred to the Head office for further approval- it may in the
case of heavy amount, which is beyond the power of the authority
of the company, to which the applicant had given the proposal
along with cheque.
4. Money is in Suspense Amount-Simply information that the
applicant’s money has been deposited in an account in which in
future it may be refunded if the same is not appropriated or
utilized for the purpose for which it was remitted.
As whole we see that generally the acceptance is to be made by the
insurer. Sec 2(b) of the Contract Act defines acceptance as When
the person to whom the proposal is made signifies his assent
thereto the proposal is said to be accepted. The insurer on
receiving the papers containing the proposal scrutinizes them and
when they are found in order he signifies his assent thereto by a
letter and the letter is called the letter of acceptance until
this is sent there is no acceptance, though a cheque for the
premium is sent and the money is received and retained after the
death of the insured.
The letter, which is printed, contains generally four clauses:
1. Accepted at ordinary rates.
2. Accepted with extra premium.
3. Accepted subject to satisfactory assessment by further
examination after a lapse of time.
4. Not accepted.
I am giving here some facts of law and further few references of
cases and the decisions made by the Courts.
Some facts of law relating this article:
1. Concerning to the main question Is mere acceptance of
premium amount and issuance/non-issuance of receipt would mean
acceptance of the proposal?The stand of law in this regard is very clearly stated in Corpus-Juris
Secundum-Vol.XLIV Page no. 986:
According to it the mere receipt and retention of premiums until
after the death of applicant does not give rise to a contract,
although the circumstances may be such that approval could be
inferred from retention of the premium. The mere execution of the
policy is not an acceptance to be complete, must be communicated
to the offeree, either directly, or by some definite act, such as
placing the contract in the mail. The test is not intention alone.
When the application so requires the acceptance must be evidenced
by the signature of one of the company’s executive officers.
2. A default in remitting the premium may because discharge of the
insurance contract and the insurer shall be relieved from his
liability.
3. The proposal for affecting an insurance policy is executed in
the prescribed form.
4. In case of general insurance on depositing the premium by the
proposer in time, constitute a legal contract between the parties.
5. In certain human relationship silence to a proposal might
convey acceptance but in the case of insurance proposal silence
does not denote consent and not binding contract arises until the
person to whom an offer is made signify his acceptance. Mere delay
in giving an answer cannot be construed as an acceptance as prima
facie acceptance must be communicated to the offeror.
6. According to section-8 of Indian Contract Act ‘ performance
of the conditions of the proposal or the acceptance of any
consideration for a reciprocal promise which may be offered with a
proposal is an acceptance of the proposal. Now and with regard to
the communication of the acceptance, this was the duty entirely to
be complied with by the Life Insurance if the proposer’s
dependant proves the deemed acceptance of the proposal by the life
insurance. It was for the life insurance to establish that because
there are more formalities to be satisfied the acceptance, which
is not actually completed.
Case Referred:
1. Life Insurance Co-corporation of India, Trivandrum, Appellant
Vs. Mrs. Prasanna Devaraj, Respondent. A.I.R. 1995 Kerala page
no.88
Facts of the case- The proposer (husband of the respondent) filled
up the form of proposal for insurance on his life for a sum of Rs.
2,00,000/- and sent the same along with the first premium to the
divisional office of the life insurance co-orporation after
getting himself medically examined by the doctor. The Divisional
Manager encashed the cheque and acknowledged the same by granting
the receipt. The cheque sent by the deceased was encashed and held
in deposit in the ‘suspense account’ and not adjusted toward
the premium. Since the proposal was sent for assurance of a sum of
Rs.2 lakh the ultimate authority to consider its acceptance was
the central office of the corporation. It took time to complete
the process. The proposer however died before it was considered by
the authority competent to accept the proposal.
Held that- There was not acceptance of the proposal creating a
concluded contract firstly amount remitted was not treated as
premium and secondly, the receipt nowhere spells out that receipt
of the amount which was the initial deposit towards the premium
2. Life Insurance Corporation of India Vs. R.Vasireddy A.I.R. 1984
2 SCC 719
This is also a case in which matter is quite similar with the
previous one. The question arising before the Supreme Court was,
whether receipts and retention of the insurance premium and the
delay in replying to the proposor could be treated as the
acceptance thereof.
Facts of the case- In this case the deceased filled a proposal of
insurance on his life for Rs.50, 000 on 27.12.1960. He issued two
cheques for Rs. 300 and Rs.220 respectively, which were got
encashed by the Life insurance corporation by 11.01.1961. The
deceased died the next day i.e. on 12.01.1961. In an action by the
widow of the deceased to claim the amount the Life insurance
corporation contended that the contract of insurance had yet to be
completed. It was averred that since the proposal had yet to be
accepted by the Divisional Manager, according to the prescribed
procedure in such cases, the amount of the two cheques had been
kept only in deposit in the suspense account and had not been
credited towards the premium account, and therefore, the Life
insurance corporation was not bound to pay the insured sum of
Rs.50, 000.
Held that- The contention of the life insurance corporation was
accepted by the Supreme Court and since the contract had not yet
been concluded the life insurance corporation was not liable to
pay the sum claimed. (Also see the decision of the court in
Life
Insurance Corporation of India and other Appellants Vs Smt.Brazinha D’souza
Respondent AIR 1995 Bombay page no.223).
3. Hindustan Co-operative Insurance Society
Ltd-Defendant-Appellant Versus Shaym Sunder and
others-plaintiffs-Respondent AIR 1952 Calcutta-691
Facts of the Case-The proposor at the request of an organizer of
the company verbally agreed to insure his life on an endowment
policy. The doctor employed by the company medically examined him
and after the medical examination he was found first class. The
organizer said him that if he submitted the proposal form and
deposited the half-yearly premium without delay the company would
accept his life for insurance and would issue a policy promptly.
The proposal from was filled in, and was signed by the proposor
and made over to the organizer with the cheque of first premium.
The company encashed the cheque and just after few days the
proposor died. The deceased dependents sued for the compensation.
Held that; - The company by cashing the cheque and appropriating
the money accepted the proposal. No communication was necessary to
be made to the assured to complete the acceptance. The contract
was made at the moment the money was appropriated. It was a
concluded contract. No subsequent communication by one of the
parties could open the matter again. So the subsequent letter by
the company asking for a further report could not unmake the
contract, which had been made by the appropriation of the money.
Therefore the company was liable to pay the insurance money.
Judges of Hon’ble court said, All papers namely, the
proposal, the medical reports and the ‘friends’ reports were
completed and sent to the insurance company and thereafter, with
the knowledge of the completion of the papers, the insurance
company cashed the cheque. The company knew that the organizer had
no authority to receive the cheque as premium and therefore the
cheque when it was sent to the company by the organizer had not
been sent as premium. It was the company which could take it or
not as premium.
Judges further said that, to us the position seems to be
this the assured sent the proposal form with the cheque, and in
effect said to the company I am sending herewith my proposal
and the first half-yearly premium. The organizer cannot receive
the cheque as premium. But you can, if you accept my proposal,
cash the cheque.
On the other words the proposer in this case dispensed with
express communication of the acceptance and from the nature of the
transaction we may somewhat readily infer the offerer’s
intention to dispense with the communication. The offeror in this
case asked for an act on the condition of the offer becoming
a promise, and that act was done by the company, namely, the
cashing of the Cheques. We have no doubt therefore that the company
by cashing the cheque and appropriating the money accepted the
proposal. No communication was necessary to be made to the assured
to complete the acceptance.
So as far as the question No.2 is concerned the escape route from
such situations may be, the applicant at the time of submitting
the filled proposal form along with the cheque(s) could enclosed
his own letter, which would clearly state, that if the insurance
company encash the cheque, then it would be seemed to be accepted
proposal. And by giving the reference case mentioned just above of
Hindustan co-operative society vs Shyam sunder the applicant’s
dependants could easily win.
Is it right? Think over it. |
The
First Premium
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author can be reached at: agrawalshyam@legalserviceindia.com
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