The Chandigarh district consumer disputes redressal commission has delivered a significant ruling in favor of insurance policyholders, stating that a consumer cannot be penalized for an insurer's own administrative lapse. The commission directed an insurance company to pay the surrender value of a policy along with interest and compensation to the policyholder.
Background of the Case
The case was filed by Sanjay Mehta, a resident of Panchkula currently based in Canada. Mehta had purchased a policy in March 2011, under which he was required to pay a monthly premium of Rs 2,042. He paid this amount regularly for over 11 years.
Dispute Arises in 2022
In 2022, Mehta approached the company to surrender the policy and claim the benefits accrued. Instead of processing the surrender value, the insurer informed him of a technical error in its system since the policy's inception. The company claimed that due to health-related loading, the actual premium should have been Rs 2,670 per month, and demanded Rs 83,541 as arrears before settling the policy.
Consumer's Argument
Mehta challenged the demand, arguing that he had paid exactly what was specified in the policy bond. He contended that the insurer could not retrospectively alter the terms after accepting premiums without objection for over a decade.
Commission's Observations
The commission agreed with the complainant, noting that the company had issued the policy mentioning the premium as Rs 2,042 and had continued to accept that amount for 11 years. It observed that the insurer failed to rectify the alleged mistake during this period and produced no convincing documentary evidence to justify the sudden demand.
In its order, the commission remarked that the company cannot “wake up one fine day from its slumber” and seek recovery of arrears arising from its own internal lapse. It held that consumers could not be burdened with the consequences of errors committed by an insurer’s administrative or technical systems.
Ruling and Compensation
The commission concluded that the insurer’s action amounted to deficiency in service and an unfair trade practice. It directed the company to pay the surrender value of the policy along with 6% annual interest until payment. The insurer was also ordered to refund any premiums paid after that date, again with 6% interest, along with Rs 20,000 as compensation.
Implications for Consumers
This ruling is likely to be closely watched by insurance consumers, as it reinforces a key principle of consumer law: policyholders who have complied with the terms communicated to them cannot later be penalized for mistakes made by the insurer itself.
