In the fast moving and changing scenario in the market where a number of private players are
working and there is competition among all, there was a longfelt need of an independent,
accountable, and transparent authority which could redress the grievances of both the insurers
and policyholders satisfactorily. To instill a degree of trust and confidence in the insurance
sector, it became imperative to address the concerns of all parties.
The relief provided under the “Redressal of Public Grievance Rules, 1998” regarding an
appointment of Ombudsman1 was later proven to be ineffective in several occasions. This
Ombudsman is a person who is lacking any judicial expertise/experience does not provide
satisfactory results to all concerned parties. ie. The insured, and the insurer. It should also be
noted that there is a stark inequality while providing relief against the Ombudsmans’
decision. The insurer cannot appeal against it but the insured has the right to reject it.
The Consumer Protection Act also seemed to be unsatisfactory due to piling up of pending
cases. Due to numerous complaints of policyholders regarding non-satisfaction of their
claims through a reliable machinery of dispute resolution, a need was felt for introducing of
some concrete and effective forum for the same.
The report by the Law Commission suggested an establishment of Grievance Redreassal
Authorities (GRA) which would substitute and exercise the powers given to the Ombudsman
under the 1998 Rules. The pending cases under the Consumer Protection Act could thus be
settled by GRA under the amended Act which would result in quicker solutions.
Adjudicating Officers have to be appointed by IRDA for the violations of the Act, Rules and
Regulations and levy penalties as prescribed in the Act.
An Insurance Appellate Tribunal was required to be established which would entertain
appeals against the decisions of GRA and whose decision would finally be binding on the
parties. This body would also entertain appeals from IRDA concerning issues of registration
and licensing. There should also be a further appeal to the Supreme Court against the decision
of the IAT on the lines of the SEBI Act.
1
Both powers of the GRA and IAT should be clearly spelt out in the Act. Appointment of
members would be transparent and they should have atleast 20 years of experience, judicial
or technical. Their should be a procedure for removal of the President or the members due to
their incapacity or misbehaviour. The problem of independence of the decision making
authority that was earlier lacking would thus be solved.
It should be provided in the Act that a claimant may first refer its dispute to an ADR
mechanism before directly approaching a GRA. Only if the former fails, the matter should be
placed before GRA. The GRA can itself recommend to the parties during the proceeding to
go for an alternative dispute resolution on mutually agreed terms.
Recommendation of the Law Dept. of the State of West Bengal
A provision must be inserted in the Act to prevent insurance fraud by imposing both civil and
criminal liabilities on the persons indulging in the same. They further suggested that an
insurance fraud bureau should be set up to combat such cases.
This suggestion was not accepted by the Law Commission on the grounds that a the power to
levy penalties for frauds comes under the penal law which requires invoking the criminal
laws and not this law. It would be quite burdensome for the GRA. Specific offences in
relation to frauds was thus to be penalised by the criminal justice system strictly.
Recommendations of the National Insurance Academy, Pune
The mechanism of GRA should be cost effective and should also serve the purpose of
protecting the interest of policyholders. Every insurer should have an “Apex Grievance
Redressal Mechanism” within the organisation itself. The idea is that every policyholder
should first exhaust the internal mechanism before approaching the GRA.2 Procedure for
selection of the members of GRA should be made transparent. The screening for the
appointments should be by a Committee appointed by the Insurance Council.
The suggestions were accepted by the Law Commission.
2 http://lawcommissionofindia.nic.in/reports/InsuranceReport-2nddraft1.pdf
2. Repudiation of Life Insurance Contract
The operating part of s.45 states that, no policy of life insurance effected after the Act came
into force shall, after the expiry of two years from the date on which it was effected, be called
in question by an insurer on the ground that a statement made in any document leading to the
issue of the policy, was inaccurate or false;
The second part of the section creates an exception. The second part of s. 45 entitles the
insurer to repudiate the contract even after the expiry of two years if three conditions were
fulfilled viz.
(a) the statement was on a material matter or there was suppression of facts which it was
material to disclose;
(b) the suppression was fraudulently made by the policy-holder, and
(c) the policy-holder must have known at the time of the making of the statement that it
was false or that it suppressed facts which it was material to disclose.3
Section 45 has been enacted keeping the common law principle of uberrimae fidei (also
referred to as uberrima fides) into account. This principle enumerated in the case of Carter v.
Boehm4 states that the special facts that are known to the insured must be revealed by him
under all circumstances because withholding it would be fraud rendering the agreement void.
This principle also states that an insurer issues a policy in good faith and the insured should
not take advantage of the ignorance of the other party about something which the other party
cannot possibly assume.
This principle has been adopted by various Indian courts in its judgements, including the
Supreme Court of India in, Life Insurance Corporation of India v. Smt. G.M.
Channabasamma5, and in Life Insurance Corporation of India v. Asha Goel.6
The problem that is noticed in the section is that the period of 2 years mentioned is quite
unfair to the insurer as the burden of proof to get the contract repudiated shifts on the insurer
once this period lapses. This frustrates the purpose for which the section was enacted in the
first place. The Law Commission also noted this difficulty faced by the companies and
recommended an amendment to the section in its 112th Report in 1985. It suggested that the
period be increased from 2 to 3 years. It was felt that this change would create a balance
between the rights of the insurer and the insured.
LIC opposed the three year limit stating that it is too short. It said that the provision should be
that if policy has been continuously in force for a period of 6-8 years without being in
3 Mithoolal Nayak v. LIC of India AIR 1962 SC 814
4 [(1758-1774) All ER Rep 183
5 (1991) 1 SCC 357
6 (2001) 2 SCC 160.
question the insurer shall be deemed to have waived his right to repudiate the policy.7 To this,
the SC in the case of Asha Goel emphasized that “the approach of the Corporation in the
matter of repudiation of a policy admittedly issued by it, should be one of extreme care and
caution. It should not be dealt with in a mechanical and routine manner.”8
A factor from the point of view on the consumers must also be stated. In India, as the saying
goes, Insurance policies are not bought, but sold. The companies are so competitive to gain a
majority stake in the market that they have over the years employed insurance agents that
move to all parts of the country to influence and sell the policies to consumers. The company
is not held liable for the acts of negligence of their agents through a clause in their policy
agreements. If the policyholder is not being informed of his liabilities in such a situation, he
is the loser in this case. It must also be noticed that the companies target the ignorant and
illiterate rural sector of our country through its agents. Therefore, to claim that such
consumers dishonestly concealed facts to fraud the company, will be unjustified as in many a
cases this so-called misrepresentation turns out into an innocent mis-statement. To bring forth
a change in the Act these factors must be kept into consideration.
It was finally recommended by the Law Commission that the period be increased to 5 years
being aware of the suggestion of LIC to keep it as 6-8 years since LIC controls 90% of the
insurance sector in India. But to balance the interests of both parties, it was recommended
that unilateral repudiation of an insurance policy cannot be done by the company. A right to
hearing and defense must be provided to policyholders. Also, the the insured persons
premiums cannot be taken away due to any of the grounds of repudiation.
3. Assignment and transfer of life insurance policies
4. Categorisation of Nominees