Whether medical examination is compulsory for issuance of Policy to take place prior to accepting premium

Whether medical examination is compulsory for issuance of Policy to take place prior to accepting premium, was the question before the Hon’ble Supreme Court Bench in view of the facts and circumstances of the case that the insurance company accepted the premium, waived the condition precedent of medical examination. In such circumstances, the Respondent Insurance Company could not reject the claim on the ground that the medical examination of insurer was not done and  the Contract of Insurance was not complete.

Dr Prem Lata (Legal Head VOICE)


Supreme Court had held in the above case 

“In the instant case there was a complete contract as there was clear presumption of the acceptance of the proposal in favour of the proposer”

SC further observed 

“The specific condition in the policy was that in case the loan amount exceeds Rs.7.5 lacs the medical examination was compulsory. That if the medical examination was compulsory for such cases it should have been done along with filing of the proposal form before the payment of the premium. If the proposal was not accepted for any reason the premium would have been credited to the account of the proposer. The premium has not been refunded. From this, it is clear that the insurance company had not rejected the proposal.”

Facts leading to dispute 

Brief Facts of the case:

Consumer, his wife and son Mr. D. Venugopal had obtained a housing loan of Rs.30,00,000/- from Life Insurance Company for construction of a house in Hyderabad. The proposal was accompanied by good health declaration by the insured. D. Venugopal expired in 2009. Consequently, the said life insurance obtained in his name came into force, obligating the insurer to pay the outstanding amount in their loan account. The consumer approached the insurer and the bank informing them about the demise of D. Venugopal and requested them to settle the insurance claim and to discharge the outstanding loan amount in their house loan account. Since the insurer did not accede to his request, he filed a consumer complaint before the State Commission.

The insurer contested the complaint mainly on the ground that the proposal for the policy was not accepted as the insured did not present himself for medical examination in spite of repeated requests made by the insurer. Thus, the insurer pleaded no deficiency in service and denied its liability in connection with the payment to the insured. The State Commission allowed the complaint. However, the National Commission, by majority, allowed the appeal. Aggrieved by the National Commission’s order, the Appellant approached the Supreme Court

The respondents company  have contended that there is no concluded contract between the parties. Therefore, the insurer was not bound to discharge loan merely on the ground of receipt of premium for issuing policy. The deceased did not appear for medical examination. Therefore, the policy could not be completed on receipt of the death intimation.

But Supreme Court did not agree to he contention of Insurance company and concluded-

  1. The insurance contract being a contract of utmost good faith, is a two-way door. The standards of conduct as expected under the utmost good faith obligation should be met by either party to such contract.
  2. The condition precedent for acceptance of the premium was the medical examination. It would be logical for the insurance company  to accept the premium based on the medical examination and not otherwise. Therefore, by the very fact that they accepted the premium waived the condition precedent of medical examination.
  3. The rejection of the policy must be made in a reasonable time so as to be fair and in consonance with the good faith standards. In the case, it could not be held that such enormous delay was reasonable. With reference to the facts of the present case, the Court remarked that the premium was paid in 2008. That it was only in 2011 that the respondent insurance company informed the appellant that the policy was not accepted by them.

Supreme Court made a law by this judgment that Insurance company is equally under obligation to follow their terms and rules while issuing the policy only then they should expect insured to follow rules. In case they ignored some procedure they are bound to approve the claim 

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