The West Bengal State Consumer Disputes Redressal Commission has established a critical precedent on the liability of banks acting as corporate agents for insurers, holding that negligence in disclosing material facts during policy issuance can render repudiation unjust, even where the insured signed a flawed proposal form. The ruling clarifies that the doctrine of uberrima fides binds both parties, and institutional actors cannot evade responsibility by relying on technicalities when their own conduct caused the error.
Background & Facts
The Dispute
The complainant, M/s R.R.K. Enterprise, a sole proprietorship engaged in self-employment through a small manufacturing unit, availed a loan of Rs. 50 lakh from Axis Bank Ltd. on 21.02.2019, secured by an equitable mortgage of its factory premises located at Ramchandrapur, Anulia, Amta, Howrah-711401. The bank, as a condition of the loan, mandated fire insurance on the mortgaged property and acted as a corporate agent for Tata AIG Insurance Co. Ltd. to procure the policy. The bank debited a premium of Rs. 17,873 from the complainant’s account and submitted the insurance proposal form, which erroneously listed the complainant’s residential address at Khanakul, Hooghly as the "Risk Location" instead of the factory in Howrah.
Key Facts
- The factory property was valued at Rs. 84.15 lakh and mortgaged to Axis Bank on 21.02.2019.
- Title deeds were physically deposited with Axis Bank, which annotated the photocopies with "Original with Axis Bank for Security Creation."
- The Fire and Special Perils Insurance Policy No. 2270 1769 0000 was issued by Tata AIG on 19.03.2019, covering Rs. 84.15 lakh under an "Agreed Bank Clause" - meaning claim proceeds would be paid to the bank.
- The policy period was 13.03.2019 to 12.03.2020.
- On 28.03.2019, the factory was completely destroyed by fire.
- Axis Bank lodged a claim of Rs. 56.87 lakh with Tata AIG on the same day.
- On 03.04.2019, Tata AIG informed the complainant via email that the "Risk Location" in the proposal form was incorrect.
- On 27.09.2019, the claim was repudiated on grounds of misrepresentation of risk location.
- The complainant received the policy only after the fire incident.
- The insurer’s surveyor assessed the net loss at Rs. 24,19,756 after adjusting policy excess, but repudiated the claim due to location mismatch and occupancy breach.
Procedural History
- 21.02.2019: Loan sanctioned by Axis Bank against mortgage of Howrah factory.
- 13.03.2019: Insurance policy issued with incorrect risk location.
- 28.03.2019: Factory destroyed by fire.
- 29.03.2019: Claim lodged by Axis Bank acknowledged by Tata AIG via email.
- 03.04.2019: Tata AIG notifies complainant of incorrect risk location.
- 27.09.2019: Claim formally repudiated via email.
- 1018/2019: Complaint filed before WB SCDRC on 10.04.2019.
- 11.05.2026: Final order pronounced by the Commission.
The Parties' Positions
Complainant (M/s R.R.K. Enterprise): Argued that Axis Bank, as its banker and agent of the insurer, negligently filled the proposal form with the wrong risk location despite having direct knowledge of the factory’s address from title deeds and site visits. The complainant, described as "almost illiterate," was not explained the form’s contents. The insurer failed to verify the location before issuing the policy. Both parties acted in collusion, resulting in total loss of the insured asset.
Axis Bank (OP No. 1): Contended that it was merely a facilitator, not responsible for policy terms. The loan was commercial, so the complainant was not a consumer. An arbitration clause in the loan agreement barred jurisdiction. The complainant signed the proposal form and failed to check details within the 15-day free-look period.
Tata AIG (OP No. 2): Stated that the policy was issued strictly on data provided by Axis Bank. Risk location is a material term in fire insurance. The surveyor’s report confirmed the loss was outside the insured location and the occupancy (manufacturing mattresses) differed from the declared use (storage of hazardous goods). Repudiation was legally valid.
Relief Sought
The complainant sought:
- Rs. 56.87 lakh as insurance claim amount
- Rs. 5 lakh as compensation for mental agony and harassment
- Rs. 50,000 as litigation costs
The Legal Issue
The central questions were: (1) Whether a borrower availing a loan for self-employment qualifies as a "consumer" under the Consumer Protection Act, 1986; (2) Whether an arbitration clause bars jurisdiction of the Consumer Commission; (3) Whether the insured is bound by a proposal form filled out negligently by the bank acting as insurer’s agent; and (4) Whether repudiation of a claim due to an error introduced by the bank’s negligence can be upheld against the insured.
Arguments Presented
For the Appellant/Petitioner
The complainant relied on Laxmi Engineering Works v. P.S.G. Industrial Institute to establish that a borrower using a loan for self-employment qualifies as a consumer. It argued that banking services, including arranging insurance, are services under the Act. The bank’s failure to verify the risk location despite possessing the title deeds constituted gross negligence. The insurer, by accepting data from its corporate agent and issuing a policy without site verification, acted in collusion. The complainant had no opportunity to review the policy before the fire, rendering the free-look period irrelevant.
For the Respondent/State
Axis Bank argued that the transaction was commercial, not consumer-oriented, and that the arbitration clause ousted the Commission’s jurisdiction. It cited National Seeds Corporation Ltd. v. M. Madhusudhan Reddy to assert that arbitration is an alternative remedy, not an exclusive one. Tata AIG relied on Satwant Kaur Sandhu v. New India Assurance Co. Ltd. and Reliance Life Insurance Co. Ltd. v. Rekhaben Nareshbhai Rathod to assert that misrepresentation in the proposal form, even if caused by an agent, voids the policy. It also cited the surveyor’s report to argue that the loss was quantified at Rs. 24,19,756 and that occupancy breach further invalidated the claim.
The Court's Analysis
The Commission first affirmed the complainant’s status as a consumer under Section 2(1)(d) of the Consumer Protection Act, 1986, relying on Laxmi Engineering Works, holding that self-employment for livelihood qualifies despite commercial use. It rejected the arbitration clause defense, citing Skypak Courier Ltd. v. Tata Chemicals Ltd., and held that the remedy under the Act is additional and not barred by contractual arbitration.
"The doctrine of utmost good faith binds both sides. The insurer is entitled to truthful disclosure. Equally, the insured is entitled to fair and competent processing through the insurer's authorised distribution channel."
The Commission acknowledged that signed proposal forms generally bind the insured, as per P.C. Chacko v. LIC of India. However, it distinguished this case on critical grounds: the bank, not the complainant, possessed the authoritative records of the risk location. The bank had physically held the title deeds, valued the property at Rs. 84.15 lakh, and created the mortgage - all confirming the factory’s address. The erroneous entry was not a result of the complainant’s concealment but of the bank’s negligence.
The Commission further held that the insurer, by accepting data from its corporate agent and issuing a policy for the exact value of the mortgaged property without independent verification, shared responsibility. The insurer’s reliance on the surveyor’s report was accepted for quantification, but not for repudiation, since the error originated from its own agent.
"If a corporate agent or banker entrusted with filling proposals may negligently insert false particulars despite having authentic records, collect premium, issue policy, and later shirk its responsibility by passing on the buck to the insured merely because the insured happened to sign on the dotted lines, then the proposal form becomes an instrument of unilateral immunity rather than mutual good faith."
The Commission rejected the insurer’s argument on occupancy breach as secondary, noting that the primary cause of repudiation was the location mismatch, which was attributable to the bank.
The Verdict
The complaint was partly allowed. The Commission ordered:
- Axis Bank Ltd. to pay 75% of Rs. 24,19,756 (Rs. 18,14,817) as the assessed loss.
- Tata AIG Insurance Co. Ltd. to pay 25% of Rs. 24,19,756 (Rs. 6,04,939) as the assessed loss.
- Both parties to pay simple interest at 7% per annum on the above amounts from 27.09.2019 until realization, in the same 75:25 ratio.
- Axis Bank to pay Rs. 2,00,000 as compensation for mental agony and harassment.
- Both parties to jointly pay Rs. 50,000 as litigation costs.
- All payments to be made within 45 days of the order.
What This Means For Similar Cases
Banks as Insurance Agents Bear Primary Liability
- Practitioners must now argue that when banks act as corporate agents for insurers, their negligence in filling proposal forms - especially when they hold the underlying documents - cannot be shifted to the insured.
- Banks cannot claim immunity by citing the insured’s signature if the error stems from their own records.
Insurers Cannot Disclaim Agent Negligence
- Insurers are liable for the acts of their authorized agents, even if the policy wording is technically breached.
- Failure to conduct independent verification of risk location, especially when the policy value matches the mortgaged asset, constitutes deficiency in service.
Apportionment of Fault Is Now a Recognized Principle
- Courts will apportion liability based on contributory negligence, not impose total loss on the insured.
- The doctrine of uberrima fides applies equally to institutional actors - not just the insured.
- Surveyor reports may determine quantum of loss, but not the validity of repudiation if the error was caused by the insurer’s agent.
Practical Takeaways for Practitioners
- Always verify whether the bank or agent filled the proposal form.
- If the insured is unsophisticated and the bank holds the property documents, argue that the bank’s negligence overrides the proposal form’s sanctity.
- In claims involving mortgaged property, cross-check the bank’s records against the policy’s risk location.
- Argue that the free-look period is irrelevant if the policy is received after the loss.
