The Delhi State Consumer Disputes Redressal Commission has reaffirmed that insurance contracts, particularly Unit Linked Insurance Plans (ULIPs), must be interpreted strictly according to their express terms. The judgment clarifies that contractual benefits such as Guaranteed Loyalty Additions are not automatic entitlements but contingent upon the occurrence of specifically defined insured events.
Background & Facts
The Dispute
The appellant, Biswanath Agrrawalla, purchased a 20-year ULIP policy from Max Life Insurance Co. Ltd. on 29 June 2009, with an annual premium of ₹20,000. The policy’s first premium receipt explicitly stated: "The first year annual premium will be used to provide Guaranteed Loyalty Additions and will not be allocated to the Investment funds." Over 11 years, he paid ₹2,20,000 in premiums and made multiple partial surrenders, receiving ₹1,79,094.16 in withdrawals. Upon surrendering the policy on 22 July 2020, he received ₹27,842.84 as surrender value but was denied the Guaranteed Loyalty Addition (GLA) of ₹20,000, which he claimed was reserved from his first premium.
Procedural History
- 2024: District Consumer Commission dismissed the complaint, holding that GLA was payable only on maturity or death, not surrender.
- 2025: Appellant filed First Appeal before the Delhi State Commission, challenging the dismissal.
- 2026: State Commission upheld the District Commission’s order.
Relief Sought
The appellant sought recovery of ₹20,000 as reserved first premium, ₹65,000 as interest on the amount from 2009, ₹60,000 for mental agony, and ₹25,000 as litigation costs.
The Legal Issue
The central question was whether Guaranteed Loyalty Addition under a ULIP policy becomes payable upon surrender before maturity, despite explicit policy terms limiting payment to insured events such as maturity or death.
Arguments Presented
For the Appellant
The appellant, appearing in person as a practicing advocate, argued that the first premium receipt constituted a separate, binding representation that ₹20,000 was reserved exclusively for GLA. He contended that withholding this amount after surrender amounted to unfair trade practice and deficiency in service under Section 2(1)(g) of the Consumer Protection Act, 2019. He relied on the principle that insurance contracts must be construed in favor of the insured, citing LIC v. B. K. Singh (2019), and asserted that the insurer’s retention of the first premium was arbitrary and unjust enrichment.
For the Respondent
The insurer argued that the policy terms, particularly Clause 3.3, clearly restricted GLA payment to the occurrence of an insured event - maturity or death. It cited Suraj Mal Ram Niwas Oil Mills v. United India Insurance Co. Ltd. (2010) and United India Insurance v. Harchand Rai Chandan Lal (2004) to emphasize that insurance contracts are governed by strict construction. The insurer maintained that the premium receipt’s language was explanatory, not contractual, and could not override the policy’s express conditions.
The Court's Analysis
The Commission undertook a detailed textual analysis of Clause 3.3 of the policy, which states: "Guaranteed Loyalty Additions are payable only upon the occurrence of an insured event, i.e., policy maturity or death of the life assured." The court found no ambiguity in this language. The appellant’s reliance on the first premium receipt was rejected as it did not constitute a separate contractual obligation but merely an explanatory note within the broader policy framework.
"The payment of Guaranteed Loyalty Addition is strictly governed by the policy terms and is payable only on maturity of the policy or on the death of the life assured. Since the Appellant surrendered the policy prior to maturity and no insured event occurred; therefore, the claim for Guaranteed Loyalty Addition was rightly rejected in terms of the policy conditions."
The court emphasized that while consumer protection laws aim to safeguard policyholders, they do not permit courts to rewrite contractual terms. The insurer had fulfilled its obligations by paying the surrender value as calculated under the policy’s actuarial formula. The court also noted that the appellant had received partial withdrawals over the years, indicating his awareness and acceptance of the policy’s structure. The precedents cited by the insurer were found directly applicable, reinforcing the doctrine that insurance contracts are binding agreements whose terms cannot be altered by judicial fiat.
The Verdict
The appellant’s appeal was dismissed. The Court held that Guaranteed Loyalty Addition is not an automatic refund of the first premium but a contingent benefit payable only upon policy maturity or death. The insurer’s conduct did not constitute deficiency in service, as it acted strictly in accordance with the policy’s express terms.
What This Means For Similar Cases
Contractual Terms Override Promotional Materials
- Practitioners must distinguish between policy documents and promotional brochures or premium receipts - only the former constitute binding contractual terms.
- Consumers cannot claim benefits based on pre-contractual statements unless incorporated into the policy.
- Insurers may rely on clear, unambiguous policy clauses to deny claims even where initial communications appear favorable.
Surrender Does Not Trigger Maturity Benefits
- In ULIP and endowment policies, benefits tied to maturity (e.g., loyalty additions, bonuses) are not payable upon voluntary surrender.
- Clients seeking early exit must be advised that they forfeit contingent benefits, even after long premium payment histories.
- Claims for refund of premiums paid must be evaluated under surrender value formulas, not as restitution of "reserved" amounts.
Strict Construction of Insurance Contracts Remains Valid
- The Suraj Mal and Harchand Rai precedents continue to govern insurance disputes in consumer forums.
- Courts will not imply terms or impose equitable remedies where the contract is clear and unambiguous.
- Advocates must focus on proving ambiguity or misrepresentation in policy wording to succeed in such claims.
