The State Consumer Disputes Redressal Commission, Punjab dismissed an appeal by Cholamandalam MS General Insurance Company challenging the District Commission’s order that held it liable for deficiency in service after it refunded an insurance premium without informing the insured, leaving them uninsured at the time of a fire loss. The Commission upheld the finding that the insurer cannot take advantage of its own omission to intimate non-renewal of the policy.
Background & Facts
The Dispute
The appellant, Cholamandalam MS General Insurance Company, had issued an insurance policy to M/s Nav Bharat Traders (the complainant firm) covering its machinery. The premium of Rs.2,603/- was deducted from the firm’s bank account on 19.11.2018. On 08.08.2019 the insurer refunded the premium without informing the insured. A fire on 11.11.2019 caused a loss of Rs.9,00,000/- to the firm’s machinery. The complainant alleged deficiency in service and sought compensation of Rs.9,00,000/- plus Rs.2,00,000/- and costs of Rs.21,000/- before the District Consumer Disputes Redressal Commission, Ludhiana.
Key Facts
- The policy was obtained from the insurer at the instance of the Central Bank of India (OP No.2) which had deducted the renewal premium from the complainant’s account on 19.11.2018.
- On 03.08.2019 the bank allegedly issued a letter (Ex.R-2) stating that it had obtained the complainant’s consent for refund of the premium; the insurer relied on this letter to refund the premium on 08.08.2019.
- The complainant had no knowledge of the refund and the bank later denied having issued such a letter.
- The insurer did not renew the policy after its expiry on 30.11.2018 and did not inform the complainant of the non-renewal.
- On 11.11.2019 a fire broke out in the complainant’s premises due to short circuit, damaging machinery worth Rs.9,00,000/-.
- A DDR No.22 dated 15.11.2019 was lodged at the police station and a claim was lodged with the insurer, which refused to pay on the ground that the premium had already been refunded.
- The complainant approached the insurer and the bank for settlement but received no response.
- The complainant filed a complaint before the District Commission seeking Rs.9,00,000/- as claim amount, Rs.2,00,000/- as compensation and Rs.21,000/- as litigation costs.
- The District Commission, after hearing the parties, partly allowed the complaint and directed the insurer to settle and reimburse the claim in accordance with the original policy within 30 days of receipt of the order, failing which interest @8% per annum would be payable from the date of the order till actual payment, and to pay a composite cost of Rs.10,000/-. The complaint against the bank was dismissed.
- The insurer filed the present First Appeal challenging the District Commission’s order.
Procedural History
- 19.11.2018: Renewal premium of Rs.2,603/- deducted from complainant’s bank account.
- 03.08.2019: Alleged letter from bank (Ex.R-2) seeking consent for refund of premium.
- 08.08.2019: Insurer refunded the premium to complainant’s account without intimation.
- 13.02.2020: Insurer sent an email to the bank stating that the refund was made at the bank’s request (later denied by the bank).
- 02.10.2020: Bank’s email (Ex.R-3) reminding the insurer of the premium remittance and questioning the refund after a long delay.
- 14.02.2020: Bank’s email (Ex.R-5) stating no request for refund was found in its records.
- 11.11.2019: Fire incident causing loss of Rs.9,00,000/-.
- 15.11.2019: DDR No.22 lodged at police station.
- 13.09.2023: District Commission passed order partly allowing the complaint.
- 14.11.2023: First Appeal No.726 of 2023 instituted before the State Commission.
- 18.09.2023: Appeal reserved for judgment.
- 06.10.2026: State Commission delivered judgment dismissing the appeal and upholding the District Commission’s order.
Relief Sought
The appellant sought to set aside the District Commission’s order and to have the complaint dismissed. The respondents sought upholding of the District Commission’s order, payment of the claim amount Rs.9,00,000/- with interest @8% per annum from the date of the order, compensation of Rs.2,00,000/- and costs of Rs.21,000/-, and refund of the deposits of Rs.25,000/- and Rs.4,35,258/- with accrued interest.
The Legal Issue
The central question was whether an insurer can avoid liability under Section 12 of the Consumer Protection Act, 1986 by claiming that the insurance policy was not in force on the date of loss when it had refunded the premium without informing the insured, and whether the insurer’s failure to intimate the non-renewal of the policy after deducting the renewal premium constitutes a deficiency in service.
Arguments Presented
For the Appellant
The appellant contended that the insurance policy had not been renewed after the expiry of the previous policy on 30.11.2018 because a request for refund of the premium was received from the bank vide letter dated 03.08.2019; accordingly the premium was refunded and no policy was issued for the period covering the date of loss. It argued that, in the absence of any insurance contract, there was no liability to pay the claim and that the District Commission erred in directing payment based on the policy terms. The appellant further argued that the letter dated 03.08.2019 was genuine and that the complainant had failed to prove any loss assessment.
For the Respondent
The respondents argued that the letter dated 03.08.2019 was false and fabricated, a contention supported by the bank’s denial of its issuance and the absence of the letter on the bank’s letter head. They emphasized that the complainant had paid the renewal premium on 19.11.2018 and had a legitimate expectation of continued coverage, which the insurer failed to honour by not renewing the policy and not informing the insured. The respondents relied on the principle that a party cannot take advantage of its own wrong or omission, and submitted that the insurer’s conduct amounted to deficiency in service under the Consumer Protection Act.
The Court's Analysis
The Commission examined the evidence on record, including the alleged refund letter and the subsequent emails from the bank. It observed that the letter dated 03.08.2019 was not on the bank’s letter head, lacked any specific reason for the refund, and its issuance had been denied by the bank. The emails dated 02.10.2020 and 14.02.2020 further showed that the bank had never requested the refund and had instead reminded the insurer to explain the delayed refund.
“It is a settled principle of fairness that a party cannot take advantage of its own wrong or omission.”
Applying this principle, the Commission held that the insurer, having deducted the premium and then refunded it without informing the insured, could not subsequently rely on the absence of a policy to escape liability. The insurer retained the duty to communicate the status of the proposed renewal; its failure to do so deprived the insured of the opportunity to obtain alternative coverage. The subsequent credit of the premium amount into the insured’s account did not, by itself, constitute proof of the insured’s knowledge of non-renewal. Consequently, the insurer’s conduct amounted to a deficiency in service, and the District Commission’s direction to pay the claim, interest and costs was correct. The Commission also noted that the complaint against the bank was properly dismissed as there was no evidence of deficiency on its part.
The Verdict
The appeal was dismissed and the order of the District Consumer Disputes Redressal Commission, Ludhiana dated 13.09.2023 was upheld. The insurer is liable to pay the claim amount of Rs.9,00,000/- together with interest @8% per annum from the date of the District Commission’s order till actual payment, a compensation of Rs.2,00,000/- and litigation costs of Rs.21,000/-. Furthermore, the deposits of Rs.25,000/- and Rs.4,35,258/- made by the appellant at the time of filing the appeal and in compliance with the Commission’s order shall be refunded to the respondents together with any accrued interest, the payment to be made by way of demand draft or crossed cheque after the expiry of 45 days from the date of receipt of the certified copy of this order.
What This Means For Similar Cases
Duty to Inform Non-Renewal
Insurers must communicate any decision not to renew a policy promptly to the insured after deducting the renewal premium. Failure to do so deprives the insured of the chance to secure alternative coverage and constitutes a deficiency in service.
Insurer Cannot Take Advantage of Its Own Omission
An insurer that refunds a premium without informing the insured cannot later rely on the resulting lack of coverage to avoid liability for a loss occurring during the period when the insured reasonably believed the policy remained in force.
Burden of Proof on Insurer
When an insurer alleges that a policy was not in force, it bears the burden of proving that the insured was adequately informed of the non-renewal; mere refund of the premium without intimation is insufficient to discharge that burden.
