KERALA STATE CONSUMER DISPUTES REDRESSAL COMMISSION,
VAZHUTHACAUD, THIRUVANANTHAPURAM
APPEAL No. 662/2016
JUDGMENT DATED: 10.05.2019
(Against the Order in C.C. 142/2015 of CDRF, Pathanamthitta)
PRESENT :
SRI.T.S.P. MOOSATH : JUDICIAL MEMBER
SRI. RANJIT. R : MEMBER
SMT. BEENA KUMARY. A : MEMBER
APPELLANTS:
- M/s Kotak Mahindra Old Mutual Life Insurance Ltd., 7th Floor, Kotak Towers, Building No. 21, Infinity Park, Off Western Express Highway, General A K Vaidya Marg, Malad (E), Mumbai-400 097.
- M/s Kotak Mahindra Old Mutual Life Insurance Ltd., College Road, Kizhakkedathu Building, Pathanamthitta, Kerala.
- M/s Kotak Mahindra Old Mutual Life Insurance Ltd., Chandrima Building, 3rd Floor, Cross Junction, Thiruvalla-689 101.
(By Adv. M. Anil Prasad)
Vs.
RESPONDENTS:
- N. Sreenivasan, Sumangalam House, Pannivizha, Near Pannivizha Service Co-operative Bank, Adoor P.O, Pathanamthitta.
- K.S. Santhakumari, Sumangalam House, Pannivizha, Near Pannivizha Service Co-operative Bank, Adoor P.O, Pathanamthitta.
(By Adv. B. Vijayakumar)
JUDGMENT
SRI. RANJIT. R: MEMBER
Opposite parties 1, 3 & 4 on the file of Consumer Disputes Redressal Forum, Pathanamthitta, in short the district forum, have filed the appeal against the order in C.C. No. 142/2015 dated 09.08.2016 by which the forum directed them to refund the amount deposited by the complainants vide policy Nos. 1820254, 1820351 along with savings bank interest rate prevalent at the time of refund from the respective date of deposit. They were also directed to pay compensation of Rs. 10,000/- and cost of Rs. 3,000/- with 10% interest.
2. Short facts necessary for disposal of the appeal is as follows: The case of the complainant is that the complainant purchased two life insurance policies of Kodak Mahindra of Kodak Mahindra Old Mutual Life Insurance Ltd., on 24.12.2009, vide policy No. 1820254 in the name of the complainant and policy No. 1820351 in the name of his wife K.S. Santhakumary. The executive of the opposite party made to believe that they recently launched a special type of insurance policy, specially for married couple who are capable to pay at Rs. 1 lakh annual premium. The opposite party assured that, although the policy time is for 15 years, the complainant need to pay only for 3 years and they will be able to get back the entire invested money together with substantial profit at any time, after paying 3 years regular premium. Apart from this offer the opposite party offers all kinds of protection from any misfortune incidence, handsome salary for unemployed educated youth in the insured family and even foreign trips. According to the complainant, after paying the full 3 years premium he wanted to surrender the policy. At that time, the opposite party suggested to continue the policy or to wait till the share market is to be improved. The complainant understood that he will get back only the fund value of second and third year premium and the entire first year premium will be forfeited. It is again contended that anywhere in the terms and condition, the forfeiture of the first year premium was mentioned. According to him the forfeiture of the first premium at the time of surrender of the policy is against the assurance given by the officials of the opposite party hence the act of the opposite party with regard to the forfeiture of the first year premium amounts to deficiency in service and unfair trade practice on their side. Therefore, the complainant filed this complaint to give proper direction to the insurance company to pay back the full surrender value including the first year premium, compensation, cost etc.
3. 1st opposite party filed version contending as follows: According to 1st opposite party the case is not maintainable. It is contended that the complainant availed Unit Linked Investment Plan and the said investment plan cannot be questioned before the CDRF. The contesting opposite party has not compelled the complainant to avail the policies as stated by the complainant. If the complainant had any objection with regard to the said Unit Linked Investment Plan he could have raised objection in the free look period. The complainant and his wife remitted the policy premium only up to 24.12.2012. Though the opposite party issued notice for remittance of further premium, they failed to remit the premium after 24.12.2012. According to the contesting opposite party, the complainant did not file any surrender application for the said policies. As per the insurance law, the insured and insurer are strictly binding on terms and conditions of the policies. According to 1st opposite party the complainant filed a petition before the Insurance Ombudsman for the same purpose and the said complaint was also dismissed. It is again contended that a Unit Linked Investment Plan is basically a combination of insurance as well as investment. Apart from the premium paid is utilized to provide insurance policy holder while the remaining portion is invested in various equity and debut schemes. According to 1st opposite party, the deduction of first year premium has been explained in the policy document and as stated earlier an opportunity was also given to the complainant to approach the insurer within the free look period if any discrepancies are there. Hence the opposite party prayed to dismiss this complaint with compensatory cost to the opposite party.
4. Evidence consisted of oral testimony of complainant and Exts. A1 to A6 marked on his side. 1st opposite party Branch Manager was examined as DW1 and Exts. B1 to B9 were marked on their side.
5. The district forum appreciating the materials produced had concluded that forfeiture of first year premium at the time of surrender of policy by the opposite party is against the terms and conditions stated in the policy which amounts to deficiency in service. The forum on the basis of this conclusion passed the impugned order.
6. Heard both sides and perused the records.
7. The learned counsel for the appellant contended that the complainants were not consumers as they took the policy for investment as the policies opted by the complainant was unit link policy and the law is now well settled that such policies are speculative in nature and are taken for investment purpose and as such the policy holder of such policies are not consumers and dispute relating to such policies are not maintainable before the consumer forum and prayed for dismissal of the complaint.
8. We are unable to accept the challenge canvassed by the counsel relying on settled legal position. The Insurance Regulatory and Development Authority (IRDA) states as follows: “To protect the interest of policy holders, to regulate, promote and enjoy orderly growth of insurance interest and for matters connected therewith or incidental thereto”. IRDA has taken several steps with regard to the product structure of ULIPS. They have issued guidelines that all unit link products other than pension and annuity products shall provide all mortality cover or health cover thereby increasing the risk cover component in such products. As contended by the appellant themselves, ULIP is basically a combination of insurance as well as investment part.
9. This Commission in a similar case in the matter of Bajaj Allianz Life Insurance Co. Ltd. Vs. K.V. Sujith had observed that ‘The predominant feature of unit linked policy is the insurance cover which is dependent on human life and mere existence of additional investment factor cannot covert ULIP into mutual fund. It has a mandatory insurance cover and forms a vital inseparable part of every ULIP. Unlike share or mutual fund scheme the linked products are naturally linked with life of policy holder.
10. ULIP is an insurance contract falling within the ambit of life insurance business. Life insurance business is defined under Sec. 2(ii) of Insurance Act interalia to mean “business of effecting contracts of insurance upon human life” or “Happening of any contingency depending on human life”. The said definition indicated that the policy is depending on happening or non-happening of an event linked to human life. Unit linked life insurance business is defined in IRDA Investment Regulations 2010. Regulation 3 (iii) states “Every insurer shall invest and at all times keep invested his segregated funds of unit linked life insurance business as per pattern of investment offered to and approval by the policy holders”. Unit linked business is defined in IRDA (Registration of companies) Regulation 2001 which means life insurance contract or health insurance contract under which benefits are wholly or partly to be determined by reference to the underlying assets or any approved index.
11. The project was launched after following appropriate procedures and obtaining unique identification number from IRDA which is the regulator in case of life insurance products.
12. The definition of Collective Investment Scheme under Sec. 11A (a) of SEBI Act recognized that there could be collective investment scheme outside the SEBI regulation including insurance products and company deposit. The investment component of ULIP is subject to investment risk associated with security markets which are entirely borne by the investor. There are two components of ULIP one is the insurance component where risk of life insurance portion vests with the insurer and the other is investment component where risk lies with the investor. This establishes that conclusively ULIPs are combination products and the investment component need to be registered and regulated by SEBI. It needs to be also kept in mind that the guideline issued by the competing regulator IRDA is sufficient to hedge out investment risks. Further it has been said that ULIP has a mandatory insurance cover which forms a vital and inseparable part of every ULIPS.
13. Hence it can be concluded that it is unreasonable to hold that ULIP is mutual fund products simply because the requirements under the SEBI guidelines are fulfilled. It is undisputed that ULIPS contained insurance and investment parts but it also be understood that both the insurance and investment parts are currently regulated by IRDA”.
14. In the light of the above we hold that when a person takes insurance policy to cover the envisaged risk and even if the premium is invested in speculative business, yet it would fall within the purview of Consumer Protection Act.
15. Regarding the merits of the case the learned counsel for the appellant contended that in clause 14 of the policy terms and assured addition advantage clearly mentioned about the forfeiture of the first premium. The said clause under the head “premium allocation charge” clearly mentions that first year’s basic premium contributes towards providing the assured additional advantage and not allocated to the main account. Counsel for the appellant further contended that the district forum failed to appreciate the fact that complainant paid 3 years premium only and not thereafter. Therefore as per clause 8 of the policy the policy went to ACM, i.e; Automatic Cover Maintenance mode. In ACM Mode if the value of remaining units reaches a level such that the fund would fall to an amount which is less than one full year’s premium after deduction of mortality and administration charges, the policy shall be foreclosed and the fund value, if any, shall be paid. The complainant had the option to revive the policy or surrender the same, however, they neither revived the policy nor surrendered it. The risk involved in surrendering the policy has been clearly mentioned that the first premium paid under the policy does not form part of fund value and the same is contributed towards assured addition advantage which can be availed only on maturity, if all premiums are paid up to date. The counsel for the appellant further canvassed that the district forum failed to appreciate the fact that the investment risks and surrender charges have been categorically mentioned in the policy terms and conditions wherein it was clearly explained that the investment in the unit link products are subject to market and other risks and there can be no assurance that the objective of any fund will be achieved. Further the fund balance of each of the fund can go up and down depending upon the factors and forces affecting the financial and debts markets from time to time and also be affected by changes in the general level of interest rate and the insurance company has no control over the said market fluctuation. In case of surrender of policy after 3 years, the deduction of surrender charges has also been mentioned in the policy terms and condition. These facts were not looked into by the district forum is the contention taken by the counsel for the appellant.
16. On the other hand the learned counsel for the respondent contended that the opposite party assured that although the policy period is for 15 years the complainant need to pay only for three years and they will be able to get back the entire invested money together with substantial profit at any time after paying three years’ regular premium. The forfeiture of first premium at the time of surrender of policy is against the assurance and it is against the terms and conditions stated in the policy and therefore respondent/complainant is entitled to get back the full surrender value including first year’s premium.
17. As per clause 6 of the policy terms and conditions under the heading ‘Surrender’ states that the policy can be surrendered only after completion of 3 policy years and three annual basic premiums are paid. The surrender value applicable will be the then fund value in main and top up accounts less surrender charge (which is mentioned in clause 14). The top up accounts will also be surrendered together with the main account and there will be no option to surrender these two accounts viz; the main and the top up accounts separately. The surrender value of the top up accounts will be the fund value in the top up accounts.
18. Clause 8 of the terms and conditions under the head Automatic Cover Maintenance (ACM) states that “After receipt of premiums for three full years, if the premiums due have not been paid within the grace period, the insurance cover (Basic sum assured) will continue for a period of two years from the date of the first unpaid premium by liquidating such number of units at the prevailing unit price as are necessary to meet mortality and administration charges as and when they fall due, to enable the basic sum assured to return in force. The assured addition advantage will reduce. The fixed advantage benefit will be reset by considering average premium (calculated as mentioned below) instead of first years premium (i.e; the Fixed Advantage Benefit changes from a multiple of First year’s premium to (the same) multiple of the average premium). The average premium will be calculated as sum of all basic premiums paid divided by the PPT (original as at the start of the policy) and the Dynamic Advantage Benefit will cease to apply in the automatic cover maintenance mode. However assured addition advantage shall stand revived on revival of the policy. Under this option, if the value of remaining units reaches a level such that the fund would fall to an amount which is less than one full year’s premium after deduction of mortality and administration charges, the policy shall be foreclosed and the fund value, if any, shall be paid. The policy can be revived (as per clause 5) within two years from the date of the first unpaid premium or the policy holder can continue the policy in ACM mode till the end of policy term, by giving a request in writing to the company before completion of two years from the date of the first unpaid premium. If the policy is not revived or no such written request is given within the aforementioned period of two years, the policy shall stand automatically terminated and the surrender value, if any, as on that date, shall be paid. At any time during the ACM mode, if the balance in the main account is not sufficient to cover the mortality, extra premium, if any and administration charges, the policy shall stand automatically terminated from such date. Upon such termination the balance fund value in the main account and the fund value in the top up accounts, if any, shall be refunded. In the case the policy becomes a death claim whilst the Automatic Cover Maintenance is in operation and if the claim is admitted, the higher of (basic sum assured, fund value in main account+ prevailing fixed advantage benefit) along with fund value in top up accounts (if any) will become distributable on the contracted terms. The maturity benefit, whilst automatic cover maintenance is in operation, shall be the fund value in the main account and the top up accounts (if any) + prevailing fixed advantage benefit”.
19. Clause 14 under the head “Charges” state about “Premium Allocation
Charges: This is a percentage of the basic premium appropriated towards charges from the basic premium received. The balance known as allocation rate constitutes that part of premium, which is utilized to purchase units for the policy. This is a charge levied at the time of receipt of premiums. Your first year’s basic premium, contributes towards providing the assured advantage and not allocated to the main account. The premium allocation charges vary according to the level of the basic premium”.
19. From the above it is very clear that the premiums will be refunded only as per definitions given under assured addition advantage and therefore the action of the appellant/insurance company is correct and the complainant is free to surrender the policy as and when he required to derive maximum benefits available under the policy. Appellant is, therefore, not liable to pay further amount other than what is stated in the policy, at the time when the complainants/respondents surrender their policies.
20. The district forum erred in appreciating the terms and conditions of the policy and wrongly concluded that the forfeiting the first year’s premium on surrender of the policy is against the terms of the policy conditions and thus the direction given by the forum to refund the entire amount deposited by the complainants vide policy Nos. 1820254 and 1820351 with bank interest and also the order to pay compensation of Rs. 10,000/- and cost of Rs. 3,000/- with 10% interest is liable to be set aside. We do so.
In the result, appeal is allowed. Complaint in C.C. No. 142/2015 on the file of CDRF, Pathanamthitta shall stand dismissed. Parties are directed to suffer their respective costs.
Statutory amount deposited by the appellants at the time of filing the appeal is to be released to them, on its application.
T.S.P. MOOSATH : JUDICIAL MEMBER
RANJIT. R : MEMBER
BEENA KUMARY. A : MEMBER
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