Wake-up call for insurers

Many a time, beneficiaries of social welfare schemes have failed to get the insured amount from insurance companies 

Under the Salary Savings Scheme, there have been many instances where the employees or their nominees have failed to get the benefit of group insurance, only because the employer forgot to remit the insurance premium deducted from the salary of the employee, to the insurance company.

And the insurance company, too, did not bother to ensure that the premium was collected without fail and the policies kept alive. In several such cases, the widows have had to seek the help of the courts for justice.

Here is a case where the beneficiary of a social welfare scheme failed to get the insured amount under similar circumstances and had to wage a long legal battle lasting a decade to get the insured amount. The case speaks volumes about the way insurance companies treat such schemes. The order of the apex consumer court in this case should act as a wake-up call to insurers who take such schemes lightly — both in respect of collecting the premium and in paying the insured amount, thereby defeating the very purpose of such schemes.

The welfare scheme here was meant to provide health and accident insurance benefits to college students. Called the ‘Group Student Safety Insurance and Group Janta Personal Accident Policy’, the insurance scheme, introduced by Uttar Pradesh, covered all regular students of all government-aided and government-recognised institutions for higher education in the state. Under the scheme, each student had to compulsorily pay Rs 22 towards the annual insurance premium at the time of admission, along with the college fee, and the colleges, in turn, had to remit this amount within a specified time to the National Insurance Company for insurance coverage of every student.

Accordingly when Sharif Ahmad got admission in the DAV (PG) College for a post-graduate course in economics in August 1999, he paid the insurance premium, along with his admission fee. However, on December 8, he died in tragic circumstances in a road accident. When his grief-stricken parents sought the insured amount, the insurance company said he was not even covered under the scheme as the college had not submitted the insurance premium before his death.

The distressed father, then, filed a complaint before the District Consumer Disputes Redressal Forum, which held the college guilty of negligence in not remitting the insurance premium collected from the student and directed it to pay the insured amount. Unhappy with this order, the college filed an appeal before the State Consumer Disputes Redressal Commission, which held the insurance company liable and directed it to pay the insured amount of Rs 1,10,000, along with 8 per cent interest.

This time, the insurance company filed a revision petition before the National Consumer Disputes Redressal Commission, arguing that the college had failed to carry out its responsibility and the insurance company cannot be made to pay for its negligence.

The college, on its part, argued that it was rendering this service of collecting the premium and remitting it to the insurance company, free of charge. Besides, the insurer, too, had a responsibility in ensuring that the premium was collected in time.

In order to arrive at a decision, the commission referred to the Memorandum of Understanding signed between the state government and the insurance company and held that even though the MoU put a responsibility on the college to pay the premium to the insurance company, there was an equal responsibility on the insurer, too, for collecting the premium from the college. The insurance company had failed to do this.

The commission also referred to the decision of the apex court in the case of Delhi Electric Supply Undertaking (DESU) Vs Basanti Devi and held that like DESU in that case, the college here was acting as an agent of the insurance company in that it was collecting the insurance premium on behalf of the insurance company and transferring it to the company. Thus, in so far as the student was concerned, once he paid the premium amount to the college, he was entitled to coverage under the insurance policy. So the insurance company cannot take the plea that the student was not insured as his premium had not been paid by the college.

The commission, thus, upheld the decision of the State Commission directing the insurance company to pay the insured amount. (National Insurance Vs DAV (PG) College and Shafeek Ahmad, RPNo 2095 of 2009, decided on January 10, 2012).

In the recent years, a number of insurance schemes have been introduced by state governments as well as the Central Government to help those in the lower economic strata. This order should force insurers to take all such schemes more seriously.

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