Case of Employee and Employer Insurable Interest

In Hebdon v West, Hebdon, a bank clerk, was employed for seven years under a fixed term
contract at a salary of £600.00 per annum. The bank had also lent him £4,700 and the managing
partner, Pedder, had promised him that the debt need not be repaid during his, Pedder’s,
lifetime. At a time when his contract had approximately five years to run, Hebdon insured
Pedder’s life through two life companies, one policy was for £5,000 and the second policy was
for £2,500. After six years Pedder died and the employment was terminated. Hebdon received
£5,000 under the first policy but when the second insurers refused his claim, he sued. The first
insurers had not raised the point that the value of the policy exceeded the salary due to Hebdon
over the entire term. Further, as insurable interest in life policies must be found to exist at the
date when the policy is effected, not at the date of the loss, they could not in any case raise the
point that his employment contract had only one year left to run at the date of the death (a
quantifiable loss of salary of only £600.00). However, with respect to the second life policy,
Wightman J held that the promise made by Pedder not to call in the debt was gratuitous and
therefore non-enforceable. This had the effect that since Hebdon’s insurable interest had been
amply satisfied by the first policy he therefore lacked the requisite insurable interest to enforce
the second policy. Wightman J, considering the effect of the 1774 Act, said:

We assume, then, that the plaintiff had a pecuniary interest in the life of Pedder to the extent of
£2,500 at the time he effected the policy with the defendant’s office. If that be so, the question
then arises whether payment, after the death of Pedder, of £5,000 by another life insurance
company … is a bar to the plaintiff’s claim. … Looking to the declared object of the legislature
… it was intended by the third section of the Act that the insured should in no case recover or
receive from the insurers (whether upon one policy or many) more than the insurable interest
which the person making the insurance had at the time he insured the life.

The judgment is illuminating in so far as the judge proceeds on the basis that the effect of
section 3 of the Act is to treat life policies as contracts of indemnity, the sole distinction being
the time when insurable interest must exist. However, the strict orthodoxy of quantifying the
pecuniary interest of the insured by reference to the terms of the employment contract is often
ignored by the courts. This is apparent where, for example, the death of an employee would
have serious implications for the profits and asset value of a business, and so the court will have
regard to consequential losses ensuing from the death.
Misrepresentation as to age:

 Anand kumar Kejriwal vs LIC, 2011: It has been held that suppression of the fact of
real age by the insured does not create any need for cancellation of the policy. Such
matter can be resolved by charging higher premium as a penalty from the insured. The
policy could not be questioned because of such misstatement. Repudiation of the claim
was not proper.

Questionnaire filled by agent:

 LIC vs Kalva Subhadramma, 2009: Where the proposal form was filled by the agent
of the corporation who admitted that he also filled in the questionnaire without
explaining things to the assured, the court said that it could not be inferred that the
assured was made aware of all the questions, and it was held that no question of
suppressing health condition on the part of the assured arose. The corporation was not
allowed to repudiate the claim.

Repudiation on account of Misrepresentation:

 LIC vs Asha Goel, 2001: The public in general and crores of policy holders in particular,
look forward to prompt and efficient service from LIC. The authorities in charge of the
management of the affairs of LIC should bear in mind that its credibility and reputation
depend on its prompt and efficient service. The approach of LIC in the matter of
repudiation of a policy admittedly issued by it should be one of extreme care and caution.
It should not be dealt with a mechanical and routine manner.

Limitation:

 Article 57 of the Limitation Act, 1963 is applicable to contracts of insurance and,

therefore, the period of limitation is 3 years from the date of cause of action.

Return of Premium:

 Where the policy is avoided by the reasons of fraudulent misrepresentations, no refund of

premiums. Policy is illegal due to lack of insurable interest no refund of premium (Harse
v Pearl Life Assurance Co.). Mistake of law is no defence.
No refund where policy vitiated [S. 45, Insurance Act]

 Where a fraud has been committed by the insurer himself and the policy is void for that
reason premiums would be refundable.
 For example, where the holder of a policy of insurance being minded to give up paying
the premiums was persuaded to continue the payments by a false representation of the
insurance company's agent that if she paid the premiums for a certain time she would
receive a free policy. The representation was made without the authority or knowledge of
the company and the company refused to grant a free policy but retained the premiums.
It was held that the holder of the policy was entitled to recover from the company
the premiums paid upon the faith of the representation.

Lapse policy for non-payment

 LIC v Jaya Chandel: A policy lapsed for non-payment of premium and the question of
its revival arose. It was held that though the amount of unpaid premium was sent before
death of the assured, it was received after death, sending the cheque could not be taken as
the date of receipt of premium for the purposes of revival, Section 64-VB of the
Insurance Act does not apply to life policies. Repudiation of the claim was proper.

 An insurance proposal was not yet accepted. The intending insured died without
complying with certain requirements to complete the insurance contract. No
communication was made by the insurer. It was held that retention of premium could not
be construed as acceptance- LIC vs Jamuna

Surrender Value

 In calculating surrender value, the amount due on the policy and payable should be
interpreted in favour of policy holder in case two views are possible.

Salary saver scheme:

 Where the Scheme originally required the employer to deduct premium from the salary
of employees and to remit the same to LIC by one cheque and further required the
employer but not the employee to intimate LIC of any changes in the staff, it was held
that the LIC could not by a subsequent circular place on the employee the liability to
 intimate LIC of leaving the employment or cesser of collection/remittance by the
employer.

Date of policy:

1. Back Dating: No matter the date from which the risk under the policy is covered from
back date the date of policy shall be effective from the date on which the policy was
issued, and for purposes of claim the issue date shall be considered
2. Premature Illness: The insured suffered from renal failure within one year of
commencement of policy. He was therefore not eligible for receiving any benefit under
the policy because benefits were to become payable for any suffering occurring after one
year of commencement.
But the court considered the social welfare objective of the LIC, converted the policy
into endowment policy and directed payment of the sum assured with profit or on ex
gratia basis. - T S Pushpalatha vs LIC

Presumption of death

 The claimant's son had taken out a policy on his life for a term of 25 years for a small
amount. He went missing before maturity of the policy. His father kept up payment of
premium for four years after disappearance. He died and no further premiums were paid.
 The claimant (mother) obtained a declaratory decree that her son was presumed dead
because of not being heard for seven years. The insurer refused payment of full assured
sum and accrued bonus on the ground that the presumed death was to become effective
after expiry of seven years whereas premiums were paid only for four years after
disappearance and hence policy lapsed.
 The court did not accept this argument. On the completion of seven years, death becomes
effective from the date of disappearance and, therefore, no further premiums were
necessary.
 Section 108 of the Evidence Act does not indicate any date on which actual death is to be
supposed to have taken place. All that it says is that once the presumption becomes
effective on completion of seven years, if anybody says that the person in question is
still alive he must prove that fact.
 Hence, the denial of benefits under the policy to the mother was not proper.

Application of Hindu Succession Act

  On the death of the assured, a claim was laid by his widow as nominee and her two
children. A rival claim was laid by the mother and a brother of the deceased. It was held
that the brother was not a class I heir under Sch. 1 to the Hindu Succession Act, 1956. He
was not entitled to any share. The mother was a class I heir and, therefore, she was
entitled to 1/4 share.
 In case where the nominee is not mentioned, the claim is to be divided equally
amongst class 1 heirs of the deceased.  Shubhangi Ghatge vs LIC

General Agent

 The premium may be paid by the assured or by the insurance agents acting on behalf of
the insurers and if the agent has authority to it, the payment bind the insurers. The
authority need not be an express, it can be implied from the circumstances.

Interest on delayed payments

 The insurer is liable to pay interest on delayed payment of amounts due on maturity of
LIC policy where delay is occasioned by the failure of the insurer to fulfil its statutory
obligation on unconceived grounds.

Personal Accident Policy

1. Doctrine of Proximate Cause

 In policies of insurance against death by accident, the policies often provide, and it is
also a principle of law, that the death in question must have been proximately caused by
the event insured against.
 For example, in Etherington v Lancashire and Yorkshire Accident Insurance: Under
a policy of insurance against accidental injury, a capital sum was payable if death
occurred within three months directly and proximately due to an accident without the
intervention of any disease or any other cause. The assured fell upon a wet ground from
his horse while hunting and suffered a serious shock to his nervous system. He rode
home in wet clothes and the following day developed signs of pneumonia, from which he
died six days later.
The court held that since he fall from the horse and though it doesn’t cause any physical
and internal injury but the fall, combined with getting wet and riding home in wet
clothes, created conditions that ultimately led to his death from pneumonia.
 Smith v Cornhill Insurance Co. : The insured one evening left alone in her car. The next
morning the car was found badly damaged and lying on the side of a track some yards
below the level of the road. It was found as a fact that she had suffered from a severe
mental and physical shock and as a result of this injury to the brain, and that in a state of
mental confusion she had wandered aimlessly through bushes which led to a river. The
shock of entering the water which was up to her neck, but had not entered her lungs or
stomach, killed her. The insurance company refused to pay contending that the death was
not due to the accident. But the company was held liable. The court said that the real
cause of death was the accident, as each subsequent event was due to the brain injury
resulting from the accident. There was no break here in the chain of causation
connecting the accident with the death.
 Trew v Railway Passenger’s Assurance Co.: death by drowning held to be an
accidental death.
 Coxe vs Employer’s liability assurance Co Ltd. : A personal accident insurance policy
was effected by the insured against death. A clause stated that the policy would not apply
if death was "directly or indirectly caused by, arising from, or traceable to... war". The
insured was an Army officer. He was walking alongside a railway line for the purpose of
visiting guards and sentries, who were guarding it in war time. He was killed by a train.
The place where the accident happened was dark. Normally it would have been
illuminated by the lights of a signal-box but were obscured in compliance with
regulations made under the Defence of the Realm Act, 1914. The insured's personal
representatives claimed under the policy.
The claim failed. The "proximate cause" rule was excluded by the terms of the policy.
The insured's death was indirectly caused by war because he was walking near the
railway line in pursuance of his military duties, which exposed him to special risks.

 Where death is caused by an act done intentionally, and not caused by an accident, it may
not be regarded as an accidental death.
For example, in Scarr v General Accident Assurance Corpn, the assured attempted to
eject a drunken man from his master's premises using some physical exertion for that
purpose by pushing or pulling in order to overcome the man's passive resistance. The
effect was to cause a strain on the assured's heart and owing to its weakness, though not
known to the assured, he could not survive the strain. But for this exertion the assured
 might have lived a considerable longer time. But even so the death in question was held
not to be accidental.

2. Non-production of driving licence

 K S Usha vs LIC: The claim was for double accident benefit. The accident occurred due
to rash and negligent driving of the other person and not due to the deceased driver. The
petitioner, widow of the deceased policy holder, was only a housewife. She did not know
of the details of the driving licence of her husband. She could not produce the licence.
That was held to be no ground for the LIC to repudiate the claim.

MEDICAL INSURANCE

1. Renewable of Policy:
 Biman Krishna Bose v United India Insurance Co Ltd: A renewal of an insurance
policy means repetition of the original policy. When renewed, the policy is extended and
the renewed policy in identical terms from a different date of its expiration comes into
force. In common parlance, by renewal, the old policy is revived, and it is a sort of
substitution of obligations under the old policy unless such policy provides otherwise. It
may be that on renewal, a new contract comes into being, but the new contract is on the
same terms and conditions as that of the original policy.
 Akshoy Paul vs New India Assurance Co., 2007: Refusal was not allowed to be made
on the ground that the insured contracted a disease during the period of the original
policy. Renewal has to be made without excluding any disease already covered under the
existing policy and which might have been contracted during the period of the policy.
The insured was forced and pressurised to consent to the exclusion of cover for cardiac
ailments. The consent being not free, the insured was not bound by the term.

2. Interpretation

Hari Om Agarwal v Oriental Insurance Co Ltd: Diabetes was a condition at the time of
submission of the proposal and so was hypertension. It could lead to cardiac disease. It was
held that a presumption would arise that the exclusion clause would not cover such unforeseen
ailments. The insurer refused to meet expenses of treatment of the cardiac disease because of
the pre-existing condition which was specifically excluded. This decision was held to be
arbitrary and unreasonable. The court advised that a state insurance company should set
standards and examples of model behaviour.

3. Exclusion clause

 Nirmalaben Jaysukhlal Sheth v New India Assurance Co Ltd: An overseas

mediclaim insurance policy specifically excluded treatment relating to spinal cord or
fracture of neck femur. The claimant suffered hip fracture in the region of right femur due
to an accidental fall in Disney Land in Florida. It was held that it was not covered by the
exclusion clause. The claimant was accordingly entitled to medical reimbursement.

 Usha Jhunjhunwala vs Oriental Insurance Co Ltd.: The treatment administered to the

insurer for her wet-ARMD/AMD with mixed CNVM was to inject anti-VEGF drug. It
did not fall into the category of treatment and therefore was clearly not surgery. It did not
come under the exclusion clause. Repudiation of the claim was therefore held to be not
proper.

4. Renewal at enhanced premium

 United India Insurance Co Ltd v K O John: Renewal by mutual consent was
regarded by the Supreme Court as equivalent to making a new contract. The insured
has, therefore, no legal or contractual right to insist that the policy be renewed on
payment of the original premium amount and as such a writ cannot be issued against
the insurance company. Fixation of higher premium while renewing the policy as
per the insurer's own guidelines was held to be not an arbitrary act. Direction
could not be given that renewal at a higher rate be made with retrospective effect.

5. State Government's Health Insurance Scheme

 Mizoram Health Care Scheme Insured Persons Assn v State of Mizoram: There
was an agreement between the State and insurance company to implement the
scheme. The petitioners were members of Mizoram Health Care Scheme Persons
Insured Association. They had paid the requisite premium and got themselves insured
 under the State Government Scheme. As per the terms and conditions of the scheme,
the Government of Mizoram paid 95 per cent of the total premium amount well ahead
of the policy period. Apart from the constitutional obligation of ensuring well being of
its people, the State had undertaken the contractual obligation as well. The petitioners
were held entitled to claim reimbursement of medical expenses which they incurred in
the treatment of specified diseases in approved hospitals during the policy period.
They had to make their claim for this purpose in accordance with the terms and
conditions of the policy.

6. Liability Insurance
 West Wake Price & Co v Ching: A liability insurance policy which was meant to
apply to claims based on negligence was held not to cover a case of fraud. The policy
in question provided for liability in respect of an act of neglect, default, or error on the
part of the assured or their servants in the conduct of their business as accountants.
The insurer was held not liable for loss caused by fraudulent misappropriation of a
client's money by a clerk of the assured.
 Woolfall& Rimmer Ltd v Moyle : Where a liability insurance policy required the
assured to take all reasonable precautions to prevent accidents, it was held that this
requirement did not prevent the assured from recovering indemnity for loss caused by
a negligent act on the part of a competent foreman selected by the assured.