Borrower dies, insurer refunds premium instead of settling death claim: HDFC Life ordered to clear Rs 27 lakh loan

“The mere crediting of the refunded premium to the loan account without notifying the complainants and without making any representation on their behalf falls short of the standard of service reasonably expected of a bank in such an arrangement. PNB Housing Finance are accordingly also found to be deficient in service, though to a lesser degree,” the court said on June 12.

‘Unilateral, silent refund of premium unfair’

• Having held that a concluded contract of insurance existed, it follows inexorably that the refusal of HDFC Life to settle the death claim constitutes a deficiency in service within the meaning of Section 2(11) of the Consumer Protection Act, 2019, the commission held.
• The unilateral, silent refund of the premium without any intimation to the complainants further constitutes an unfair trade practice within the meaning of Section 2(47) of the Act.
• The true and substantive relief to which the complainants are entitled and which flows directly from the cause of action as set out in the body of the complaint petition is the discharge of the outstanding loan liability under the suit loan account, which was the very purpose for which the insurance coverage was procured.
• While fully conscious of the very real and serious hardship suffered by the complainants, who lost their predecessor and were simultaneously burdened with a continuing and growing loan liability owing entirely to the unjustified conduct of HDFC Life, the commission was of the considered opinion that the quantum claimed is disproportionate to the nature of the injury.

Death of insured, legal battle

• The dispute originated from a refusal of an insurance provider to settle a death claim related to a mortgage loan, alleging that the insurance contract was never finalised.
• In July 2020, the complainant, legal heirs, and their predecessors, Ashol Sharma, obtained a non-home mortgage loan of Rs 27.30 lakh from PNB Housing Finance and HDFC Life.
• As an integral part of the loan, Rs 1.30 lakh was deducted from the loan amount as a premium for a group life insurance policy from HDFC Life to cover the life of Ashok Sharma.
• Sharma died on October 12, 2020. When the complainants applied for a death claim to settle the loan, HDFC Life refused, claiming the contract was unconcluded because Sharma had failed to undergo a required medical examination after disclosing he was a smoker.

Silent refund

The complainants alleged that the opposite party credited the premium back to the suit loan account, and it only came to their knowledge for the first time when they obtained the statement of their loan account in June 2021.

It is further stated that between March 2021 and September 2021, the complainants approached HDFC Life on numerous occasions, which initially held out assurances of redressal but ultimately did nothing.

‘No psychological harm attributable’

PNB Housing Finance denied the allegations of deficiency in service and admitted the sanction and disbursement of the loan of Rs 27.30 lakh in July 2020 and the payment of Rs 1.30 as insurance premium to HDFC Life.

It was contended that there was no occasion for the complainants to suffer any psychological harm attributable, and the complaint against them was liable to be dismissed with costs.

HDFC Life contended that owing to the non-cooperation of Ashok Sharma during his lifetime in not undergoing the requisite medical examination, the necessary formalities for issuance of the insurance policy could not be completed, and consequently, the contract of insurance remained unconcluded.

It was accordingly submitted that the complainants cannot derive any benefit from an unconcluded contract.