Bank Fined For Failure In Renewal Of Insurance

Bank penalized for staff’s cancelled cover-ET
MUMBAI: The National Consumer Disputes Redressal Commission has directed a bank to pay an insurance amount of Rs 5 lakh with a compensation of Rs 3.5 lakh to the widow of an employee killed in a bike accident in Vashi in 2006.

The insurance company had terminated the group insurance agreement with the bank in 2002 but the bank did not notify its employees, prompting the commission to penalize the bank and not the insurer. The order has been forwarded to the Union finance ministry, urging it to formulate norms to curb unilateral termination of group insurance policies.

The commission, while absolving New India Assurance Company in this case, pointed out that it had come across many cases where insurance companies unilaterally withdrew policies when the claim ratio turned high. "This tantamounts to unfair trade practice," it observed.

It further stated that a protocol for cancellation of policy and its intimation to the beneficiaries has not been laid down.

"Secretary, ministry of financial service and chairman IRDA may like to review such cases of cancellation of group insurance policies by public sector and private companies and take necessary action to ensure that the insurance companies cannot in future unilaterally cancel the group insurance policy after having offered the same. Even if it is to be cancelled it should be terminated not with retrospective effect, as the beneficiaries already covered should remain covered for the duration of the policy," the commission observed.

Manisha Bedmutha's husband Dr Abhay Bedmutha had an account with the Nashik Merchant Co-operative Bank Ltd and was also a shareholder. In 1998, the bank canvassed a Group Janata Accident Insurance policy floated by the insurance company. The policy was valid till November 2010 and the amount assured was Rs 5 lakh. On the evening of October 14, 2006, Bedmutha was hit by a bus while riding his bike in Vashi. He died and his wife filed the claim. However, on December 6, 2006 the insurance company informed the bank that it had rejected the claim on the ground that the policy was cancelled in 2002.

Manisha filed a complaint in the district forum and alleged that the insurance company had neither informed them about the cancellation nor had it refunded the premium amount. She contended that it had not sought their consent while cancelling the policy and hence, the cancellation was arbitrary and illegal.

The forum ruled in Manisha's favour and directed the insurance company to pay the amount with compensation. The order was also upheld by the state commission in July 2008. Aggrieved, the insurance company filed a revision petition in the national commission in 2008.

The insurance company contended that the policy was in the name of the bank and according to the terms and conditions it had intimated it about the cancellation. It said that the policy was cancelled on the ground that the claim ratio was very high.

The bank admitted before the commission that no information regarding cancelling of the policy was given to the individual beneficiaries.

The commission observed that it was the bank that had denied the beneficiaries the opportunity to avail of an alternate policy by not informing them of the cancellation. The commission said that the decision of the district forum needed to be modified to the extent that the bank would pay for all the expenses.