Lawwatch

Consumer includes Beneficiaries of Insurance Policy

Introduction

The seminal question whether a beneficiary of an insurance policy, who has not paid any premium to the insurance firm but uses the services under the insurance with the policy holder’s due approval, comes under the definition of consumer under the Consumer Protection Act 1986 is made clear by the Supreme Court (SC) early in 2020.

In Canara Bank v United India Insurance Co & others delivered on 6th February 2020, the SC declared that the beneficiary of insurance policy would come within the definition of consumer under the Act, if the insurance service is used by the beneficiary with due approval of the policy holder. This has been made clear by interpreting Section 2(1) (d) of the Act.

Beneficiary is also a consumer

The SC says the definition of consumer under the Act is very wide. It includes the beneficiaries of the insurance policy subscribed by other person on their behalf. The beneficiary need not be a party to the contract between the policy subscriber and the insurance company in order to avail the protection under the insurance so long as the use of insurance service is made with the approval of the policy subscriber.

Definition of consumer is wide

The SC explained that the definition of the consumer includes not only the person who has purchased the policy but also any user of the goods so long as such use is made with the approval of the person who has purchased the goods - here the insurance policy.

The beneficiaries need not be parties to the contract of insurance. Therefore the beneficiaries of the insurance policy taken out by the insured will be eligible for protections as consumers under the consumer protection act.

Brief facts of the case

The facts of the case are as follows: a cold storage meant for storing the agricultural produce of the farmers took insurance policy for the cold storage without making the farmer a party to the insurance.

Simultaneously the cold storage entered into a tripartite agreement with the farmers and a bank which paid the charges for using the cold storage by the farmers as loan amount. The cold storage met with an accidental fire and the items stored in the cold storage by the farmers got damaged. The insurance company declined to pay the insurance amount towards the items stored in the cold storage stating that the firm has no contractual obligation with the farmers.

SC decision

The SC declared that the insurance company is bound to pay the farmers the value of their goods stored in the cold storage as they are the beneficiaries and to meet the amount which the bank loaned to the farmers out of such payment.

Additional reading

  1. Canara Bank v United India Insurance Co & others, available at https://indiankanoon.org/doc/146264212/?type=print