Consumer rights
When time’s at premium
Pushpa Girimaji

In insurance matters, time is important. Central Coalfields, Dharbanga, obviously was unaware of this crucial aspect of insurance when it took its own time to remit the premium collected from its employees towards a group insurance policy. But to the widow of D.C. Mishra, this attitude of the company meant a long wait of five years and a bitter legal battle to get what was due to her immediately after her husband’s death — his insurance money. This case should make employers, who take group insurance schemes on behalf of their employees, more conscious of the time factor and also their responsibilities vis-à-vis the employees.

The background to this entire issue is quite simple, though tragic. Central Coalfields entered into an MoU with Oriental Insurance for a group insurance scheme covering all its employees. As per the scheme, the employer was to deduct Rs 156 from the salary of its employees and remit it on or before March 31. Accordingly, the premium amount was deducted from the salaries of the employees in February, but Coalfields sent the cheque to the insurance company only on May 29, 2001.

Meanwhile, Mishra, who was a superintendent engineer at Coalfields met with a road accident and died on April 20, 2001. And the insurance company repudiated his widow’s claim on the ground that the premium was not even paid at the time of his death. The District Forum, before which Mrs Mishra filed a complaint, held Central Coalfields liable on the ground that even though it had collected the premium from its employees, it had not paid the same to the insurer. It, therefore, asked Central Coalfields to pay Rs 5 lakh along with interest.

Coalfields contested this on the ground that it was only acting as the agent of the insurance company and, therefore, for any delay on its part in remitting the premium, the principal or the insurance company was liable. In support of this, the company quoted the decision of the Supreme Court in the case of DESU vs Basanti Devi and Chariman, LIC, and others vs Rajiv Kumar Bhaskar. Let me give some details about the case of DESU vs Basanti Devi. Here, delay on the part of DESU in paying the premium amount collected from the employees had resulted in a lapsed policy and repudiation of Basanti Devi’s claim by the insurance company. Following the widow’s complaint, the National Consumer Disputes Redressal Commission had held DESU liable and directed it to pay the insured amount.

In the meanwhile in a similar case (State of Orissa vs Divisional Manager, LIC) the Supreme Court set aside the National Commission’s order asking the Orissa Government as the employer to pay the insured amount, on the ground that firstly, the service provided by the government under the SS Scheme was under a “contract of personal service” involving an employer and an employee. Secondly, the government was rendering the service of transferring the premium to the LIC free of charge. (Both free service and contract of personal service are outside the purview of the consumer courts). This judgement meant that in the case of Basanti Devi too, DESU would not be liable to pay the widow the insured amount, as directed by the National Commission.

Fortunately, when DESU’s appeal came before it, the Supreme Court examined the SS Scheme in detail and concluded that DESU, as an employer who had undertaken to pay the premium of the employees, was acting as an agent of the LIC as defined under Section 182 of the Contract Act. Under the agreement between the LIC and DESU, the latter had implied authority to collect premium from the employees on behalf of the LIC. The Corporation, therefore, was liable for the failure of its agent, in this case DESU, to pay the premium amount on time, the apex court held.

Now quoting this case, Central Coalfields argued that it was also an agent of the insurance company. Dismissing such an argument, the apex consumer court pointed out that those cases pertained to Salary Savings Scheme, where each employee owned the policy individually and the employer undertook to collect the premium and remit it to the insurer. This, on the other hand, was a group insurance scheme taken by an employer on behalf of its employees, where the employer is the insured and not the agent. So the decision of the Supreme Court in those cases had no applicability in this case.

Considering that these days, most employees are covered under group insurance schemes taken by employers, this is an extremely important order that holds the employer liable for delaying payment of premium deducted from employees’ salaries. (Central Coalfields vs Bandana Mishra, RP no 702 of 2005)