Bank's Failure To Inform Borrower Of Insurance Rejection Is Deficiency In Service: Chhattisgarh High Court

The Chhattisgarh High Court on 25 June held that a bank which facilitates insurance under a loan-linked group insurance scheme must inform the borrower of rejection of the insurance proposal, and failure to do so constitutes deficiency in service.

A Bench of Justice Ravindra Kumar Agrawal dismissed a petition filed by State Bank of India under Article 227 of the Constitution and affirmed the orders passed by the District, State and National Consumer Commissions. He observed:

“Once the petitioner undertook to facilitate insurance under the Master Policy and admittedly received the insurer's communication along with the refunded premium, it was under a corresponding duty to act with due diligence and keep the borrower informed.”

The borrower had availed a housing loan and paid the insurance premium through SBI under the SBI Life Rinn Raksha Group Insurance Scheme. The insurer later rejected the proposal for non-submission of medical documents and refunded the premium to the bank. Although SBI received both the rejection communication and the refund, it did not inform the borrower during his lifetime and did not credit the refund.

The consumer fora at all three levels held that this omission deprived the borrower of the opportunity to secure alternate insurance coverage and amounted to deficiency in service. They found that once the bank undertook facilitation under the master policy, it assumed a duty of communication regarding the insurer's decision.

However, the High Court found no perversity or jurisdictional error in the concurrent findings. It held that SBI's failure to inform the borrower after receiving the insurer's rejection and refund justified the conclusion of deficiency in service.

Accordingly, the Bench dismissed the writ petition.

For the Appellants: Pankaj Singh, Advocate