NEW DELHI: A district consumer commission in Jammu and Kashmir has ruled that a bank cannot deny loan-linked insurance benefits to a deceased borrower’s family by simply reversing the premium after his death. In its July 16 order the commission held Jammu and Kashmir Bank and PNB MetLife India Insurance jointly liable for deficiency in service and unfair trade practice, and directed them to pay the insurance amount.How did the loan insurance dispute begin?The complaint was filed by Shahzada Begum, widow of Mohammad Ayoub Dar, along with their three minor children. According to the complaint, Dar had taken a cash credit loan from J&K Bank to set up a garment business. Before disbursing the loan, the bank deducted Rs 16,000 from his account towards a loan-linked insurance premium, which he accepted.Dar died on June 1, 2022. Weeks later, the bank reversed the Rs 16,000 premium back into his account and took the position that there was no insurance cover. It then began recovery proceedings against the widow and children for the outstanding loan. When the family sought the insurance benefit, the bank rejected their demands after which the family of the deceased approached the consumer commission, seeking the insurance claim along with compensation for mental agony and litigation costs.Why did the consumer commission rule against the bank?The bench comprising President Peerzada Qousar Hussian and Member Nyla Yaseen noted that it was undisputed that Rs 16,000 had been deducted from the borrower’s account towards insurance premium. The bench framed the core issue as whether the bank and insurer could deny coverage by reversing that amount after the borrower’s death, and went on to hold that refunding the premium once he had died “amounts to a clear deficiency in service and an unfair trade practice.”“The consumer cannot be made to suffer on account of internal lapses, if any, between the bank and the insurance company,” the commission noted.“Under the foregoing findings, it is recorded that the deduction of premium created a legitimate expectation of insurance coverage and the reversal of the premium after the death of the borrower cannot ordinarily defeat the rights of the insured or his legal heirs unless the OPs establish, by cogent evidence, that no contract of insurance ever came into existence and that the borrower was duly informed of the same before his death,” the commission further noted.The commission allowed the complaint and ordered the bank and insurer to treat the deceased borrower as insured under the policy from the date of his death. It directed PNB MetLife to pay the insured amount to the family, after adjusting the Rs 16,000 premium already deducted, along with 5 per cent interest from the date the complaint was filed until the amount is paid.The bank and insurer were also told to jointly pay Rs 2 lakh as compensation and Rs 30,000 for legal costs, and to use the insured amount to settle the deceased’s outstanding loan. If any money had already been recovered — or was still being recovered — from the family towards that loan, it would have to be dealt with as per the law and the terms of the policy.The bench gave the opposite parties four weeks to comply, failing which the awarded amount would carry 7 per cent interest from the date of the order until realisation.
