Consumer redressal forum penalizes obstinate LIC

In a simple matter of maturity claim of a policy, the LIC did not communicate anything to the customer for 6 months. The customer had to move the consumer court. The Consumer court ordered LIC to pay policy amount and bonus alongwith interest on the amount due for delay period, penalty for mental harassment Rs. 2000 and legal cost Rs. 1000. Considering the legal costs LIC has already incurred, it seems LIC is going to spend at least two times of what the consumer was originally claiming. Reason – LIC’s lethargy, its staff’s obstinacy and the consumer’s willingness to take the trouble of moving the consumer court.

The facts of the case are simple. Mr. B. Y. Patankar purchased a policy of Rs. 5,000 called “convertible whole life assurance policy with profit” (table no. 28) in Mar’ 1974. The premium per month was Rs. 13.90 to be deducted from salary. The term of the policy was 35 years. In March 2009, having paid all the premiums in time, the consumer deposited the claim form and original policy with the LIC’s branch no 964 at Nashik.

The LIC maintained complete silence for several months. It did not write anything to consumer about the fate of the policy claim. After several oral reminders and follow up failed to entice any response from LIC, the consumer made an application under the Right to Information Act. He asked the fate of his claim, and names of the officers responsible for delay in settling the claim. LIC replied, saying that the policy amount is payable only on death of the insured, and that the policy could have been converted to endowment plan by making an application within first 5 years. It also said that it has conveyed this to one of its development officers! As to why this was not communicated to consumer even 6 months after he made the claim, the reply to RTI application just keeps mum. The appellate authority under RTI act, without giving any opportunity to the consumer to put his case, just ratified the original reply.

However, there was a basic flaw in the LIC’s argument.  Over the years, LIC has been sending the letters regarding bonus credited to the policy. The rate for whole life policy (i.e. without conversion) is always higher than the endowment policy (converted). And, as one can plainly see, the bonus credited to the said policy is at the lower rate. So, while crediting bonus, the LIC is treating this policy as endowment policy. But while settling the claim, it wants to treat it as whole life policy!.

Ultimately, when appeal under RTI produced no results, the customer sent a letter to LIC, asking for settlement of claim or at least returning the original policy. As LIC chose not to respond to the same, the consumer had to move the Consumer Court at Nashik in February 2010. Within 4 months that is on 29 July 2010 the consumer court has determined that the LIC has provided insufficient service to its consumer. It has ordered payment of policy amount along with bonus to be paid to consumer within 30 days. It has also ordered LIC to pay interest @ 9% per year for the delay period. Over and above this, it has ordered LIC to pay its customer Rs. 2000 for harassment and Rs. 1,000 for compensation of legal expenses.

LIC was represented by a senior advocate, while consumer fought his own case. Assuming the advocate’s fee to be not less than 5,000, the LIC’s cost of lethargy and obstinacy comes to more than the original claim of consumer of Rs. 14,000. One can only hope LIC learns from experience and fixes the responsibility within LIC for its decision to speak to its customer only through the court!

A little update on this : The LIC paid this claim in full as per Consumer Redressal Forum’s decision, today 31 August 2010