The National Consumer Disputes Redressal Commission (NCDRC), presided over by AVM J. Rajendra, has ruled that banks are obligated to personally inform customers if an insurance policy linked to their loans is discontinued. The ruling came in a case involving a personal accident insurance policy tied to a home loan from the State Bank of India (SBI).
Case Background
The complainant’s late husband had taken a home loan from SBI in 2007, which included a personal accident insurance cover. He regularly paid loan installments until October 2015 but tragically passed away in a road accident in November 2015. Believing the insurance policy was still valid, the complainant sought to use the coverage to settle the outstanding loan balance.
However, SBI continued to demand loan payments and later informed the complainant that the insurance policy had been discontinued in 2013. The complainant argued that the bank had failed to notify her or her husband about this change, despite promoting the insurance as a benefit of the loan.
Legal Proceedings
- District Commission: The complainant initially approached the District Consumer Commission, seeking a waiver of the outstanding loan amount of ₹14,30,756.74. The complaint was dismissed.
- State Commission: On appeal, the State Consumer Commission of Maharashtra ruled in favor of the complainant. It directed the bank to waive the outstanding loan, pay ₹50,000 as compensation, and ₹25,000 for litigation costs.
- National Commission: Dissatisfied with the State Commission’s ruling, SBI filed a revision petition before the NCDRC.
Bank’s Defense
SBI argued that it had no obligation to personally notify customers about the policy’s discontinuation. The bank claimed it had informed customers through notice boards and its website. Additionally, it stated that the insurance policy was valid for only one year and had not been renewed after 2013.
Other respondents, including New India Assurance and SBI General Insurance, stated that their involvement ended when the policy was discontinued in 2012 or was not renewed in 2013.
NCDRC’s Findings
The NCDRC examined whether the bank’s failure to inform the insured constituted a deficiency in service. It referred to a previous judgment where it was held that banks must personally notify customers about such discontinuations.
The commission noted:
- The insurance policy was part of the loan agreement, and the insured paid loan interest, which served as consideration for the insurance.
- Merely posting notices on websites or boards was insufficient; personal notification was necessary.
- The bank’s failure to inform the insured created a false sense of security, leading to financial and emotional distress for the complainant.
Final Ruling
The NCDRC upheld the State Commission’s decision, confirming that SBI’s failure to notify the complainant constituted a deficiency in service. The bank was directed to waive the outstanding loan amount and pay the compensation and litigation costs as ordered earlier.
This ruling emphasizes the responsibility of banks to ensure transparency and accountability when discontinuing services linked to loan agreements.
