SBI Liable for Service Deficiency in Processing Borrower’s Insurance, NCDRC Upholds Relief for Widow

Moneylife Digital Team 02 May 2025

Personal Finance

The national consumer disputes redressal commission (NCDRC) has upheld an order directing the State Bank of Travancore (SBT), now State Bank of India (SBI), to refund the outstanding loan amount and pay compensation to the widow of a deceased home loan borrower, holding the bank accountable for service deficiency in processing an insurance policy.

The case pertains to the late Antony Issac, who had jointly availed a home loan of Rs18.94 lakh from the bank with his wife, Sophia, in February 2007. As part of the loan agreement, SBT recommended that Mr Issac enroll in the Super Suraksha home loan insurance scheme, meant to cover the loan liability in the event of the borrower’s death.

Although the proposal form was dispatched from Dubai by Mr Issac on 31 July 2007, the insurance cover was activated only on 9 October 2007 — over two months later. Tragically, Mr Issac passed away on 5 November 2007 due to a cerebral haemorrhage — just 27 days after the policy commenced.

The insurer, SBI Life Insurance, rejected Ms Issac, the widow’s claim, citing a 45-day waiting period clause in the group insurance policy, which excludes cover for deaths occurring within that window unless caused by accident. She contended that neither the policy document nor the exclusion clause had been shared with them and that the bank delayed the processing of the insurance.

In 2011, the Kerala state consumer disputes redressal commission partially allowed the complaint, holding SBT liable for the deficiency in service. It directed SBT to refund Rs6.53 lakh — the loan amount due at the time — if already paid by the complainants, with 12% interest from the date of payment. Additionally, SBT was ordered to pay Rs15,000 for mental agony and Rs10,000 towards litigation costs.

In the meantime, on 31 March 2017, SBT was merged with SBI.

The NCDRC, while hearing the appeal, dismissed the lender’s challenge and upheld the state commission’s ruling. It found no grounds to interfere, stating that SBT’s handling of the insurance proposal had caused hardship to Ms Issac and her son Jagat, particularly by insisting on a fresh loan agreement after Mr Issac's death.

The NCDRC clarified that while the insurer could not be faulted under the specific terms of the policy, the bank, acting as an intermediary in the insurance arrangement, failed to ensure timely processing and communication of the policy terms — a lapse amounting to unfair trade practice and deficient service.

SBI has been granted two months from the date of receiving the order to comply, failing which it will be liable to pay interest at 15%pa (per annum) on the amount due from the original order date, 10 October 2011.

(First Appeal No34 of 2012 Date: 29 April 2025)

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