Premium paid to unauthorised agent does not bind insurer; policy lapse upheld, with refund and interest allowed

Where insurer's statutory rules and appointment terms expressly barred a general agent from collecting premiums, delivery of a bearer cheque to that agent did not amount to payment to the insurer in the absence of proved actual or apparent authority. The policy therefore lapsed for non-payment within the grace period, and the claim under the lapsed policies could not be enforced on that basis. Section 237 of the Indian Contract Act, 1872 was held inapplicable on the facts because the prohibition on collection was express and public. Refund of premiums with interest and costs was nevertheless granted.

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Issues: Whether payment of life insurance premium to a general agent by bearer cheque amounted to payment to the insurer so as to prevent lapse of the policy and sustain a claim under the policies.

Analysis: The governing policy conditions required payment within the grace period, failing which the policy lapsed, and revival was possible only during the life of the assured on fulfilment of the stated conditions. The relevant statutory rules and the agent's appointment terms expressly prohibited agents from collecting moneys or binding the Corporation, except where specifically authorised. On the law of agency, actual authority arises only from express or implied consent of the principal, while apparent authority depends on a representation by the principal to third parties. In the absence of any express authority, any necessity or ordinary incident of the agency, or material showing that the insurer had induced policyholders to believe that such agents were authorised to receive premiums, the cheque handed to the agent could not be treated as payment to the insurer. The statutory prohibition being public and express, Section 237 of the Indian Contract Act, 1872 could not be invoked on the facts.

Conclusion: Payment to the general agent was not payment to the insurer, the policies had lapsed for non-payment within the grace period, and the appellants were not entitled to enforce the insurance claim on that basis. The appellants were, however, granted refund of the premiums with interest and costs.

Final Conclusion: The insurer was not held liable on the lapsed policies, but the appellants obtained limited monetary relief by way of refund, interest, and costs.

Ratio Decidendi: Where the insurer's statutory rules and appointment terms expressly prohibit an agent from collecting premiums, receipt of a premium by such agent does not, without proved actual or apparent authority, constitute payment to the insurer.

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