Beneficiaries are consumers though they are not a party to contract of insurance

The Supreme Court observed that a contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void

The appeal was filed by the insurance company on the ground that the beneficiaries of the insurance were not parties to the contract. Hence, the insurance company is not liable to pay the amount to the beneficiaries as it is not within the scope of the consumer under the consumer protection act, 1986. The issues raised before the court whether the beneficiaries of  the insured are the consumers?

The beneficiary is the person who gets benefits from the contract between two parties, even if he was not the party to contract. The beneficiary is the third person and not the party to the contract but if the contract is performed between two parties then he is entitled to the benefit to the agreed extent. Even, the beneficiary has the legal right to enforce the contract, after meeting certain standards.

Brief Facts:

The appeal was made against the order of National consumer dispute redressal commission. The claimants are referred to be farmers who had grown the crops. They stored their agriculture produce in cold storage run by a partnership firm namely Sreedevi Cold Store. For the security of their products, the farmer took a loan from the Canara bank and the storage was insured by United India Insurance Company Limited. The fire took place in the cold store further leading to the destruction of agriculture products and cold stores. The farmers also issued notice to the insurance company in respect of plant, machinery, and store but gets repudiated by the insurance company. The Insurnce Company stated that the farmer has no locus standi to claim as the insured was the cold store. It was stated in the appeal that farmers are not the consumers within the meaning of the Consumer Protection Act. Hence, there was no privity of contract between the farmer and the insurance company.

Key Features:

  • It was mentioned that a tripartite agreement has been formed between the farmer, the bank from where the loan was taken, and the cold store who were the parties to the contract.
  • At the time of the occurrence of fire, the cold store was insured with the Insurance Company.
  • The Insurance Company has resisted the complaint on the ground that the farmer is not the consumer within the meaning of the consumer protection act, 1986.
  • The fire was accidental, because of the electrical short circuit then the insurance company must have to compensate for the loss. 


The Supreme Court states that the beneficiary of the contract will also be considered to be a consumer even if he is not the party to the contract. The farmers are consumers because the beneficiaries of the policy are taken out by the insured. The appeal filed by the insurance company has been dismissed and court held that under the insurance policy, the insurance company is liable to indemnify the cold store as there is no evidence found to prove that the fire was not accidental. As well as being the beneficiaries of the insurance, the farmers are also entitled to get the amount from the insurance company.

Edited by Pragash Boopal

Approved & Published – Sakshi Raje