Insurance companies often trample on consumers’ right to information by suppressing material information. Despite specific guidelines in place for settlement of claims on a non-standard basis, insurers withhold these from the insured, so that they can reject the claims, rather than settling these on a non-standard basis.
Sanjay Shivhare had a Tata Sumo covered by National Insurance. The Rs 3.5-lakh policy stipulated “limitations as to use”, whereby using the vehicle for hire or reward was prohibited.
When the vehicle was en route from Jabalpur to Sagar, someone looted and murdered the driver and fled with it. A criminal case was registered.
As the vehicle was stolen, Shivhare filed a claim. The insurance company alleged the car was being used as a taxi, in breach of the policy conditions regarding ‘limitations as to use’. The claim was rejected.
Shivhare filed a complaint with the Jabalpur district forum. After the appeal was dismissed, he appealed to the Madhya Pradesh State Commission, which observed the market value of the vehicle was Rs 2.25 lakh, of which only 75 per cent would be payable, treating it as a non-standard claim in view of the breach of policy conditions. Accordingly, it directed National Insurance to pay Rs 168,750, along with six per cent interest and Rs 5,000 as costs.
Shivhare as well as National Insurance challenged this order in separate revision petitions before the National Commission. While the former wanted the claim to be settled at Rs 3.5 lakh (in accordance with the sum insured), the latter wanted the complaint to be dismissed.
The National Commission considered its own judgement, rendered by a five-member bench in the case of Kesarben v/s United India Insurance Co Ltd [III (2000) CPJ 36 (NC)]. It had held the insurance company was required to settle the claim on a non-standard basis according to the prescribed guidelines, and assess the loss after taking into consideration the surveyor’s report.
What are the guidelines?
Claims are to be treated as non-standard either on under-declaration of the licenced carrying capacity of the vehicle, or overloading beyond the licenced carrying capacity, or a breach of the ‘limitations as to use’, or any other breach of warranty or policy condition.
When such a breach is technical in nature, or is beyond the control or knowledge of the insured, the claim would be payable, subject to deduction of an amount equivalent to thrice the additional premium due, had the correct information been made available.
When the breach of a policy condition, though inadvertent, is material, the claim has to be considered on merit and settled up to 75 per cent of the assessed amount.
The National Commission observed that some conflicting earlier judgements of the commission, as well as the Supreme Court upheld the rejection of the claim in case of breach of the warranty conditions. These judgements did not lay down the correct legal position, as the guidelines had not been placed on record and considered. Now, in view of the guidelines, such claims would have to be settled as non-standard ones. Accordingly, the complaint filed by Shivhare was upheld.
The Commission also directed its order to be sent to the Insurance Regulatory Development Authority to instruct insurance companies not to take such a defence in future and to settle claims gracefully and quickly, in accordance with the guidelines. [National Insurance v/s Sanjay Shivhare – IV (2007) CPJ 366 (NC)].
(The author is a consumer activist)