1. THE EXCLUSION CLAUSE, CONDITIONS AND WARRATIES CONTAINED IN THE INSURANCE POLICY ISSUED AFTER THE OCCURRENCE OF LOSS IS NOT ENFORCEABLE AGAINST THE INSURED

1.1. M/s _________________ Vs. ___________________ CPJ 1 (Supreme Court)

In this case, the Insurance Company supplied only the Cover Note and the Schedule of the Policy to the insure. The other terms and conditions containing the exclusion clause were not communicated to the insured. The claim of the insured was rejected on the ground that it was not payable in view of the Exclusion Clause of the Policy. It was urged by the Complainant that the terms and conditions including the Exclusion Clause were not communicated him. The Supreme Court held that –

“As the above terms and conditions of the standard policy wherein the exclusion clause was included, were neither a part of the contract of insurance nor disclosed to the Appellant, Respondent cannot claim the benefit of the said exclusion clause”.

1.2 ______________ vs _______________ FA NO. ____________ OF ______ decided on ______________ (date)

M/s ____________________ had taken out an insurance cover against fire for its stocks comprising of oil seeds and oil cakes for sum of Rs. ______________. The Cover Note was handed over to it but the Insurance Policy was not issued. The Cover Note covered the insurance for a period commencing from ____________ (date) to _____________ (date) a fire broke out in the Mill which was insured. The Insurance Company was immediately informed about the incident and the insurance claim was lodged with it. A Surveyor was appointed by the Insurance Company who assessed the loss at Rs. _____________. While doing so, the Surveyor also opined that the “loss has resulted from spontaneous combustion which, according to the Insurance Policy, was one of the excluded risks and was not covered by the policy”. Relying upon the aforesaid report of the Surveyor, the Insurance Company rejected the insurance claim. Aggrieved by the repudiation of their claim by the Insurance Company, M/s ______________ filed a complaint before the ____________________ Commission. It was observed by the ____________ Commission that, the Insurance Cover in respect of the stocks, breaking out of fire and destruction of goods covered by the insurance by fire were not in dispute. The value of the goods destroyed was also duly assessed by the Surveyor. It was also in evidence that throughout the period of the Insurance Cover, the Policy was not handed over to the insured and the insured was given only a Cover Note which normally speaking, is only an interim Cover Note or it may be described as “Protection Note” for the interregnum during with the Policy is prepared and issued. The __________ Commission rejected the plea of the Insurance Company that the repudiation of the insurance claim was justified in as much as the spontaneous combustion was excluded from the risks covered under the Policy in question. The _________ Commission held in its order that the insured was entitled to receive from the Insurance Company the sum of Rs. ____________ which was the amount of the loss assessed by the Surveyor appointed by the Insurance Company itself.
An appeal was filed against the decision of the __________ Commission before the National Commission. In its judgment delivered on ______________ the National Commission upheld the order of the __________ Commission. While dismissing the appeal of the Insurance Company, the National Commission observed in its order that –
“In quite a few cases, we have come across this reprehensible practice of the Insurance Company issuing only cover note and delaying the issuance of policy. Such a practice gives rise to scope for the malpractice of the insurer tailoring the policy to escape liability and it is nothing short of a fraud being played by the Insurance Company on the insured”.

The National Commission has further observed in its above order that –

“The Insurance policy must have to be issued by the insurance company within a reasonable time and the issuance thereof should not be unduly prolonged as noticed in the present case that throughout the period covered by the insurance, the policy was produced for the first time before the State Commission. The insured was never made aware of the exclusion clauses”.

The National Commission further held that –

“When the Insurance Company alleges that it is not liable to compensate for any risk, it for the insurance company firstly to prove the exclusion clause and secondly that the event was covered by the exclusion clause. When the insurance policy was not issued and only a cover note had been issued, the exclusion clauses remained un – communicated to the insured and the insured, in the circumstances, would be entitled to be paid the amount of loss assessed by the Surveyor who had assessed it as Rs. _________________.

1.3 M/s __________________ Vs. __________________

The Supreme Court held that:-

“6. It is fundamental principle of insurance law that utmost good faith must be observed by the contracting parties. Good faith forbids other party from concealing (non – disclosure) what he privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Just as the insured has a duty to disclose, “Similarly, it is the duty of the insurers and their agents to disclose all material facts within their knowledge, since obligation of good faith applies to them equally with the assured”.

“7. The duty of good faith is of a continuing nature. After the completion of the contract, no material alteration can be made in its terms except by mutual consent. The materiality of a fact is judged by the circumstances existing at the time when the contract is concluded. In the present case, the introduction of the Tariff Advisory Committee document materially affects the terms of the policy, resulting in the denial of the very indemnity of claim. And this was what the appellant sought to do, at the stage of clearing of the complaint. The Commission rightly rejected the appellant’s plea. Notwithstanding this, on behalf of the appellant, it was insisted that the instructions of the Tariff Advisory Committee form part of the contract. Admittedly, the appellant – Insurer had not incorporated the above quoted clause as part of the policy undertaken with the insured. Consequently, the insured is not bound by this exclusionary clause of liability since the appellant – insurer, admittedly, had undertaken liability for the riot or strike, damage due to riot or strike.”

2. THE INSURANCE COMPANY CANNOT APPOINT THE SECOND SURVEYOR.

2.1. M/s _______________ Vs. ______________________

M/s ________________ engaged in the business of manufacturing shoddy yarn, insured their fixed assets with the Oriental Insurance Co. Ltd., on _________ (date) a fire broke out in the factory premises causing huge loss in as much as the whole stock lying therein was burnt and certain machinery items were also destroyed. The Insurance Company appointed the Surveyor who assessed the loss at Rs. _____________ Instead of settling the claim on that basis, the Insurance Company appointed yet another Surveyor who submitted their report to the Insurance Company expressing doubt about the fire itself. Relying on their report, the Insurance Company, after a lapse of 2½ years, repudiated the insurance claim which led to the filing of a consumer complaint before the Punjab State Commission.

The State Commission, after going through all the facts of the case and legal position in this regard, held that “the insurance company could not go on appointing one surveyor after the other”. It further observed in its order that the practice on the part of the Insurance Company to go on appointing Surveyors one after the other till someone makes a report in their favor has already been depreciated on the judicial side.” Holding that the rejection of the insurance claim was not on solid grounds, the State Commission directed the payment of Rs. _______________ to the Complainant, which was the amount recommended by the first Surveyor.

2.2 M/s _________________ Vs. _______________________

The question of appointment of Surveyors one after the other by the insurance companies for the assessment of the insurance claims, came up for consideration before the National Commission in this case. The Complainant, a trading firms, had taken an insurance policy for Rs. ______________ for its shop known as “Shop Keepers Policy” from the National Insurance Company. The policy covered all the risks of all the articles lying in the shop against flood etc. There was admittedly a flood in the city of Patiala during the validity of the policy and the stock of the complainant lying in the shop was damaged. The claim was lodged with the Insurance Company on ________ (date). The Insurance Company appointed the Surveyor who made the report on _________ (date) assessing the loss to the tune of Rs. ____________. Despite that the Insurance Company did not settle the claim which led to the filing of a consumer complaint before the District Forum.

During the course of the proceedings before the Forum, it was revealed that the Insurance Company had appointed a second Surveyor who assessed the loss at Rs. __________ and the claim was settled by the Insurance Company at Rs. _________ keeping in view their assessment of the loss. This was upheld by the District Forum.

Against the order of the District Forum, an appeal was filed before the Punjab State Commission which deprecated the appointment of Second Surveyor and directed that the assessment of Rs. ______________ made by the first Surveyor should be the basis of settlement of the claim and directed the Insurance Company to pay the same with interest at 125 per annum.

The Insurance Company filed a revision petition before the National Commission in the above case. By its order dated _____________ the Apex Commission, after elaborately discussing the provisions of the Insurance Act, held that the finding of the State Commission was in order and the claim in the case before it should be settled on the basis of the Survey Report of the first Surveyor. In its order, the National Commission held that –

“The scheme of Section 64 UM, particularly of sub section (3) and (4) would show that insurer cannot appoint second surveyor just as a matter of course. If the report of the Surveyor or loss assessor is not acceptable to the insurer, it must specify reasons but it is not free to appoint second surveyor. Appointment by the insurer of a second surveyor itself would be a reflection on the conduct of the first surveyor. Surveyor or loss assessor is duty bound to give a correct report. If the Insurance Company finds that surveyor or loss assessor has not considered certain relevant points or has considered irrelevant points or for any other account it has reservation about the report, it can certainly require the surveyor or loss assessor to give his views and then come to its own conclusion, but insurer cannot certainly appoint a second surveyor cum loss assessor to counter or even contradict or rebut the report of the first Surveyor”.

3. THE DELAY IN PROCESSING THE CLAIM AFTER THE RECEIPT OF THE SURVEYORS REPORT CONSTITUTES DEFICIENCY IN SERVICE.

3.1 M/s ____________________ Vs. __________________

The Supreme Court held that : –

Insurance – Reasonable time to settle claim – Five Months time taken for taking a decision to reject the claim – The reasonable time of two months held to be justified for taking an appropriate decision to settle or reject the claim in accordance with policy.

HELD : It is axiomatic that the insured requires to lay specific claim for damage giving details of the damages caused to the leather due to the strike organized by the workmen. On preferring claim thereof, admittedly, the surveyor, which is an independent agency, should inspect the factory and submit a report. From the record, it would be clear that the claim was made for the first time on November, 13, 1989. Thereafter, all the particulars were furnished by the insured – respondent in August, 1990. Thereon, the surveyors inspected and submitted his report on October 30, 1990. Thereafter, the Insurance Company is required to take a decision. Admittedly, 5 months have elapsed for taking decision to reject the claims. We think that a reasonable time of two months would be justified for them to take a decision whether claim requires to be settled or rejected in accordance with the policy.

4. THE REPUDIATION AFTER UNREASONABLE DELAY ON INVALID AND UNTENABLE REASONS CLEARLY AMOUNTS TO DEFICIENCY IN SERVICES.

4.1 M/s _________________ Vs. ______________________

The National Commission held that –

“The opposite parties were also not justified in not settling the claim of the complainants within a reasonable period and in accordance with the afore quoted guidelines as also the Tariff Rules. As already noticed above there was no reason as to why the opposite party No. 1 should not have settled the claim of the complainant to the extent of 75% of the loss assessed by the Surveyor even if the allegations of the insurer are assumed to be correct. Such settlement should have taken place within two months of the receipt of the Surveyor’s Report. The dilatory conduct of the insurer resulted in extreme hardship and inconvenience to the claimant who is being saddled with additional interest liability from time – to – time by the financial institutions i.e. the Allahabad Bank and the West Bengal Financial Corporation. Taking an overall view of the matter and by adjusting equities in this case we consider it appropriate to direct the opposite party No. 1, 75% of the loss assessed by its Surveyors i.e. 75% of Rs. _______________ which comes to Rs. _______________ together with interest at the rate of 18% p.a. commencing from two months after the receipt of the Surveyor’s report till the date of payment. The Opposite Party No. 1 will also be liable for the costs of litigation which in the present case are assessed at Rs. _________________.

5. THE WITHHOLDING OF THE ADMITTED AMOUNT UNLESS. THE COMPLETE DISCHARGE IS GIVEN, AMOUNT STO DEFICIENCY IN SERVICE.

5.1. Section 2 (1) (g) of the Consumer Protection Act, 1986, defines “deficiency” as any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

5.2 In order to ascertain whether there is any deficiency or not, we have to examine the quality, nature and manner of performance which is required to be maintained by the insurance company in pursuance to the contract or otherwise and secondly, whether there is any fault, imperfection, shortcoming or inadequacy.

5.3 There is no clause in the insurance policy to the effect that the amount assessed by the Insurance Company shall not be paid unless, the complete discharge is given.

5.4 The next question which arises what is the quality, nature and manner of performance required to be maintained by the insurance company in settlement and payment of the claims.

5.5. Before examining this question, let us see the effect of the discharge voucher insisted upon by the Insurance Company.

If the payment is made by the Insurance company without insisting on the discharge voucher.

The Complainant can sue the Insurance company for the unpaid claims. If the payment is made against the discharge voucher.

The Complainant is stopped from suing for the unpaid claims.

The net effect of the discharge voucher is to extinguish the Complainant’s right to sue the Insurance Company for the unpaid claims.

5.6 The assessed amount of the claim is the admitted liability payable by the Insurance Company to the insured irrespective of the fact whether insured is satisfied with the assessment or not. No law provides that the Insurance Company shall make the payment only if insured accepts the assessment of the claim and issues the receipt of the full and final settlement and therefore, the insistence upon the receipt of the full and final settlement is not justified.

5.7 Section 19 and 19A of the Contract Act provides that when the consent to an agreement is caused by Coercion or undue Influence, the contract is voidable at the option of the party whose consent was so caused. Free consent is defined in Section 14 of the Contract Act. The coercion and undue influence are defined in Section 15 and 16 of the Contract Act. Detaining or threatening to detain in a property to the prejudice of any person with the intention of causing any person to enter any contract is coercion. Section 16 provides a contract to be induced by undue influence where the relationship between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

The insistence to sign the discharge voucher in full and final settlement for getting the payment clearly amounts to both Coercion as well as Undue influence.

5.8 Applying the definition of deficiency in Section 2 (1) (g) of the Consumer Protection Act, it cannot be said that the insurance company is expected to withhold event he admitted liability till the insured gives the receipt of full and final settlement. This action cannot stand the test of prudence and reasonableness.

5.9 M/s __________________ Vs. ________________ Revision Petition No_____________ decided on _____________

The National Commission held that : –

“Insurer also could not deny the payment of the amount of compensation to the insured what it itself considered to be the right amount of compensation and it could not withhold that amount as a pressure tactics requiring the insured to give it a receipt of full and final settlement and only then to release the amount of compensation. This practice of the insurer must stop forthwith”.

6. WUKKFUL FAILURE TO FOLLOW THE JUDGEMENT OF THE COURT AMOUNTS TO CONTEMPT OF COURT :

The law laid down by the Courts including Supreme Court, High Court and National Commission must be followed by all authorities and the failure to follow them can amount to the Contempt of Court and the concerned officer disregarding the judgment can be punished for Contempt. The following two judgments may be referred to in this regard.

6.1 _________________VS. _________________

The Supreme Court held that –

“The conduct of the appellant in not following the previous decision of the High Court is calculated to create confusion in the administration of law. It will undermine respect for law laid down by the High Court and impair the constitutional authority of the High Court. His conduct is therefore comprehended by the principles underlying the law of contempt. The analogy of the inferior Court’s disobedience to the specific order of a superior court also suggests that his conduct falls within the purview of the law of contempt. Just as the disobedience to a specific order of the Court undermines the authority and dignity of the Court in a particular case, similarly any deliberate and malafide conduct of not following the law laid down in the previous decision undermines the constitutional authority and respect of the High Court. Indeed, while the former conduct has repercussions on an individual case and on a limited number of persons, the latter conduct has a much wider and more disastrous impact. It is calculated not only to undermine the constitutional authority and respect of the High Court generally, but is also likely to subvert the Rule of Law and engender harassing uncertainty and confusion in the administration of law”.

6.2 ________________ VS. __________________

Contempt of Courts Act {70 of 1971} S. 2 (b) – Civil Contempt – Initiation of proceedings disregarding law declared by High Court – It is willful disregard of law so declared and would amount to civil contempt – That particular Petitioner was or was not a party before Court in previous litigation is not material.

The legal position regarding the binding nature of the law declared by the High Court and the effect of disobedience to the law so declared under the law of contempt can be stated as follows : –

It is immaterial that in a previous litigation the particular petitioner before the Court was or was not a party, but if law on a particular point has been laid down by the High Court, it must be followed by all authorities and tribunals in the State, (2) The law laid down by the High Court must be followed by all authorities and subordinate tribunals when it has been declared by the highest Court in the State and cannot ignore it either in initiating proceedings or deciding on the right involved in such a proceeding; (3) If inspite of the earlier exposition of law by the High Court having been pointed out and attention being pointedly drawn to the legal position, in utter disregard of that position, proceedings are initiated, it must be held to be willful disregard of the law laid down by the High Court and would amount to civil contempt as defined in S. 2 (b) of the Act.

7. THE SURVEYOR AND / OR OFFICER OF THE INSURANCE COMPANY RESPONSIBLE FOR DELAY AND DEFICIENCY CAN BE MADE PERSONALLY LIABLE TO PAY THE COMPENSAITON APART FROM OTHE PENAL CONSEQUENCES.

7.1 _______________ VS. ____________

The Supreme Court held that –

“It is further directed that the Lucknow Development Authority shall fix the responsibility of the officers who were responsible for causing harassment and agony to the respondent within a period of six months from the date a copy of this order is produced or served on it. The amount of compensation of Rs. ___________ awarded by the Commission for mental harassment shall be recovered from such officers proportionately from their salary. Compliance of this order shall be reported to this Court within one month after expiry of the period granted for determining the responsibility. The Register General is directed to send a copy of this order to the Secretary, Lucknow Development Authority immediately”.

7.2 ________________ VS. _________________

The National Commission held that –

“Basic chronology of events needs to be recaptured once again. Fire incident in all the cases takes place in the night of 2nd/ 3rd September, 1990, matter is reported to the respondents, preliminary survey is done, claims are preferred by the complainant /insured in quick succession in 1990 itself. An Investigator is appointed – he gives report on 14th August, 1991. A Surveyor is appointed who gives a report in April, 1992. Nothing is done to alleviate the sufferings of the insured/complainants. First time the offers are made, after making arbitrary deductions in March 1995. In the reply filed by the respondents, delay is sought to be explained by allegation of master minding of claims and collusiveness on the part of complaints for which Investigator had to be appointed. All right but even their report was available in August, 1991. Delay is further explained by internal processing which is totally unacceptable. What are the poor insured supposed to do to keep on paying interest to the Bank on the borrowed capital? Why should it take year and a half for the Surveyor to take year and a half for the Surveyor to furnish the report and worse why should it take the respondent a further period of three years to make an offer and then another four years to send the cheques to the Bank? Even if we condone the delay in the submission of report of the Surveyor, which we do not even then what prevented the respondent s to settle the claim at the amounts, as per calculations of the respondents within three to six months of the Surveyor’s report, with interest. Amount of harassment and financial loss being caused by such inordinate, uncalled for an unwarranted delay seemed to have escaped the respondents. In the present case the respondent company a monopoly Government owned Company at that conveniently forgets to award any interest while making an offer after a lapse of 54 months. Nothing could be more tyrannical. To add insult to the injury, the respondent Company has the audacity to state, that there has been no deficiency on their part. In three out of five cases before us, some delayed wisdom dawns on them and money is sent to the Banks in September, 1999, after a lapse of 9 long years, still without any interest and yet stating that there is no deficiency in service. The other two were not so lucky for best reason known to the respondents but no explanation on this point is available on record. We can presume that reasons could not be very healthy. This is in our view appears to be a clear case of failure of internal control, checks and monitoring system if there is any such system in place. The chronology of events brought out above puts the case in perspective and stares at us ominously and bares the functioning of a State Monopoly.

In our view the present case meets all the parameters laid down in the above judgment warranting a situation where award on compensation for physical and mental harassment will be justified with the fervent hope that this will act as deterrent for others to not to sit over the misery of helpless people. Therefore, we award a compensation of Rs. 1 lakh each, in each of five cases, covered by this Order with clear direction to the ‘Higher Management’ that this amount after payment by the Respondents be recovered from the irresponsible delinquent officials, sense of duty and accountability, in not rendering services to the complainants by their callous and indifferent attitude. All the above complaints are disposed off as above with further directions to the respondent to pay cost of Rs. 10,000/- to each of the complainant.

(The appeal against this order is pending before the Supreme Court).

7.3 ______________Vs. ____________________ passed by the _____________________

The State Commission held that –

“We have to further order that a copy of this order should be sent to the Chairman and Managing Director of the Opposite Parties/ Insurance Company for fixing responsibility on the officers responsible for the entire mess and indulging in falsehood and misleading him by the Regional Manager. Such an investigation and stern action against the erring officer, we hope, will go a long way in streamlining the working of the Opposite Party/Insurance Company”.

(The above said direction was set aside by the National Commission in appeal).

7.4 M/s __________________Vs. __________________ passed by the _________________ Commission, ________

The State Commission held that –

“The corporation should hold enquiry into the conduct of the surveyor and if he is found guilty, should take appropriate action against him. It is desirable that the corporation should entrust the work to such surveyors whose integrity is beyond debut”.

(The above said direction was set aside by the National Commission in appeal).

8. REMEDIES

8.1 The Insurance Policy with complete terms and conditions should be issued to the Insured with a reasonable time against acknowledgement. The number of pages of the terms and conditions should be clearly mentioned in the policy. The complete set of the Policy should be retained in the office. If any case is filed in the Court, complete set of the policy be filed.

8.2 The Surveyor should be appointed immediately upon the receipt of the intimation of the claim from the insured.

8.3 The Surveyor should be given strict instructions to submit his report within two months. The copy of the letter sent to the Surveyor should also be marked to the insured.

8.4 After the receipt of the Surveyor’s report, the claim should be processed and the decision should be taken within the period of two months.

8.5 Before repudiation of claim, a legal opinion be taken as to whether the case is covered by any judgment in which the repudiation on similar grounds has been set aside. If there is any such judgment, the same should be followed instead of repudiating the claim.

8.6 Where the claim of the insured is partly accepted, the amount so accepted should be paid to the insured without insisting on receipt of the full and final settlement.

___________ Name of Advocate
& Former Lecturer
Faculty of Law, Delhi University

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