Interpreting Policy contract – what constitutes - the time bar or the Law of Limitation

It is factually known that Insurers are reeling under the burden of claims – especially third party claims as the premium thus far charged is seemingly is inadequate.  The controlling body IRDA has recently notified that the rates of premium applicable to Motor Third Party liability insurance business shall be revised.  Here is something on what ails Insurers – the way the claims can be preferred and the (absence) of time limit for preferring such claims.  

Interpreting the Policy contract – something which is drafted by Insurers is complex many a times.  Even a seasoned Insurer would have contradicting stance and conflicting issues on many terms which have been defined and you can imagine the plight, where no such definition exists.   A Policy of Insurance is a contract of indemnity which sets out terms and conditions of performance.  There are always grey areas and areas which are not appropriately defined or spelt out in the contract.  

There could be many instances of dispute – Insurers not admitting a claim under the policy and denying the claim preferred – called ‘repudiation’ in insurance parlance.  There are various options available to the policy holder – the last resort would be pursuing the claim in a Court of Law by filing a Suit.  When, where and within how may days are mostly defined in the conditions set out as also in the jurisdiction clause.  

The Fire Policy (Standard Fire & Special Perils Policy] under conditions 6. ii specifies ‘in no case whatsoever shall the company be liable for any loss or damage after the expiry of 12 months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration; it being expressly agreed and declared that if the Company shall disclaim liability for any claim hereunder and such claim shall not within 12 calendar months from the date of the disclaimer have been made the subject matter of a suit in a Court of law then the claim shall for all purposes deemed to have been abandoned and shall not thereafter be recoverable hereunder’.

In Motor Policy also a similar condition that ‘claim shall be made the subject matter of suit in a court of law within 12 calendar months from the date of disclaimer’ or otherwise claim would be deemed to have been abandoned and shall not be recoverable – exists.    But in a Motor Policy – this could restrict the claim of vehicle owner [the insured] but cannot bind a third party filing a suit for compensation arising out of injuries sustained in a motor vehicles accident, which could be impacted only by the Motor Vehicles Act.  

There could be some policies [best example being a Marine policy] – where no such specified time limit is spelt out.  However, the Insurers can take shelter under the Limitation Act 1963  which specifies the time limits for various aspects of suits.  Under sec 44 [b] it specifies that ‘on a Policy of Insurance when the sum insured is payable after proof of the loss has been given to or received by the Insurers – the time limit is Three years.  Going by the act, it is 3 years from the date of the occurrence causing the loss or where the claim on the policy is denied either partly or wholly, the date of such denial.  

Here is something interesting on what happens elsewhere – a Court decision of Ontario Court on how the Limitations Act, 2002 applies to the statutory criteria for recovery in an auto claim under the Insurance Act.   

It was a case of injuries sustained by a person arising out of an accident involving a motor vehicle in May 2000.  The person had injuries to skull and left shoulder-blade.  She underwent the routine course of consultation, therapies, but her suffering continued.  Reportedly she consulted a lawyer in 2001 and was advised that she did not have a case since her injury would not meet the “threshold”. In 2004, she was diagnosed to be suffering from chronic pain and worse was revaled in 2006.  seven years later, she started an action to recover for the injuries arising out of the accident in 2000.  The defendants naturally brought a motion for summary judgement that it was time barred under the statute.   It was first granted and alter reversed on appeal by The Court on the principle of ‘discoverability’.  Their Act provides the basic limitation of 2 years which would run from the date of claim if discovered; interpreted as the date on which the plaintiff reasonably discovered the injury – the wrong which caused the injury and the identity of wrong doer.    This discoverability principle is  codified in section 5 of their Limitations Act.

In the Act of their country the ‘threshold’ prevents a person from bringing a tort action in relation to a motor vehicle accident unless he or she can demonstrate a permanent serious disfigurement or impairment of an important physical, mental or psychological function.   There exists over and above the threshold, a monetary deductible which is quite high.  The plaintiff put up a case that the limitation period did not commence until Mar 2006, when she received the results of MRI.   The court granted summary judgment on the basis that the plaintiff had not commenced her action within the two years following her diagnosis with chronic pain. The plaintiff appealed this decision.

The Court of Appeal set aside the summary judgment and the decision is suggestive that  in motor vehicle accident cases, discoverability must be assessed from the date that the plaintiff realizes or becomes aware that he or she meets the “threshold” for damages under the Insurance Act, and, in addition, the date on which the plaintiff realizes or becomes aware that his or her injury exceeds the statutory deductible.

The Indian scenario is much different and is loaded much against the Insurers.  Sec 165 of MV Act 1988 provides for notification of Claims Tribunals [MACT] for the purposes of adjudicating upon claims for compensation in respect of accidents involving the death of, or bodily injury to, persons arising out of the use of motor vehicles, or damages to any property of a third party so arising, or both.  An application for compensation arising out of an accident of the nature specified in sub-section (1) of section 165 may be made-  by the person who has sustained the injury; or  by the owner of the property; or -  where death has resulted from the accident, by all or any of the legal representatives of the deceased; or  by any agent duly authorised by the person injured or all or any of the legal representatives of the deceased, as the case may be.

In the earlier Act, there was a proviso – Sec 110 A which provided for that ‘ no application for such compensation shall be entertained unless it is made within six months of the occurrence of the accident: Provided that the Claims Tribunal may entertain the application after the expiry of the said period of six months if it is satisfied that the applicant was prevented by sufficient cause from making the application in time."

With the repealing of the old Act and the coming into being of the New MV Act, the period of limitation is now prescribed u/s 166, which reads :

"166.(3) No application for such compensation shall be entertained unless it is made within six months of the occurrence of the accident:

Provided that the Claims Tribunal may entertain the application after the expiry of the said period of six months but not later than twelve months, if it is satisfied that the applicant was prevented by sufficient cause from making the application in time."

Sub-section (3) of Section 166 of the Act had been omitted by Act 53 of 1994 w.e.f. 14.11.1994. The result of the Act 53 of the Motor Vehicles (Amendment) Act, 1994 is that there is no limitation prescribed for filing claim petitions before the Tribunal in respect of any accident w.e.f. 14.11.1994.

Understand from a legal exponent that the Sundar Committee report based on which now some amendments are contemplated puts the time bar at 3 years which should of some solace to Insurers.

With regards – S. Sampathkumar.