Apex Court on Insurer's denying theft claim reported after long delay !!

 Insurance is a contract and in every legal contract, contracting parties are bound by the terms and conditions agreed upon.  Any ambiguity in the contract will be held against the drafter of the contractor.  Insurers indemnifies losses arising out insured perils occurring during the currency of policy – subject to compliance of the  terms and conditions.  Every policy would mandate intimation of loss within reasonable time and some policies do specify the dates within which the incident will have to be reported to Insurers, by notice in writing.

Before you read further, how many vehicles do you own ? – are you sure that insurances are live and have full comprehensive coverage.  Please do check.  Package Motor policies, cover  loss or damage  to subject matter insured ie., vehicle against varied perils including ‘theft’ of the vehicle.  Here is an interesting case decided recently by the Apex Court on repudiation of a claim that was intimated after long delay.

This was an Appeal before the Supreme Court   against the impugned order of 2016 passed by the National Consumer Disputes Redressal Commission, New Delhi (NCDRC).  NCDRC had allowed the revision petition filed by the Insurer- allowing the set aside the order of Dec  2015 passed by the State Consumer Disputes Redressal, Commission, Haryana at Panchkula and the order of Feb 2015  by the District Consumer Disputes Redressal Forum, Gurgaon.  Surprisingly the Insurers appears to have been not represented though notice reportedly was served on them !!

The precise question for consideration before  Apex Court was : whether the Insurance Company could repudiate the claim in toto, made by the owner of the vehicle, which was duly insured with the insurance company, in case of loss of the vehicle due to theft, merely on the ground that there was a delay in informing the company regarding the theft of vehicle?

The undisputed facts transpiring from the record are that the vehicle in question i.e., Tata Aiwa Truck  was purchased by the appellant on 31.10.2007; duly insured with PSU Insurer and vehicle was robbed by some miscreants on 04.11.2007. Consequently, an FIR was registered by the appellant-complainant on 05.11.2007 for the offence under Section 395 IPC at Police Station Nagina, District Mewat (Haryana). The police arrested the accused and also filed the challan against them in the concerned Court, however, the vehicle in question could not be traced and, therefore, the police filed untraceable report on 23.08.2008. Thereafter, the complainant lodged the claim with the Insurance Company with regard to the theft of the vehicle in question. Since insurance settlement was not forthcoming,  the appellant-complainant filed a complaint being the Consumer Complaint  before the District Consumer Disputes Redressal Forum, Gurgaon.

During the pendency of the complaint before DF, Insurers repudiated the claim,    stating inter alia that there was a breach of condition no. 1 of the policy which mandated immediate notice to the insurer of the accidental loss/damage, and that the complainant had intimated about the loss on 11.04.2008 i.e. after the lapse of more than five months and, therefore, the Insurance Company  disowned their liability on the claim of the complainant.

The District Forum allowed the said claim of the complainant by holding that the complainant was entitled to the insured amount on non-standard basis, i.e., Rs. 12,79,399/- as 75% of the IDV i.e., Rs. 17,05,865/- with interest @ 6% p.a. from the date of filing of the complaint till realization from the Insurance Company. The District Forum also awarded compensation of Rs.10,000/- and litigation expenses of Rs.5,000/- to the complainant. The aggrieved Insurance Company preferred an appeal before the State Consumer Disputes Redressal Commission (Haryana), Panchkula. The complainant also preferred an appeal being Appeal  seeking enhancement of compensation. The State Commission dismissed the appeal filed by the Insurance Company and partly allowed the appeal filed by the complainant by increasing rate of interest awarded by the District Forum from 6% to 9%.

The repudiation of the claim was on the grounds of breach of condition no. 1 of the Policy which is reproduced here :

"1. Notice shall be given in writing to the company immediately upon the occurrence of any accidental loss or damage in the event of any claim and thereafter the insured shall give all such information and assistance as the company shall require. Every letter, claim, writ, summons and/or process or copy thereof shall be forwarded to the company immediately on receipt by the insured. Notice shall also be given in writing to the company immediately the insured shall have knowledge of any impending prosecution, inquest or fatal inquiry in respect of any occurrence which may give rise to a claim under this policy. In case of a major loss, theft or criminal act which may be the subject of a claim under this policy the insured shall give immediate notice to the police and co-operate with the company in securing the conviction of the offender."

Apex Court noted that   there being a conflict of decisions of the Bench of two Judges of this Court in case of Om Prakash vs. Reliance General Insurance & Another and in case of Oriental Insurance Company Limited vs. Parvesh Chander Chadha, on the question as to whether the delay occurred in informing the Insurance Company about the occurrence of the theft of the vehicle, though the FIR was registered immediately, would disentitle the claimant of the insurance claim, the matter was referred to a three Judge Bench. The three Judge Bench in case of Gurshinder Singh vs. Shriram General Insurance Company Ltd. & Another reported in 2020 in similar case as on hand, interpreted the very condition no. 1 of the Insurance Contract and observed as under: 

"9. We are of the view that much would depend upon the words "cooperate" and "immediate", in Condition 1 of the standard form for commercial vehicles package policy. Before we analyse this case any further, we need to observe the rules of interpretation applicable to a contract of insurance. Generally, an insurance contract is governed by the rules of interpretation applicable to the general contracts. However, due to the specialised nature of contract of insurance, certain rules are tailored to suit insurance contracts. Under the English law, the development of insurance jurisprudence is given credence to Lord Mansfield, who developed the law from its infancy. Without going much into the development of the interpretation rules, we may allude to Neuberger, J. in Arnold v. Britton, which is simplified as under:

(1) Reliance placed in some cases on commercial common sense and surrounding circumstances was not to be invoked to undervalue the importance of the language of the provision which is to be construed.

(2) The less clear the words used were, the more ready the court could properly be to depart from their natural meaning, but that did not justify departing from the natural meaning.

(3) Commercial common sense was not to be invoked retrospectively, so that the mere fact that a contractual arrangement has worked out badly, or even disastrously, for one of the parties was not a reason for departing from the natural language.

(4) A court should be very slow to reject the natural meaning of a provision as correct simply because it appeared to be a very imprudent term for one of the parties to have agreed.

(5) When interpreting a contractual provision, the court could only take into account facts or circumstances which existed at the time that the contract was made and which were known or reasonably available to both parties.

(6) If an event subsequently occurred which was plainly not intended or contemplated by the parties, if it was clear what the parties would have intended, the court would give effect to that intention.

A perusal of the aforesaid shows that this contract is to be interpreted according to the context involved in the contract. The contract we are interpreting is a commercial vehicle package policy. The  court in such circumstances would consider the application of the rule of contra proferentem, when ambiguity exists and an interpretation of the contract is preferred which favours the party with lesser bargaining power. 

Insurers contended that  the insurance policy is a contract between the insurer and the insured and the parties would be strictly bound by the terms and conditions as provided in the contract between the parties.  The Court held that in their view, Condition 1 of the standard form for commercial vehicles package policy will have to be divided into two parts. The perusal of the first part of Condition

First part  would reveal that it provides that "a notice shall be given in writing to the company immediately upon the occurrence of any accidental loss or damage".  A perusal of the wordings used in this part would reveal that all the things which are required to be done under this part are related to an occurrence of an accident. On occurrence of an accidental loss, the insured is required to immediately give a notice in writing to the company. This appears to be so that the company can assign a surveyor so as to assess the damages suffered by the insured/vehicle.  is contemplated in respect of an accident occurring to the vehicle.

The second part of condition   deals with the "theft or criminal act other than the accident". It provides that in case of theft or criminal act which may be the subject of a claim under the policy, the insured shall give immediate notice to the police and cooperate with the company in securing the conviction of the offender. The object behind giving immediate notice to the police appears to be that if the police is immediately informed about the theft or any criminal act, the police machinery can be set in motion and steps for recovery of the vehicle could be expedited. In a case of theft, the insurance company or a surveyor would have a limited role. It is the police, who acting on the FIR of the insured, will be required to take immediate steps for tracing and recovering the vehicle. Per contra, the surveyor of the insurance company, at the most, could ascertain the factum regarding the theft of the vehicle.

The Court further noted that - after the registration of an FIR, the police successfully recovering the vehicle and returning the same to the insured, there would be no occasion to lodge a claim for compensation on account of the policy. It is only when the police are not in a position to trace and recover the vehicle and the final report is lodged by the police after the vehicle is not traced, the insured would be in a position to lodge his claim for compensation. The term "cooperate" as used under the contract needs to be assessed in the facts and circumstances. While assessing the "duty to cooperate" for the insured, inter alia, the court should have regard to those breaches by the insured which are prejudicial to the insurance company. Usually, mere delay in informing the theft to the insurer, when the same was already informed to the law enforcement authorities, cannot amount to a breach of "duty to cooperate" of the insured. 

 The Court held that -  when an insured has lodged the FIR immediately after the theft of a vehicle occurred and when the police after investigation have lodged a final report after the vehicle was not traced and when the surveyors/investigators appointed by the insurance company have found the claim of the theft to be genuine, then mere delay in intimating the insurance company about the occurrence of the theft cannot be a ground to deny the claim of the insured.

In the opinion of the Court the afore-stated ratio of the judgment clinches the issue involved in the case on hand, nonetheless, it is pertinent to note that the Insurance Company has not repudiated the claim on the ground that it was not genuine.It has repudiated only on the ground of delay. When the complainant had lodged the FIR immediately after the theft of the vehicle, and when the police after the investigation had arrested the accused and also filed challan before the concerned Court, and when the claim of the insured was not found to be not genuine, the Insurance Company could not have repudiated the claim merely on the ground that there was a delay in intimating the Insurance Company about the occurrence of the theft.

The Court concluded that -   NCDRC should not have set aside the orders of the District Forum and the State Commission by holding that the repudiation of the insurance claim by the insurance company was justified. The impugned order being erroneous and against the settled position of law, deserves to be set aside, and is set aside, accordingly.  Stating so, the Court allowed the appeal affirming the order of the State Commission.

Interesting and there are lessons for all concerned

With regards – S. Sampathkumar.
18^th Feb 2022.

Case citation :Jaina Construction Company Vs. The Oriental Insurance Company Ltd. - Civil Appeal No. 1069 of 2022; pronounced on 11.2.2022.