ABC Ltd. is a Public Limited Company, engaged in the business of exports of rice. It uses godowns of the Port Authorities for storage of the rice stocks meant for exports. The company has taken a Fire Insurance Policy co

CS Professional · Insurance - Law & Practice · PYQS · June 2019
ABC Ltd. is a Public Limited Company, engaged in the business of exports of rice. It uses godowns of the Port Authorities for storage of the rice stocks meant for exports. The company has taken a Fire Insurance Policy cover from XYZ Insurance Ltd. which is a Public Sector Company. Satish who is a Development Officer with the Insurance Company has been assigned the account of ABC Ltd. to service and cater to all its requirements of service. The policy is effective from July of one year to June of the subsequent year. On 21st and 22nd July, 2015, there were heavy rains with cyclonic storms, due to which the Port Authority's Godowns were severely flooded. On ceasing of the rains on 26th July, 2015, ABC Co. Ltd. found that most of the bags stored in the Port's Godowns had been washed away. Except for some clusters of rice here and there, all the stocks had been damaged and destroyed by the rain. The Company lodged a claim with the Insurance Company, asking for compensation under the Fire Insurance Policy. The Insurance Company while examining the claim, observed that : The policy was due for renewal on 1st July, 2015 and the Insurance Co. had already sent a notice for payment of renewal premium to ABC Limited. ABC Ltd. had handed over a cheque for the premium as per the premium notice received from XYZ Insurance Ltd. The cheque was given to Satish, Development Officer on 27th June, 2015. The receipt of the cheque was duly acknowledged by Satish who had also issued a Cover Note for the period from 1st July, 2015 to 30th June, 2016. Satish however went on an official trip and deposited the cheque with his company branch on 16th July, 2015 after returning from his official trip. The accounts department deposited the cheque with the bank of the Insurance Company on 21st July, 2015 which was credited to the XYZ Ltd. account on 25th July, 2015. The Insurance Company however did not issue the regular policy till the event of the loss. ABC Ltd. was insured with XYZ Insurance Ltd. since the inception of its business 12 years back and no claims had been made so far by the Company. On receipt of claim from ABC Ltd. the Insurance Company analysed the claim papers and sent a reply to ABC Ltd. repudiating the claim on the following grounds that: ABC Ltd. Co. was not covered on the date of loss, as no premium was paid for the cover. The premium was received by XYZ Insurance Co.'s accounts department on 25th July, 2015 after the loss had occurred and hence no insurance policy can be granted. Loss due to floods is not covered under Fire Insurance Policy. XYZ Insurance Co. was not bound by the Cover Note issued by Satish, Development Officer. ABC Ltd. Co., on receipt of reply from XYZ Insurance Ltd. has approached you as an Insurance Expert to advice them for resolution of the dispute. They have also appraised you with the following additional facts about the case: Goods stored in the Godowns included 22000 tons of Rice acquired at a cost of ₹200 crores. The quantum of stocks was supported by the stock registers of the Port Authorities, which is also a Third Party record for confirmation. The stocks in the godown were covered by a Fire Insurance Policy of ₹250 crores. The stocks were pledged to a Nationalized bank for a loan of ₹75 crores. The outstanding amount on the date of fire was ₹60 crores. The Bank has also sent a claim to the Insurance Co. to pay the claim amount directly to the bank as the name of the bank was also endorsed on the earlier policies. The District Collector of the area appointed by the State Government, as Relief Commissioner had also certified that the goods in the godown were lost in the floods and there was no salvage. Based on the above facts of the case, as an Insurance Expert, kindly advice ABC Ltd. Co. on the following issues: Claims settlement process as laid down by the Insurance Act, 1938.

Answer & Explanation:

The general procedure for seeking claim settlement is same in most forms of General Insurance. Step 1 – Intimation/Submission of the Claim by the Insured The insured would intimate the insurance company of the occurrence of a peril or risk which has caused loss of or damage to the insured property Step 2 – Evaluation/Registration of Claim The insurer would briefly initiate process check – Whether the policy has been issued by the insurer Whether the policy is in existence Whether correct premium has been received by the insurer Whether the peril causing loss/damage is an insured peril If the insurer is not satisfied and the necessary elements of insurance are not present, it may repudiate the insurance claim and intimate the insurer about the repudiation. In some cases, the insurer may ask for some other inputs about the insurance claim which he thinks necessary for processing the claim further. If on receipt of the additional input, the insurer is not satisfied, he may repudiate the claim and intimate the insured about the repudiation of claim. Only after getting satisfied about the claim, the insurer initiates the next step for claim processing. Step 3 – Appointment of surveyor/loss assessor/investigator etc. The insurer would immediately arrange for surveyor to be appointed who would look into the circumstances of the loss, assess the actual loss suffered in monetary terms and that which can be indemnified in terms of the contract, advise the insurer regarding compliance of the various terms conditions and warranties under the contract etc. The loss assessor has also to advise the client on various aspects of loss mitigation, limitation and salvage. Loss investigation including forensic investigation and analysis may also come under the purview of a professional investigator. Acid tests applied by the surveyor of the various principles – insurable interest, utmost good faith, proximate cause and of course contribution, help in deciding ultimately, if a claim is payable as well as quantum payable. Submission of the claim form: The insured must fill all possible details in the claim form. He must lodge the claim form within 15 days of the fire to claim compensation. Delay in submission of claim from may result in non-acceptance of the claim. Evidence of Claim: Along with the claim form, the insured must send certain proof of fire and other records, if available and if required. The evidence should enable the insurance company to determine the amount of loss. Verification of Form: The claim form along with the supporting evidence is verified by the insurance company. The insurance company then appoints the surveyors to conduct an assessment of the actual loss. Survey: After the receipt of the form, and necessary verification, the insurance company appoints the surveyors to assess the actual loss. The surveyors conduct the necessary investigations. They investigate into the cause of fire, the actual amount of property lost and other relevant details. The surveyors then make the report of their findings and assessment of the loss. Appointment of the Arbitrator: There may be a dispute regarding the amount of claim. In such a case, an arbitrator is appointed, acceptable to both the parties, to settle the amount of the loss. Settlement of Claims: If there is no dispute between the two parties, as to the amount of loss, the insurance company then makes necessary payment to the insured.

Topics: Insurance Claims

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