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: Role of IRDAI and Insurance Ombudsman in dispute resolution and settlement in the light of the given case.

Answer & Explanation:

IRDAI is the Regulatory Authority for insurance business in India. The Act that established it has defined its powers under section 14 and apart from other duties outlined in the section, the following is clearly indicated "to protect the interests of the policy holder with regard to settlement of claims and other terms and conditions". This specific object of the IRDAI has to be invoked by ABC Limited to support its claims for IRDAI's intervention in regard to this matter if the insurer does not act fairly and reasonably in the matter. The fact outlined in the question clearly established on liability of insurance company towards ABC Limited - claims whether there existed a policy. Whether the perils covered flood losses etc. - and it will, therefore, be very appropriate for ABC Limited to approach IRDAI seeking its intervention. Whilst IRDAI may intervene in this case and issue a direction to the insurance company. Past records establish the fact in an identical case, where a client has approached IRDAI for its intervention when its long period of negotiation with a public sector insurance company did not result in any solution. After examining all the factors IRDAI decided to intervene and passed an order directing the insurer to pay the claim. The insurer not satisfied with the IRDAI's direction, took the matter in appeal to the court which clearly indicated that IRDAI had all the necessary the powers and in fact an obligation to intervene on behalf of the insured. That step will not only be necessary to protect the interest of a policy holder but represented wholly and truly authority, obligation to control, nurture and develop the insurance industry. An insured can approach an Ombudsman with his case for settlement when the insurance company refuses to accept the claim or intends to settle it at a lower value than expected by the insured. The only drawback to this facility is that commercial claims of more than ₹20 lakh cannot be referred to Ombudsman. In this case ABC Limited cannot go to the Ombudsman to settle the claim since loss amount is above the limit. Alternative available is to move the Consumer Courts where no such limit of loss is fixed. An Ombudsman shall be selected from amongst persons having experience of the insurance industry civil servant from administrative service or judicial service. An insurance Ombudsmen is appointed for a term of 3 years. However, no person can continue as Insurance Ombudsman after he / she has attained 65 years of age (Proceedings before the Ombudsmen). The Ombudsman may, if he deems fit, allow the complainant to adopt a procedure other than under sub-rule (1) or sub-rule (2) of rule 14 of Insurance Ombudsman Rules, 2017, for making a complaint, after notifying the parties to the dispute. Recommendations made by the Insurance Ombudsman Where a complaint is settled through mediation, the Ombudsman shall make a recommendation which it thinks fair in the circumstances of the case, within one month of the date of receipt of written consent on mutual basis for such mediation and the copies of the recommendation shall be sent to the complainant and the insurer concerned. If the recommendation of the Ombudsman is acceptable to the complainant, he shall send a communication in writing within fifteen days of receipt of the recommendation, stating clearly that he accepts the settlement as full and final. The Ombudsman shall send to the insurer, a copy of its recommendation, along with the acceptance letter received from the complainant and the insurer shall, thereupon, comply with the terms of the recommendation immediately but not later than fifteen days of the receipt of such recommendation, and inform the Ombudsman accordingly. Awards by Ombudsmen Where the complaint is not settled by way of mediation under rule 16 of Insurance Ombudsman Rules, 2017, the Ombudsman shall pass an Award, based on the pleadings and evidence brought on record. The Award shall be in writing and shall state the reasons upon which the award is based. Where the Award is in favour of the complainant, it shall state the amount of compensation granted to the complainant after deducting the amount already paid, if any, from the award. However, the Ombudsman shall not award any compensation in excess of the loss suffered by the complainant as a direct consequence of the cause of action or shall not award compensation exceeding ₹30 lakhs (including relevant expenses, if any). The Ombudsman shall finalize its findings and pass an award within a period of 3 months of the receipt of all requirements from the complainant. A copy of the award shall be sent to the complainant and the insurer named in the complaint. The insurer shall comply with the award within 30 days of the receipt of the award and intimate compliance of the same to the Ombudsman. The complainant shall be entitled to such interest at a rate per annum as specified in the regulations, framed under the Insurance Regulatory and Development Authority of India Act, 1999, from the date the claim ought to have been settled under the regulations, till the date of payment of the amount awarded by the Ombudsman. The award of Insurance Ombudsman shall be binding on the insurers.

Topics: Insurance Regulation

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic