Insurer should be informed about the special conditions of the Insurance policy: Supreme Court

On 3 September 2013, the appellant’s son obtained the benefit of an insurance cover under a policy called the “Card sure Package Policy”. The appellant’s son was an account holder with HDFC Bank Limited and had availed of a debit card from the bank. The bank, which is the second respondent, obtained an insurance cover on 3 September 2013 from the first respondent. The insurance cover was to commence from 25 August 2013 and was to end on 24 August 2014. Against the payment of premium by the bank to the insurer, the insurer provided an insurance cover for cardholders of the bank. For ‘Platinum’ cardholders, the base cover was for Rs 5 lakhs. In addition, the cover would stand increased by five times of every rupee spent on purchases through the debit card, extending up to an accelerated cover of Rs 5 lakhs, thus making up a total sum insured of Rs 10 lakhs. The appellant’s son died in a road accident on 30 October 2013. The appellant as the mother of the deceased and nominee claimed the insurance cover. The claim was repudiated by the insurer on 17 December 2013 on the ground that the deceased had not undertaken a “non- ATM transaction” in three months immediately preceding the date of the accident.

The appellant instituted a consumer complaint before the District Consumer Forum upon the repudiation of the claim under the policy. The complaint was allowed by the District Forum on 16 July 2014 for Rs 5 lakhs together with interest at 9% per annum from 1 February 2014 and compensation and costs quantified at Rs 20,000/-. The order on the consumer complaint was challenged both by the appellant and by the first respondent. The SCDRC dismissed the appeal for enhancement of compensation and allowed the appeal by the insurer. The SCDRC held that the deceased had failed to use the debit card with a non-ATM transaction during three months immediately before the date of the accident and hence, the condition precedent for a claim under the insurance policy had not been fulfilled. The order of the SCDRC was affirmed by the NCDRC by its judgment.

The State Consumer Disputes Redressal Commission (SCDRC) reversed the award of the claim by the District Forum on the ground that a mandatory condition of the insurance policy, namely, that there has to be a non-ATM swipe transaction within a stipulated period prior to the date of the event had not been fulfilled. So the genesis of the dispute lies in whether the Special Conditions of the policy which was issued by the bank to the insurer were drawn to the notice of the account holder.

In India, the activities of the insurance sector are governed by the following legislation:

1. The Insurance Act,1938
2. The life insurance corporation Act,1956
3. The Marine insurance Act,1963
4. The General insurance business ( nationalization) Act, 1972

The Insurance Regulatory and Development Authority of India (IRDAI) is a regulatory body under the jurisdiction of the Ministry of Finance, Government of India, and is tasked with regulating and licensing the insurance and re-insurance industries in India. It was constituted by the Insurance Regulatory and Development Authority Act, 1999, an Act of Parliament passed by the Government of India. The agency’s headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001.

Principles of Insurance

The insurance law is based on following principles:

2. Principle of Uberrimae Fidei (Utmost Good Faith): according to this principle the person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance. The insurer’s liability gets void (i.e. legally revoked or cancelled) if any facts, about the subject matter of insurance, are either omitted, hidden, falsified, or presented in a wrong manner by the insured.
3. Principle of Insurable Interest: The principle of insurable interest states that the person getting insured must have an insurable interest in the object of insurance. A person has an insurable interest when the physical existence of the insured object gives him some gain but its non-existence will give him a loss. In simple words, the insured person must suffer some financial loss by the damage of the insured object.
4. Principle of Indemnity: According to the principle of indemnity, an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. The insurance contract is not made for making profit else its sole purpose is to give compensation in case of any damage or loss.

4. Principle of Contribution: According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer can claim proportionate claims from the other insurers.
   

6. Principle of Subrogation: Subrogation means substituting one creditor for another. According to the principle of subrogation, when the insured is compensated for the losses due to damage to his insured property, then the ownership right of such property shifts to the insurer.
7. Principle of Loss Minimization: According to the Principle of Loss Minimization, the insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast, etc. The insured must take all possible measures and necessary steps to control and reduce the losses in such a scenario. The insured must not neglect and behave irresponsibly during such events just because the property is insured. Hence it is the responsibility of the insured to protect his insured property and avoid further losses
8. Principle of Causa Proxima (Nearest Cause): The principle states that to find out whether the insurer is liable for the loss or not, the proximate (closest) and not the remote (farest) must be looked into.

While restoring the decision of the district forum the court observed that the deceased was a customer of the bank and held it was for the bank to establish that when it dispatched the debit card to its customer, both the covering letter, as well as the debit card usage guide, had been furnished to the deceased.

The bench further observes that the account holder had to be informed by the bank that the insurance cover would become available only after a transaction took place of the nature spelled out in the special condition of the insurance policy. The court agrees with the specific averment of the complainant that “neither the insurance policy nor its terms and conditions were furnished to the account holder or the appellant.”