Insurance companies always insist on an advance receipt from the insured. This gives them full and final discharge to coerce an insured into unconditionally accepting whatever is offered to him. Is such a receipt legally binding? Or, can it be disputed under certain circumstances?
This issue has been dealt with by the supreme court in the case of National Insurance Co Ltd v/s Boghara Polyfab Pvt Ltd in civil appeal no. 5733, decided on September 18, 2008 [2009 (1) SCC 267].
Boghara Polyfab, the insured, had a standard fire and special perils policy issued by National Insurance. It was a floater policy for a sum insured of Rs 6 crore, which was temporarily enhanced to Rs 12 later, for a period of 69 days. It also covered goods in the insured’s godowns at Surat.
When the incident occurred, the value of goods in the godown stood at Rs 8.15 crore. Of this, those worth Rs 5.22 crore were damaged due to floods, for which the insured lodged a claim. The surveyor computed the loss on the basis of the sum insured of Rs 12 crore, which adequately covered the goods, and assessed the claim at Rs 3.18 crore after deducting the value of the salvage.
The insurance company contended that at the time of the incident, coverage was only to the extent of Rs 6 crore, less than the value of the goods stored, so there was under-insurance. Hence, the claim amount was proportionately reduced to Rs 2.34 crore. The insured protested. The insurance company refused to release the sanctioned amount unless the insured executed a discharge voucher in the prescribed form, accepting the offered amount of Rs 2.34 crore as full and final settlement.
As the claim was pending since long, the insured was compelled to sign an undated discharge voucher. After the cheque for the claim was released, the insured complained to the Insurance Regulatory Development Authority (Irda). Since no action was taken, the insured requested for arbitration, to which the insurance company did not agree. The insured filed an arbitration petition in the Bombay High Court, which appointed a arbitrator to decide the dispute. This order was challenged by the insurance company before the supreme court, claiming that no proceedings were maintainable in view of the insured having signed the discharge voucher.
The apex court observed that a mere execution of the discharge voucher would not always deprive the consumer of preferring a claim regarding deficiency in service. If a consumer can satisfy the consumer forum or tribunal that the voucher or receipt was obtained by fraud, undue influence, misrepresentation or coercive bargaining compelled by circumstances, the authority before whom the complaint is made would be justified in granting appropriate relief.
The supreme court expressed concerns about the routine insistence of the insurance companies on obtaining undated “full and final settlement” vouchers, acknowledging the receipt of an amount which was lesser than the claim, as a condition precedent for releasing even the admitted dues. It held that the procedure was unfair, irregular and illegal and required deprecation. The court also observed that when the discharge voucher was signed, stating the claim had been received as full and final settlement, absolving the insurance company from further liability, the amount had actually not been paid, and hence the discharge voucher appeared to be false and not supported by consideration.
Accordingly, the court held the dispute would have to be adjudicated and the parties would have to establish whether the discharge voucher was valid or void.
Impact: The purpose of insurance is defeated if the insured’s undisputed claim is not settled in order to pressurise him. Insurance companies must be fair and not resort to coercive tactics.
The author is a consumer activist