Insurer can't change policy terms unilaterally

The National Commission pointed out that when a change in policy terms is made without a fresh proposal, the insurer must get the insured's consent

Roxy Color Lab had taken two standard fire and special insurance policies from National Insurance to cover its digital colour laboratory, including plant and machinery, office equipment, raw materials, and goods held in trust and trade. The tenures of the two policies overlapped: one was from July 8, 2008 to July 7, 2009, and the other from January 6, 2009 to January 5, 2010. The total risk covered under the two policies was Rs 96 lakh.

The two policies were issued by two separate offices of the same insurer. Later, they were shifted to the same divisional office, but without taking a fresh proposal. Moreover, while shifting the policy, the insurer unilaterally changed the terms of loss assessment from the earlier “reinstatement basis” to “market value basis”, without the insured’s knowledge or approval.

A major fire broke out on April 9, 2009. The insurer appointed Cunningham Lindsey to assess the loss. The insured furnished all the documents that were sought. Pending the final loss assessment, the insurer released Rs 30 lakh as ad-interim relief. The surveyor submitted a final report on February 3, 2010, assessing the total loss at Rs 48,43,268 on market value basis. The surveyor also recommended payment of the balance Rs 18,43,268 after adjusting the amount disbursed as interim relief.

As the claim was not settled on reinstatement basis, the insured filed a complaint before the Chandigarh State Commission, seeking Rs 19,61,749, on the basis of the difference between the two loss assessment methods. In addition, the insured also sought interest, compensation and costs.

The insurer contested the complaint. It raised a technical objection that the complaint was not maintainable as the insurance service was availed for commercial purpose. It also contended that the insured can’t raise a dispute after having given full and final discharge for the settlement.

The State Commission held that the claim should be settled on reinstatement basis. It added that the insured was entitled to receive the remaining Rs 19,53,745, along with 8 per cent interest from October 15, 2009. In addition, it granted interest for delay in payment of the claim disbursed. It also granted Rs 20,000 as compensation for physical harassment and mental agony, and Rs 10,000 towards litigation costs. It gave the insurer 30 days to comply, after which the interest rate would rise to 12 per cent.

Both the insurer and the insured appealed against this order. The National Commission observed that insurance is not taken for any commercial gain, but for loss indemnification, so the complaint was maintainable.

It also observed that there was no evidence to show that change in loss assessment from reinstatement basis to market value basis was done at the behest of, or after informing, the insured. It pointed out that when any change is made without a fresh proposal, the Insurance Regulatory and Development Authority of India’s regulations require the insurer to confirm the change with the insured and record it in the policy. As this was not done, the Commission accepted the insured’s contention that the change was made without its knowledge or consent. The National Commission concluded that the change was made unilaterally, which was not permissible. It concurred with the State Commission’s view that the insured was entitled to a further amount of Rs 1,953,745.

Accordingly, by its order of February 3, 2022 delivered by C. Viswanath presiding over the Bench along with Justice Ram Surat Ram Maurya, the National Commission dismissed the appeals and upheld the State Commission’s order.

The writer is a consumer activist