Actual loss need not be paid if claim is inflated

Insurance company is not liable to pay claim if fraudulent means or device are used by the insured

There are instances when an insured attempts to capitalise on a genuine loss by fraudulently inflating the claim to dupe the insurance company. This can lead to costly consequences.

Surya Electronics, a partnership firm in Raipur, had obtained a shopkeeper's insurance policy from United India Insurance. The policy, valid from August 29, 2006, to August 28, 2007, covered the shop as well as goods in stock. The insurance was extended later to cover burglary, house-breaking, etc., up to Rs 54 lakh.

In September 2006, a burglary took place at the shop and goods worth about Rs 34.34 lakh were stolen. The police was informed and the insurance company was also intimated. A surveyor was appointed who assessed the loss and submitted a report in which he concluded that only 142 mobile sets worth around Rs 5.73 lakh has been stolen, and there was no substantiation for the remaining claim. Since the difference was substantial, a clarification was sought from the surveyor. The supplementary survey report revealed the supplier from whom Surya Electronics had supposedly made all its purchases denied having sold anything except 142 mobile sets. The supplier had also filed an affidavit of declaration about this sale before the commercial tax officer.

Since Surya Electronics had lodged a claim of about Rs 34.34 lakh, the insurance company repudiated the claim. It refused to even pay the loss quantified by the surveyor. Feeling aggrieved, Surya Electronics, through its partner Arjun Vaswani, filed a complaint before Chandigarh's State Consumer Disputes Redressal Commission.

The insurance company contested the claim. The state commission upheld the insurance company's contention and dismissed the complaint. Surya Electronics challenged the order in an appeal.

The only argument put forth in the appeal was that the claim in respect of the loss of 142 mobile sets worth Rs 5.73 lakh was an accepted, proved and undisputed fact. So, regardless of the total claim lodged, the amount ought to be granted. The insurance company countered this by relying on the terms of the policy which provide that the insurance company would not be liable to pay any claim if fraudulent means or device are used either by the insured or by any one acting on behalf of the insured to obtain any benefit under the policy. Invoking this provision, the insurance company said the claim had been rightly repudiated.

Reliance was placed on a judgment of the national commission in Best Food International vs National Insurance Co Ltd & Anr, where it had been held that it is a well settled principle that the contract of insurance is that of utmost good faith, and is vitiated by any fraudulent act. An insured cannot take the benefit of the insurance cover on false grounds by suppression of material facts, false contentions and fraudulent documents and cannot except remedy or redressal under the Consumer Protection Act.

Accordingly, the national commission dismissed the appeal.

The author is a consumer activist