Breach of policy condition renders a claim non-payable

Once the terms are agreed upon, any breach would render a claim non-payable

Navsarjan Industrial Co-operative Bank had taken a banker's indemnity policy. While renewing, the coverage was increased to Rs 50 lakh, including transit insurance of Rs 20 lakh.

The bank had entered into a contract with Prasad & Co. for providing security services. The contract cast an obligation on the security agency to provide guards when the bank's employees went for cash collection. The usual practice was to send two clerks along with a security guard to collect the cash, and put it in a trunk which was locked and transported in a private vehicle.

On September 13, 2005, two clerks and a guard went in a hired auto to withdraw Rs 20 lakh from State Bank of India. While returning, two unknown persons came on a bike and opened fire with a revolver. After injuring the guard, the assailants threatened the clerks and decamped with the locked trunk containing cash.

The guard was rushed to a hospital. A First Information Report was lodged with the police. The insurer was also intimated, and a claim was lodged under the policy. The surveyor appointed was furnished all the documents as demanded. Nearly a year later, the insurer repudiated the claim on the ground that one of the policy conditions had been breached.

The bank filed a consumer complaint before the Gujarat State Commission, contending that the policy terms had not been supplied and so, it was unaware of the alleged breach. The bank also stated that the security agency had not been able to provide the armed guard but it could not stop its business for this reason. So, it had proceeded to get the cash with a single unarmed security guard. The bank also claimed that other insurance companies did not have a similar clause in their policies. The bank sought a direction to settle the claim.

The insurer contested the complaint. It asserted that the policy conditions had been furnished, which had not been disputed in the correspondence, prior to the filing of the complaint. Besides, even the proposal form set out the terms of the policy. Further, it was a renewed policy, issued on identical terms and conditions as the earlier policies. All the policies contained a clause which stipulated that two armed guards would be deployed while transporting cash exceeding Rs 10 lakh. Even though cash of Rs 20 lakh was being transported, there was only one unarmed security guard, and hence, the claim had been rightly repudiated.

The State Commission allowed the complaint and the bank challenged again. While deciding the appeal, the National Commission observed the policy mentioned the terms and conditions were attached, which was not disputed in the correspondence. So, it accepted the insurer's stand that the policy terms had been furnished to the bank. It held that once the terms are communicated, any breach would render a claim non-payable. It would be immaterial whether other insurance companies have a similar clause or not, as each insurer is entitled to stipulate its own terms and conditions.

Observing the terms of the contract must be construed strictly, the Commission held the claim was not payable in view of the breach. Accordingly, by its order of July 13, 2016, delivered by the bench of judges K S Chaudhari and Prem Narain, the National Commission concurred with the insurer's stand. The order of the State Commission was set aside and the complaint was dismissed.

The author is a consumer activist