Not part of policy? Can't be used against you

Insurance firms try to deprive the insured of the claim amount by stating various circulars, though this is not legal

P R Nambiar of Nelster Welcon had taken two standard fire policies to insure his business. These policies included risk of loss due to fire and floods.

During the monsoon of 1997, there were floods in Mumbai, because of which Nambiar’s goods were damaged. He lodged an insurance claim. The surveyor assessed the loss at Rs 7,76,618.

Though he was willing to accept this amount, the insurance company refused to pay the assessed loss, and offered to pay only Rs 6,71,222. When Nambiar questioned why Rs 1,05,396 was being deducted from the assessed amount, the insurance company claimed the deduction was because his office was located in a flood-prone area.

Nambiar requested the insurance company’s surveyor to clarify the matter. The surveyor opined that though E Moses Road at Mahalaxmi was considered a flood-prone area, Nambiar’s office was located one kilometre away, down Shakti Mills Lane.

The surveyor stated that as this area was not considered flood-prone, the deduction on this ground was not applicable.

Nambiar represented to the insurance company against the deduction in the light of the clarification given by the surveyor. He also pointed out that the policy did not contain any clause for reduction of claims in flood-prone areas. The insurance company admitted that the deduction was not according to the terms of the policy, but on the basis of guidelines issued by the Tariff Advisory Committee (TAC) which had not been incorporated in the policy.

Shockingly, the insurance company also claimed the deduction was justified without even bothering to consider the fact that Nambiar's office was not located in a flood-prone area but a km away.

The next year, during the monsoon of 1999, there were floods once again. This time, the loss assessed by the surveyor was Rs 7,82,122. Once again, the insurance company reduced the amount because the office was situated in a flood-prone area, though the renewed policy did not contain such a clause. After deducting Rs 1,62,751, the insurance company paid Rs 6,19,371.

When all pleas to release the deducted amounts were stonewalled by the company, Nambiar filed a consumer complaint before the Maharashtra State Commission, challenging both the deductions. The insurance company reiterated its stand.

Observing that the policy conditions did not permit the deductions and also that the insured premises was not located in a flood-prone area, the state commission held the deductions had been made arbitrarily, to deprive Nambiar of being reimbursed the total assessed loss.

Narendra Kawde, delivering the judgment on behalf of the bench comprising of Kashalkar and himself, ruled the deductions were unjustifiable and contrary to the terms of the policy, constituting a deficiency in service.

The commission directed the insurance company to pay the amount of the deductions wrongly made, along with interest at 12 per cent per annum from the date of the complaint (that is from April 6, 2000) till its actual payment. It directed the order be complied within 45 days. In case of delay, the rate of interest for such delay would be 15 per cent per annum, it said. Additionally, costs of Rs 25,000 were also awarded.

[Judgment dated September 24, 2012, – P R Nambiar versus New India Assurance Co Ltd]

The author is a consumer activist