Witholding of sanctioned amount by insurance companies

The very objective of insurance is to refund loss. If the loss is not refunded quickly, it leads to a financial crisis. Taking advantage of this, the insurance companies force the insured into accepting whatever amount is offered. Even if the insured takes a legal recourse for the due amount of the claim, insurance companies refuse to budge. Such refusal, with the object of coercing, is an unfair practice, as held by the National Consumer Disputes Redressal Commission.

K L Malhotra had filed a claim with Oriental Insurance for damages to his Maruti van in an accident. The surveyor assessed the claim at Rs 20,868. But the repair bill by the authorised service centre was Rs 37,557. The insurance company, however, insisted on paying according to the surveyor’s report. Malhotra accepted the amount under protest, and subsequently took action for recovering the balance amount (the rule, however, is if discharge is given to satisfaction, the insured gives up his right to claim the remaining amount). The dispute went from the district forum to the National Commission.

The National Commission held that an insurer cannot deny the payment of the admitted claim amount. Also, the insistence on a receipt stating final discharge, and the refusal to release the admitted claim unless the issuance of such receipt, would constitute a pressure tactic amount to coercion. Accordingly, it was directed that this practice of the insurer must stop forthwith. The insurance company was also directed to pay the full cost of repairs according to the bill given by the workshop, and also pay a compensation of Rs 5,000.

In another case, Abhay Neelawarne's car, which was insured with New India Assurance, met with an accident. On the basis of the survey report, the insurance company offered to pay Rs 6.25 lakhs on total loss basis. Abhay agreed to accept this amount under protest. The insurance company then revoked its offer to settle the claim on total loss basis and asked Abhay to get the vehicle repaired. Abay pointed out that repairs and replacement of spare parts would cost Rs 12.5 lakhs. He would be agreeable to repairs if the entire cost of repairs would be borne by the insurance company; otherwise the claim ought to be settled on total loss basis. Since the claim was not settled, Abay filed a consumer complaint.

The dispute ultimately reached the National Commission which observed that an officer of the insurance company cannot harass a consumer by compelling him to sign a voucher accepting whatever amount is offered as final settlement. This would amount to taking undue advantage of unequal and weak status of the insured who has lost his property and his creditors are after him to recover their money. Noting that few persons can resist such coercive pressure when their property is damaged, the Commission held that it was necessary to stop this practice. Accordingly, the Commission directed the Chairman of the Insurance Regulatory Development Authority (Irda) to take action to prevent insurance companies from depriving the insured of his right to approach a legal forum for just settlement of his claim.

Despite these judgements, the Irda has failed to take any action to protect the consumers’ interests. So insurance companies continue to resort to coercive and arm-twisting tactics for obtaining unconditional discharge. Aggrieved consumers can apply for interim orders directing the insurance company to pay the admitted amount with the balance claim, depending on the outcome of the case. Consumer forums must also come down heavily on the officials who disregard the law laid down on the subject and continue to harass consumers.

The author is a consumer activist