SC says insurers can't deny claim for impossible conditions: What it means

Court rules that insurance firm cannot reject a claim on the grounds of breach of a condition in the contract that was impossible to fulfil

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The Supreme Court has ruled that insurance companies cannot deny claims on grounds of breaching a condition that was impossible to fulfill, news reports said this week.

 

“The ruling serves as a reminder to the insurance industry that contractual terms must be fair, transparent, realistic, and practically enforceable, rather than serving as technical grounds for claim rejection. Thus, while buying insurance claims, these factors must be kept in mind,” said Haaris Fazili, partner at DMD Advocates.

 

Vivek Joshi, senior associate at law firm PSL Advocates & Solicitors, explained the judgment.

 

“This question had arisen in the context of a special condition in an insurance contract which stipulated that the ‘voyage should commence and complete before monsoon sets in’,” said Joshi.

 

“The concerned vessel undertook the voyage on June 6, 2013, however, owing to bad weather, it was anchored off near Ratnagiri port [in Maharashtra] and engine failure. Consequently, the vessel ran aground. The insurance claim of the vessel was repudiated by the insurance company on the premise that it set sail after the monsoon had set-in. The repudiation was challenged before the National Consumer Disputes Redressal Commission (‘National Commission’) which dismissed the complaint on the ground that it suppressed material facts and did not conduct itself in good faith.”

 

“However, the Supreme Court set aside the decision of the National Commission on the ground that the insurance contract was availed for a period of one month i.e. May 16, 2013 to June 15, 2013 and even if the voyage had commenced immediately, it would have only arrived at Kolkata after the commencement of the foul weather conditions. Therefore, the phrase ‘voyage should commence and complete before monsoon sets in’ could not be enforced considering the impossibility to fulfil the same.”

 

How to challenge a claim

 

Insurance customers may find their claims were rejected due to conditions that are unreasonable or impossible to meet, especially during emergencies. To dispute such rejections, one must navigate a complex and often lengthy process.

 

The first step typically involves hiring a lawyer to review the insurance policy and identify any clauses that may be legally questionable or unfair. If discrepancies or unjust conditions are found, policyholders can file a complaint with the regulatory authority or the local insurance ombudsman, who oversees insurance practices.

 

In more severe cases, if the claim denial appears to be clearly unjust and the policy terms were unreasonable, taking legal action against the insurer may be a viable option.

 

“When buying insurance, go beyond the premium [and] scrutinise the exclusions. Ask what proof is needed at claim time, and in what cases payment can be denied. Some clauses sound simple on paper but are hard to comply with in real-life emergencies. If something feels unclear or unfair, seek written clarification. A legally shaky clause might not hold in court but it can still cause delays if you’re not prepared,” said Rishabh Gandhi, founder, Rishabh Gandhi and Advocates. 

“Understanding and reviewing various provisions of a policy is crucial to making an informed decision while purchasing a policy. It is equally important to identify the specific conditions under which a claim may be repudiated by the insurer and the manner and form in which a claim is to be made. These clauses should be carefully reviewed prior to purchasing any policy, preferably by a legal professional,” said Manmeet Kaur, partner at Karanjawala & Co.