Typo can't be basis for denial of claim

Satya Traders had obtained a Shopkeeper’s Insurance Policy from National Insurance, which was valid from July 17, 2009, to July 16, 2010. The policy provided coverage for various risks with specific limits: Rs 4 lakh for fire & allied perils, Rs 4 lakh for burglary and housebreaking, Rs 8,500 for money in transit, Rs 4,000 for money kept in a safe, and Rs 1,700 for baggage, amounting to a total of Rs 8,14,200.

While the policy was active, the insured’s shop in Kurnool was flooded on October 2, 2009, damaging the entire stock worth Rs 5,12,250.

A claim was made under the policy. The appointed surveyor observed that the shop address mentioned in the policy was D. No. 13/82 whereas the damaged stock was located at D. No. 13/241. Nonetheless, the surveyor assessed the loss at Rs 99,267 on an average basis.

The insurer repudiated the claim, observing that the policy covered the stock in shop D. No. 13/82 whereas the damaged stock was located in shop D. No. 13/241, which was not covered.

The rejection was challenged before the Kurnool District Consumer Forum. The insurer justified the repudiation. It pointed out that any address change which affects the goods or premises insured has to be intimated. Failure to do so absolved it of the liability to settle the claim. It argued that the complaint should be dismissed as the repudiation was in accordance with policy terms and there was no deficiency in service.

State Bank of India (SBI), which was made a party to the dispute, claimed it was only an intermediary as the stock was hypothecated to it, and was not involved in the dispute.

The District Forum allowed the complaint and ordered the insurer to pay Rs 99,267 as assessed by the surveyor. It also awarded Rs 10,000 for mental agony and Rs 1,000 for legal expenses.

Both sides challenged the order. The Andhra Pradesh State Commission found that the shop number/door number 13/241 was correctly mentioned in all the correspondence and documents, including the VAT Registration Certificate. The discrepancy was only present in the policy due to a clerical error on the part of SBI in mentioning the old address while applying for insurance. The State Commission concluded the insurer could not take advantage of a typographical error on the bank’s part to repudiate a legitimate claim.

On the quantum of the claim, the State Commission noted that stocks were insured for 82.9 per cent of the actual value. After applying the average clause, the claim would have to be limited to the coverage limit of Rs 4 lakh under the policy.

The State Commission held the bank liable for the error in the address and modified the order to hold SBI liable to pay the claim value of Rs 4 lakh along with 9 per cent interest from the date of repudiation. The order awarding compensation was upheld. In addition, the State Commission granted Rs 5,000 towards the cost of appeal.

SBI went in revision before the National Commission, which noted that the insured did not have multiple places of business, so it was evident that the incorrect shop number was due to an inadvertent error. It observed that a genuine claim should not be rejected on technical grounds, as doing so would defeat the purpose of obtaining insurance coverage. By its order of March 15, 2024, delivered by J. Rajendra, the National Commission upheld the State Commission’s order, with the modification that the claim would be paid by the insurer, not the bank.

The writer is a consumer activist