Insurance Firms Are Not Consumers

Insurance companies are usually found in the dock in consumer courts for deficiency in their services. However, in recent times, they have put on the boots of the consumer and claimed compensation from others. The consumer courts have allowed their petitions. But the Supreme Court has now stepped in and barred their entry into the consumer courts with complaints.

In a definitive judgment earlier this month, the Supreme Court has ruled that an insurance company is not a `consumer' within the meaning of the Consumer Protection Act and their complaints cannot be maintained (Oberoi Forwarding Agency vs New India Assurance). The definition of consumer under the Act has been the subject of intense discussion and one amendment, but this is one interpretation which is overdue.

 

The insurance company in this case had insured goods for transport. The consignment was lost in transit. The consignor claimed the insured amount from the insurer. It was paid by the insurance company. The consignor then assigned his rights to the insurance company along with a power of attorney to enforce them. Armed with these documents, the insurance company moved the consumer forum for compensation from the forwarding agency. Three consumer courts, including the national commission, held in favour of the insurance company. On appeal, the Supreme Court laid down that an insurance company is not a consumer.

If the judgments of the consumer courts had remained valid, it would have resulted in preposterous claims by insurers. After settling claims against them, they could have trooped into the consumer courts to make good their payments from the negligent party. Though they can move the civil courts by applying the theory of abrogation and assignment, consumer forums were not set up to assuage the grievances of monopoly government undertakings, known for their own lethargy and negligence. The present judgment has stated in clear terms that they cannot approach the consumer courts.

Section 2(d)(ii) makes it clear that it is only the person who had hired a service for consideration or any other person availing of the benefit of such service with his approval who could be regarded as a consumer. In this case, there was no question of the insurance company being a beneficiary of the service that the consignor had hired. Therefore, by no stretch of imagination can the insurance company be called a consumer.

Assignment of the rights of the insured to the insurer itself is not quite in line with public interest. The insurance company may acquire the right to sue other parties after paying off the insured. The law does not permit transfer of the right to sue in favour of another. Therefore, what the company did in this case itself is legally doubtful.

The Consumer Protection Act and the forums set up under it are intended to benefit individual consumers who buy goods or hire services. Recent judgments of the consumer courts have taken care to exclude business concerns and institutions from the courts except as respondents. Those who buy goods or services for commercial purposes are out of court, according to a 1993 amendment to the Act. For instance, a widow buying a sewing machine for her livelihood would be a consumer. But a shopowner who buys the same goods and employs tailors would be indulging in a commercial activity and therefore would not be a consumer entitled to move a forum if the machines are defective.

If mammoth corporations, which have alternative remedies elsewhere, still enter the consumer forums in the garb of consumers, the situation points to another need _ that of keeping out the inventive lawyers who put such fancy dress on their corporate clients. The forums were originally intended to be informal places to help solve the problems of the lay persons fast and without much legal expenses. But they are now flooded with lawyers who carry tons of case law, trying to do to the consumer forums what they have done to the civil courts.