Non Life Insurance - Value of vehicle in the policy cannot be disputed by insurer

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When insuring a motor vehicle, an insurance company collects premium according to the value stated in the policy but avoids settling a claim on the basis of the same valuation. In a recent case, the National Commission has termed this an ’unethical practice’ and indicted an insurance company. Sher Singh Shobta had purchased a Tata truck on a high interest loan. This truck was insured by National Insurance Company. The policy for the period of November 1, 1996, to October 31, 1997, stated the sum insured was Rs 3.80 lakh. The truck met with an accident on April 30, 1997. It fell into a 1,700-feet gorge near Darlaghat in Solan district of Himachal Pradesh.
The damage was extensive, resulting in total loss. Shobta immediately informed the insurer about the accident and lodged a First Information Report (FIR) with the police. The insurer appointed a surveyor, who inspected the site, as well as the vehicle. Later, Shobta recovered salvage and transported it to Shimla at a cost of Rs 50,000. Since it could not be used or repaired, he arranged for its storage. Shobta was deprived of his livelihood, yet had to shoulder the burden of paying back the loan, along with the interest and the storage charges. But the insurer did not settle the claim or even respond to the legal notice, which compelled Shobta to file a complaint before the Himachal Pradesh State Commission. He claimed the sum insured of Rs 3.80 lakh for total loss, along with compensation and costs. The insurer contended that Shobta’s failure to file the required documents, including the original driving licence, had caused the delay. The company also claimed the vehicle had been examined by a technical surveyor, whose report assessed the loss at Rs 1.48 lakh. But Shobta insisted on getting the full sum insured for total loss. The State Commission observed the surveyor was an expert in loss assessment. Yet, a court or authority can consider an expert’s report in evidence only if it is supported by some reason or logic.

Here, the surveyor had disallowed most of the claim without giving any reasons and had even reduced the cost of the parts which required replacement. The Commission concluded the surveyor had acted like an employee of the insurance company than as an independent expert. The State Commission allowed 40 per cent depreciation on the sum insured and directed the insurer to pay the reduced amount of Rs 2.28 lakh with nine per cent interest, and also compensation and costs. It further directed the insurance company to fix responsibility on the officer who had delayed settlement of the claim and recover the interest amount of Rs 1.48 lakh from the defaulting officer.

Both Shobta and the insurance company appealed to the National Commission against this order. The National Commission observed the survey report indicated almost every part of the vehicle was damaged, including the chassis, the engine and other key components. Since the vehicle had fallen into a deep ravine, the Commission accepted Shobta’s stand that the vehicle was totally damaged and not repairable. The Commission observed that while insuring the truck, the insurer had accepted the value of the vehicle at Rs 3.80 lakh. Yet when the accident occurred just nine months later, it applied 50 per cent depreciation, which was not justifiable. Relying on a judgment of the Supreme Court in Dharmendra Goel v/s Oriental Insurance, the Commission held that once the insurer accepts the value of a particular vehicle, it cannot later disown that valuation on some pretext or the other at the time of paying a claim.

Such ’a take it or leave it’ attitude is unwarranted, bad in law and ethically indefensible. The National Commission held that a maximum of 10 per cent depreciation could be considered reasonable for the period of nine months that the vehicle was used after it was insured. Accordingly, it directed the insurer to pay the balance Rs 3.42 lakh, with nine per cent interest. While the claim amount was enhanced, the compensation was reduced to Rs 50,000 but the order directing the recovery of this amount from the defaulting official was set aside. Litigation costs of Rs 10,000 were also granted.

Thus, the insurer is bound by the valuation stated in its policy. However, unless the guilty officials are penalised, there will not be any attitudinal change and the consumer will have to keep fighting for his rights.

Source : BS back