NCDRC Upholds Insurance Claim Repudiation, Orders Oriental Insurance To Pay ₹71 Lakh For Failure To Disclose Premium Deadline

Facts

Neo Essel Dispoware Pvt. Ltd., a manufacturer of food-grade plastic products, obtained an Industrial All Risk Policy from Oriental Insurance for the period October 17, 2016, to October 16, 2017. The policy covered fire damage, machinery breakdown and loss of profits.

The policy was issued against a bank guarantee of ₹28 lakh furnished on October 14, 2016, valid until February 15, 2017. The company contended that the insurer had previously permitted payment of premiums within 120 days against bank guarantees for earlier policies.

A fire broke out at the insured premises on October 29, 2016, following which the company lodged an insurance claim of ₹6.12 crore. A surveyor appointed by the insurer assessed the net loss at ₹4,18,89,413.

The premium of ₹28 lakh was paid through a cheque dated January 17, 2017. However, Oriental Insurance repudiated the claim on May 8, 2018, citing non-compliance with Section 64VB of the Insurance Act read with Rule 58 of the Insurance Rules.

Aggrieved, the company approached the NCDRC, seeking payment of the insurance claim with interest and compensation for deficiency in service.

Contentions Of The Insurer

The insurer maintained that Section 64VB and Rule 58 required the premium to be received or guaranteed to be paid within the prescribed period. It contended that the bank guarantee could not override statutory requirements and that the premium for the 2016-17 policy had been paid beyond the permissible deadline.

Commission's Observations

The Commission observed that Section 64VB, read with Rule 58, permits an insurer to assume risk before receiving the premium only if the entire premium is guaranteed to be paid before the end of the calendar month succeeding the month in which the risk is assumed.

Since the policy commenced in October 2016, the premium was required to be paid by November 30, 2016. However, the complainant paid it in January 2017.

The Commission held that the statutory deadline could not be extended through a private arrangement or waived by the insurer. It also noted the absence of any separate communication establishing that the insurer had agreed to defer payment beyond the statutory deadline for the policy in question.

At the same time, the Commission criticised Oriental Insurance for accepting the bank guarantee and premium beyond the legally permissible period without adequately informing the complainant of the consequences.

It observed that the insurer's conduct had misled the complainant and placed it at a disadvantage. Even after receiving information about the fire, the insurer had failed to inform the company that the premium had to be deposited by November 30, 2016, although the complainant could still have made the payment within that period.

Decision

The NCDRC declined to set aside the repudiation of the insurance claim, holding that the policy could not be invoked for the loss because the premium had not been paid within the statutory period.

However, taking exception to the insurer's failure to adequately disclose the statutory limitation and the consequences of delayed payment, the Commission directed Oriental Insurance to refund the ₹28 lakh premium with interest at 12% per annum from the date of deposit until realization.

It further directed the insurer to pay ₹43 lakh as compensation, equivalent to the premium collected for the previous policy year, observing that the earlier policy had also been issued contrary to the statutory provisions.

The amounts were directed to be paid within four weeks. The complaint was accordingly disposed of.