Misrepresentation Valid Ground For Repudiation Of Insurance Claim: Uttarakhand State Commission Dismisses Deficiency Complaint Against National Insurance

Brief Facts of the Case

The complainant had a Tata Indigo car, which was insured with National Insurance/the insurer. During the policy period, the car met with an accident. The insurer was informed, and the car was inspected. The complainant was advised to repair the car at an authorised service centre and submit the bill. He spent around ₹51,000 on repairs and submitted the bill. Before the claim was paid, the car met with another accident. Again, the insurer was informed, and the vehicle was towed and inspected. The estimated cost of repairs was over ₹4.3 lakhs. The surveyor declared the vehicle a total loss and promised ₹3.5 lakhs as settlement. But no payment was made despite repeated requests. Later, the insurer denied the claim. The complainant sent a legal notice and then filed a complaint before the District Commission. The District Commission allowed the complaint and directed the insurer to pay ₹4,32,701 with 6% interest and ₹5,000 as litigation costs. Aggrieved, the insurer appealed before the State Commission of Uttarakhand.

Contentions of National Insurance

The insurer claimed the complainant had made a false declaration while buying the policy. He had stated in the proposal form that he had not made any claim in the previous year and claimed a 20% No Claim Bonus (NCB). Later, it was found that the complainant had availed a claim in the previous year and was actually entitled to 0% NCB. Based on this misrepresentation, the insurer declared the contract void and denied the claim. They argued that the claim was not payable due to the concealment of material facts.

Observations by the State Commission

The State Commission reviewed the grounds of the insurer in rejecting the claim of the complainant and looked through the documents available on record. It mentioned that the complainant had been given a 20% No Claim Bonus (NCB) during the purchase of the policy by stating that he had not made any prior claim. But upon checking with the previous insurer, it was asserted that a claim had been made in the last year, and the complainant was rightfully eligible for 0% NCB. The Commission observed that even though the complainant did misrepresent the NCB status in the proposal form, the insurer also could have checked this information from the earlier insurer while delivering the policy, but did not do so in a timely manner. It referred to the case Sh. Anjani Gupta vs. Future Generali India Insurance Co. Ltd. and the three-judge bench ruling in Branch Manager, National Insurance Co. Ltd. v. Naresh Kumar, where it was held that even if a false NCB is asserted, the insurer will not be able to repudiate the claim completely if it had the facility to check the facts. Rather, the claim needs to be paid on a non-standard basis after proportionately deducting the NCB falsely asserted.

Notwithstanding these precedents, the Commission also went through the judgment in Rajeshwari Devi Garg vs. United India Insurance Co. Ltd. and LIC of India vs. G.M. Channabasamma, the courts held that insurance contracts are founded on utmost good faith, and material misrepresentation would be a valid reason for repudiation. Balancing these decisions, the Commission determined that the complainant made a false declaration with knowledge and for the purpose of gaining an undue advantage and to deceive the insurer. The Commission held that this constituted a material breach of the doctrine of uberrima fides (utmost good faith). Accordingly, the insurer was entitled to repudiate the claim.

The State Commission allowed the appeal and set aside the District Commission's order.

Case Title: National Insurance Co. Ltd. Vs. Mr. Sandeep Garg

Case Number: C/5/A/231/2018

Click Here To Read/Download The Order