DELAY IN SETTLEMENT OF CLAIM & DEFICIENCY IN SERVICE

Submitted by – Rahul Singh Submitted to – Mr. S.B Choubey

Roll no – 1358, Faculty of Insurance Law
th
8 semester, BA.LLB.(Hons.)

FINAL DRAFT SUBMITTED IN FULFILLMENT OF COURSE Insurance Law FOR COMPLETION OF

BA.LLB. (HONS.)

MARCH 2019

CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR, MITHAPUR,
PATNA (BIHAR)
 1. Introduction:

With the growing importance of service sector in India, and in order to protect the interests of the
consumer service sector was included in the domain of consumer protection laws. Service refers to an
intangible benefit received by the consumer from the service provider for a considerable amount.
Intangible is something that cannot be touched or seen but can be felt.

Insurance sector is one of the most prominent service sector, which witnessed a high growth graph
in past few decades. Though the business of securing the risk of loss in not a new phenomenon, as
it can be well witnessed in the history books that the insurers used to take the risk of the insured in
lieu of certain considerations and if something happened then insures come to rescue or make
good the loss sustained. Insurance is a contract, represented by a policy, in which an individual or
entity receives financial protection or reimbursement against losses from an insurance company. The
company pools clients' risks to make payments more affordable for the insured.1

But, there have been enormous complaints regarding the delay and deficiency of insurers in dispensing
and settling the claims of the consumers (insured), and hence one thing which may come to a prudent
mind that whether delay in settling the claim citing various reasons can be attributed to be deficiency in
service or not?

RESEARCH NOTE: SETTLEMENT OF INSURANCE CLAIM, DEFICIENCY IN SERICE &

QUANTUM OF INTEREST

A. Deficiency In Service

1. National Insurance Company Ltd. Vs. Nipha Exports Pvt. Ltd

[2006]Supp(6)SCR719
The claim of the complainant was finally settled by a letter dated 8.4.1994 and the
payment was made on 8.6.1994, which was accepted by the respondent without any
qualifications. It cannot, therefore, be said that the payment was made belatedly. The
important date to be decided in such circumstances is the date on which the quantum of

1
https://www.investopedia.com/terms/i/insurance.asp
 compensation and to whom it should be paid is finally decided and not from the dates on
which the correspondences ensued between the parties. {PARA 8}
2. United India Insurance v. Ajmer Singh Cotton & General Mills
AIR 1999 SC 3027,
It was held by Supreme Court that mere execution of discharge voucher would not
always deprive the consumer from preferring claim with respect to the deficiency in
service or consequential benefits arising out of the amount paid in default of the service
rendered. It was further pointed out that despite execution of the discharge voucher, the
consumer may be in a position to satisfy the Tribunal or the Commission under the Act
that such discharge voucher or receipt had been obtained from him under circumstances
which can be termed as fraudulent or exercise of undue influence or by misrepresentation
or the like, and if such a case is proved, the authority before whom the complaint is made
would be justified in granting appropriate relief.
3. Oriental Insurance Co. Ltd. v. Mercury Rubber Mills, 2012 (127) DRJ 650, the
Division Bench of Delhi High Court held that the denial of payment to the insured at the
relevant time defeats the very purpose of taking out the policy. The insurer has a superior
bargaining position as the insured having suffered a loss is faced with ‘take it or leave it’
position. The Division Bench held that there was no question of final accord of
satisfaction to make the insured ineligible for making a claim against the insurer
4. Amline Textile Pvt. Ltd. vs. United Insurance Co. Ltd. …SCCOnLine NCDRC 317
Surprisingly and for the reasons not easy to comprehend, the insurance company took a
decision not to settle the claim of the complainant even as per the assessment of loss
made by the joint surveyors. Under these circumstances, complainant was constrained to
file the present complaint and it was only at that stage that insurance company sought to
repudiate the claim on the strength of clause 6 of the terms and conditions of the policy.
To say the least, this repudiation / defence plea put forth by the insurance company in
order to repudiate the claim is wholly untenable if we look into the entire sequence of
events and the various circumstances noted by different agencies involved in the matter.
The insurance company was expected to consider the said report and material which in
our opinion it has failed to do. Keeping in view the entirety of the facts and
circumstances and the material placed on record viz., the report of the joint surveyors ,
 the investigator Loss Prevention Association of India Ltd., police authorities and fire
service authorities, the defence put forth by the insurance company is nothing but a sham
one. An insurer who has entered into an agreement with the insured to indemnify the
insured of any loss occasioned to him due to any peril covered under the policy, is
expected to consider the claims in a dispassionate manner based on the facts and
circumstances and the evidence and material brought before it rather than denying the
claim on untenable / imaginary / whimsical grounds. It is high time that the insurance
companies settle the claim of the insured promptly and in just and reasonable manner. In
the case in hand, we are constrained to note that the insurance company has not done a
service to the insured / consumer and rather has done dis-service by repudiating the claim
despite there being overwhelming material brought on record in regard to the
circumstances in which the huge loss was occasioned to the complainant. We are of the
clear view that the opposite party-insurance company has committed deficiency in
service firstly by not settling the claim of the complainant within a reasonable time and
thereafter denying the same on wholly untenable grounds (PARA 13)
As the insurance company failed to settle the claim and pay the said amount within
reasonable period, we are of the view that complainant needs to be compensated by
awarding interest for the period they were deprived of their legitimate claim. Considering
the enormity of the claim and that joint surveyors and investigators were appointed, we
are of the view that insurance company ought to have settled the claim of the complainant
latest within a period of nine months of the peril which took place on 13.03.2001 i.e. by
the end of 2001. Since it was not done, we are of the view that it would adequately meet
the ends of justice if we call upon the opposite party also to pay interest @ 9% p.a. on the
amount of Rs.5,34,24,060/- w.e.f. 01.01.2002 till the date of payment. The complainant is
also entitled to cost of the present proceedings which we quantify at Rs.50,000/- (PARA
15)
5. Venkateswara Syndicate Vs. Oriental Insurance Company Ltd. and Ors…….
(2009) 8 SCC 507
ISSUES:
a. Whether the insurance company can repeatedly appoint Surveyors after
Surveyors for getting the loss/damage assessed before settling the claim of the
insured. (PARA 8)

Judgment:

The assessment of loss, claim settlement and relevance of survey report depends on
various factors. Whenever a loss is reported by the insured, a loss adjuster, popularly
known as loss surveyor, is deputed who assess the loss and issues report known as
surveyor report which forms the basis for consideration or otherwise of the claim.
Surveyors are appointed under the statutory provisions and they are the link between the
insurer and the insured when the question of settlement of loss or damage arises. The
report of the surveyor could become the basis for settlement of a claim by the insurer in
respect of the loss suffered by the insured. There is no disputing the fact that the
Surveyor/Surveyors are appointed by the insurance company under the provisions of
Insurance Act and their reports are to be given due importance and one should have
sufficient grounds not to agree with the assessment made by them. We also add, that,
under this Section the insurance company cannot go on appointing Surveyors one after
another so as to get a tailor made report to the satisfaction of the concerned officer of the
insurance company, if for any reason, the report of the Surveyors is not acceptable, the
insurer has to give valid reason for not accepting the report. Scheme of Section 64UM
particularly, of Sub-sections (2), (3) and (4) would show that the insurer cannot appoint a
second surveyor just as a matter of course. If for any valid reason the report of the
Surveyor is not acceptable to the insurer may be for the reason if there are inherent
defects, if it is found to be arbitrary, excessive, exaggerated etc., it must specify cogent
reasons, without which it is not free to appoint second Surveyor or Surveyors till it gets a
report which would satisfy its interest. Alternatively, it can be stated that there must be
sufficient ground to disagree with the findings of Surveyor/Surveyors. There is no
prohibition in the Insurance Act for appointment of second Surveyor by the Insurance
Company, but while doing so, the insurance company has to give satisfactory reasons for
not accepting the report of the first Surveyor and the need to appoint second Surveyor.
(PARA 22)

Section 64UM(2) of the Insurance Act, 1938, reads that 'No claim in respect of a loss
which has occurred in India and requiring to be paid or settled in India equal to or
exceeding twenty thousand rupees in value on any policy of insurance, arising or
intimates to an insurer at any time after the expiry of a period of one year from the
commencement of the Insurance (Amendment) Act, 1968 shall, unless otherwise directed
by the Authority, be admitted for payment or settled by the insurer unless he has obtained
a report on the loss that has occurred from a person who holds a license issued under this
Section to act as a surveyor. In our considered view, the Insurance Act only mandates
that while settling a claim, assistance of surveyor should be taken but it does not go
further and say that the insurer would be bound whatever the surveyor has assessed or
quantified, if for any reason, the insurer is of the view that certain material facts ought to
have been taken into consideration while framing a report by the surveyor and if it is not
done, it can certainly depute another surveyor for the purpose of conducting a fresh
survey to estimate the loss suffered by the insured. In the present case, the insurer has
stated in the counter affidavit filed before the National Commission and even before us,
why the appointment of second Surveyor was necessitated and also has given valid
reasons for appointing second Surveyor and also has assigned valid reason for not
accepting the report of Joint Surveyor. The correspondence between the insurer and the
Surveyors would indicate the particulars differed by the insurer for differing with the
assessment of loss made by the Surveyors. The option to accept or not to accept the
report is with the insurer. However, if the rejection of the report is arbitrary and based on
no acceptable reasons, the courts or other forums can definitely step in and correct the
error committed by the insurer while repudiating the claim of the insured. We hasten to
add, if the reports are prepared in good faith, due application of mind and in the absence
of any error or ill motive, the insurance company is not expected to reject the report of
the Surveyors. (PARA 23)
 b. whether the National Consumer Commission was justified in awarding 6%
interest per annum from 01.03.2001 as against the claim of the appellant at 18%
from the date of the fire accident, viz. 24.08.1999 (PARA 8)

Now with regard to the question of awarding rate of interest as compensation in cases where loss
is caused due to deficiency/delay in services, this Court in various judgments has held that the
award of compensation must depend on facts and circumstances of each case and has to be
worked out after determining the amount of loss suffered by the consumer. In the case of
Secretary, Irrigation Deptt., Govt. of Orissa v. G.C. Roy MANU/SC/0142/1992 : (1992) 1 SCC
508, this Court has stated that "a person deprived of the use of money to which he is legitimately
entitled has a right to be compensated for the deprivation, call it by any name. It may be called
interest, compensation or damages." (PARA 24)

In the case of Kaushnuma Begum v. New India Assurance Co. Ltd. (2001) 2 SCC 9, this Court
has held that, "with a change in economy and the policy of Reserve Bank of India the interest
rate has been lowered. The nationalized banks are now granting interest at the rate of 9% on
fixed deposits for one year. We, therefore, direct that the compensation amount fixed
hereinbefore shall bear interest at the rate of 9% per annum from the date of the claim made by
the appellants. (PARA 26)

In the case before us it has been made clear that if the insurer is not satisfied with the assessment
of the surveyor, he retains the right to settle claim for a different amount. The insurer after
rejecting the assessments of the surveyor and the joint surveyor has accepted the assessment
made by the Chartered Accountant. Therefore, it would not be correct to say that insurer while
settling the claim has caused an unnecessary delay of three years. But once the insurer has
reached a settlement he should make the payment at the earliest. And if further delay is caused
by the insurer in making the payment then he should be made liable to pay the interest on the
amount settled, as compensation at the current rate of interest till the payment is made, as it has
deprived the appellant from using his money for which he is legitimately entitled. (PARA 27)
Thus, in view of the above discussion, we direct the respondent Insurance Company to pay Rs.
1,05,00817/- with interest at the rate of 9% as compensation from the date of assessment done by
the Chartered Accountant, within two months from the date of this order. The appeal is partly
allowed. No order as to costs. (PARA 28)

6. Nand Kishore Jaiswal Vs. National Insurance Company Ltd… 2009(3)C.P.C.278.

Surveyor's report is a valuable document and it should have been given due credence
unless there are adequate reasons to discard the same. In this connection we would like to
cite an extract of the latest judgment of the National Commission which was pronounced
on 15.12.2008 in RP No. 2212 of 2004, United India Insurance Company Ltd. v. A.
Sreedhar Reddy, wherein it has been observed as under “As per settled law the report of
the Surveyor is an important document, which cannot be brushed aside and in this case,
nothing has been shown to us to take the figure of loss other than the one arrive at by the
Surveyor.” PARA 7
On the question of inordinate delay in settling the claim the Hon'ble Commission in Col.
Bhim Singh v. Regional Manager, National Insurance Company Ltd., I (1992) CPJ 205
(NC) has held as under. “We have reasons to suspect that the payment of insured
amounts, which are not in dispute, are often delayed with a view to coerce the assured
into giving a receipt in full and final discharge of the claim of the insured”. PARA 8
7. Oriental Insurance Co. Ltd. Vs. Respondent: Mohanlal Agarwalla…
2003(1)C.P.C.449
Issue No. 3 Whether there was undue delay in settlement of the claim and whether this
constitutes a deficiency of service.
The O.P. has not disputed the fact that the claim was lodged by the claimant in July 95
and payment was offered only towards the end of May, 1996 i.e. a period of about 10
months. The National Consumer Redressal Commission has time and again laid down the
yardstick of three months for settlement of an insurance claim and the actual time of ten
months in this case is definitely a case of delayed settlement and hence deficiency of
service.
Issue No. 5. Whether complainant has suffered mental harassment and actual loss of
business due to deficiency in service.
 The correspondence on records clearly indicate that the claimant was required to take up
the matter of his claim with the O.P. time and again. He was required to visit Tura to
meet the concerned officials and pursue his case. He was also required to file a complaint
before this Forum. All of which have led a considerable lapse of time and no
compensation has been given to him except the amount of Rs. 21,404.00. Clearly it is the
claimant who has borne the loss sustained by him for a period of more than 3 months.
Any delay in settlement must definitely be construed to be mental harassment and to
operationalise his business again, he would be required to arrange funds either from his
own source or borrowed funds till such time his claim is finally settled to his satisfaction.
To the extent, the actual loss of business would be limited to the interest payable on funds
required to make the business operational again.

B. Award Of Interest:
1. Hindustan Copper Ltd. v. New India Assurance Co. Ltd., [1992 (2) CPR 4 : 1992
CPC 590 N.C.] National Commission awarded interest at the rate of 18%.
2. M/s. Ajmer Singh Cotton & General Mills v. The Branch Manager, United India
Insurance Co. Ltd. (1993) CPJ 160 (NC) The National Commission again awarded
interest @ 18%
3. Gammon India Ltd. v. New India Assurance Co. Ltd., (2002 (3) CPR 141 (NC))
decided on 30.7.2002 the National Commission directed the Insurance Co. to pay
interest @ 17.5% to the Complainant for having been deprived of its claim for all the
period.