Can Insurers Reject Claims Over Notification Delays? Delhi Commission Orders National Insurance To Pay ₹25.6 Lakh

The bench comprising Commission President Justice Sangita Dhingra Sehgal and member Bimla Kumari was hearing a consumer complaint filed by the power transmission company against the rejection of its insurance claim arising from the theft of project material, including conductor wire.

The Commission held that the insurer's rejection of the claim on the ground of delayed intimation amounted to unfair trade practice and deficiency in service.

“Rejection of the claim of the Complainant (power transmission company) on the ground of a violation of policy terms and conditions in the form of delay in intimation is a bald averment and amounts to unfair trade practice and deficiency in service on the part of the Opposite Party (insurer),” the Commission said in its September 7 order.

Insurance policy covered 215-km transmission project

The dispute arose from an ‘All Risk Insurance Policy’ issued on March 31, 2016, for a 400 KV double-circuit power transmission project spanning 215 km. The policy carried a sum insured of Rs 580 crore, against which the company had paid a premium of Rs 1.31 crore.

The alleged theft took place on March 25, 2017. The incident was reported to the police and an FIR was registered on March 30. The insurer was informed about the loss on April 1, 2017, and the company raised a claim of Rs 54.40 lakh.

The company alleged that the insurer repeatedly delayed settlement of the claim before ultimately rejecting it through a letter dated October 5, 2020. It thereafter approached the Commission seeking payment of the insurance claim along with compensation and litigation costs.

Insurer cited delayed intimation

National Insurance opposed the complaint, arguing that the power transmission company was not a “consumer” under the Consumer Protection Act, 2019 and that the Commission lacked territorial jurisdiction. The insurer also alleged that the company had failed to promptly report the theft and had violated the terms and conditions of the policy.

The Commission examined the relevant policy condition, which required the insured to immediately notify the insurer of an occurrence that might give rise to a claim.

The insured was also required to take steps to minimise the loss, preserve affected parts for inspection, provide information and documents sought by the insurer, and inform the police in cases of theft or burglary. The policy further provided that the insurer would not be liable for a loss if notice was not received within 14 days of detection.

Commission distinguishes between two stretches

The Commission found that the loss concerning stretch B, estimated at Rs 42 lakh, was intimated to the insurer on April 19, 2017, 25 days after its detection. It held that the 25-day delay constituted a clear violation of the 14-day condition under the policy.

However, the Commission took a different view with respect to stretch A, where the alleged loss was approximately Rs 38 lakh.

The company had intimated the insurer regarding the loss within the stipulated 14-day period. The Commission noted that there was a five-day delay in informing the police about the loss. It held that the five-day delay in reporting the incident to the police was not sufficient, in the circumstances of the case, to justify repudiation of the insurance claim.

The Commission also noted the nature and scale of the transmission project, which extended over 215 km, making it difficult to immediately assess the extent of the loss. The Commission accordingly directed National Insurance Company Ltd to pay Rs 25.61 lakh to the complainant power transmission company.