SC Orders States To Set Up SITs To Probe Fraudulent Insurance Claims, Warns Insurers Against ‘Pick And Choose’ Approach

The Bench of Justices Ahsanuddin Amanullah and PB Varale said the proceedings in an SLP, which initially concerned whether a particular vehicle was actually involved in an accident, had expanded after the Court came across allegations that the same vehicle was being shown as involved in multiple accidents to facilitate fraudulent claims.

The Court observed that such fraudulent claims not only cause financial stress to insurance companies but can also ultimately increase premiums paid by genuine consumers.

States directed to constitute dedicated SITs

The Supreme Court directed every State to constitute a special dedicated SIT at the State level to investigate complaints of suspected insurance fraud.

All complaints received by insurance companies indicating potential fraud are to be forwarded to the concerned SIT, and States have been directed to provide adequate personnel to enable expeditious investigations.

The States have also been directed to disclose the procedure adopted for investigating such claims. The Court specifically warned insurance companies against selectively referring cases to SITs.

It held that the responsibility lies with insurance companies to ensure that all claims indicative of fraud are forwarded for investigation and that there is no “pick and choose” approach.

The Court further warned that the top management of an insurance company would be held accountable if selective forwarding of cases to the State SIT is found.

UP reports 231 FIRs against 533 accused

During the hearing, Uttar Pradesh informed the Court that it had constituted a special SIT to verify complaints concerning suspected fraudulent insurance claims.

The State told the Court that 2,188 complaints had been received so far. Of these, 1,029 complaints had been investigated, resulting in 231 FIRs against 533 accused persons.

The Court appreciated the action taken by Uttar Pradesh and noted that other States may have adopted similar mechanisms. The Court, however, directed all States to establish dedicated SITs for the purpose.

Insurance companies must act against officials facilitating fraud

The Court directed insurance companies to file affidavits detailing the action taken on cases referred to the SITs and any internal action initiated against their officials.

It said that if an SIT makes a recommendation or an FIR is registered against an officer of an insurance company, the company must take appropriate departmental action without delay.

Insurance companies have also been directed to investigate whether their own officials contributed to or facilitated fraudulent claims.

The Court made it clear that accountability would extend beyond the individuals allegedly involved in fraudulent claims where there is evidence of institutional or internal collusion.

SC direct action where MACT rejects claims for fraud

The Court also accepted a suggestion made by advocate Jagdish Chandra Solanki concerning cases where Motor Accident Claims Tribunals (MACTs) reject claims on grounds of fraud or collusion.

It directed insurance companies to immediately forward details of such cases to the SIT of the State where the claim was raised.

The concerned insurance company must also conduct an in-house investigation to determine whether there was any contributory collusion by its officials.

Details of such cases and the action taken will have to be disclosed in the affidavits to be filed before the Court.

SC considers common portal to detect repeated claims

During the proceedings, advocate Solanki suggested that a common portal for insurance claims be developed to enable insurance companies to cross-check whether the same vehicle, person, institution or entity had been involved in repeated claims.

He also suggested integrating such a portal with the existing VAHAN and SARATHI databases.

Counsel appearing for Tamil Nadu pointed to the Ministry of Road Transport and Highways’ E-Detailed Accident Report (EDAR) portal, which tracks accidents on national highways.

The Court was told that integrating EDAR with other relevant databases and an IRDA portal could make it easier to verify the authenticity of reported accidents, the vehicles involved and the location of accidents.

The Court has impleaded the Insurance Regulatory and Development Authority of India (IRDAI), the Ministry of Finance, the Ministry of Road Transport and Highways and the General Insurance Council as additional respondents.

The newly added respondents have been directed to file affidavits explaining their present responsibilities and suggesting measures to address fraudulent insurance claims.

Insurance company CMDs issued show-cause notices

The Supreme Court also took note of the absence of several senior insurance company officials who had been directed to remain physically present before the Court.

The Court had earlier required the CMDs of 15 insurance companies to appear physically, after they failed to enter appearance pursuant to earlier directions.

While the Bench initially considered issuing contempt notices and directing the officials to appear with show-cause responses, it granted them “extraordinary indulgence” for the present.

Show-cause notices have now been issued to the concerned CMDs, requiring them to file personally affirmed affidavits explaining why they failed to comply with the Court’s direction to remain physically present.

The Court also noted that insurance companies at respondents Nos. 64, 94 and 98 had neither entered appearance nor filed affidavits.

The matter has been listed for September 23, 2026 at 2 PM.

The Court has directed all parties to be prepared with a one-page summary of their respective affidavits for the next hearing.