CONSUMER RIGHTS
Beware of insurance fraud
Pushpa Girimaji

When you buy a cell phone, you are often told by the dealer that the handset carries with it a free insurance cover that will protect your instrument against theft . However, if the handset actually gets stolen and you try to claim the insurance money, you are told that the exclusion clause in the insurance cover prevents indemnification of the loss. What is this exclusion clause? That the insurance company will not be liable to pay if the theft has taken place without the use of force or violence or threat . But the person to whom the insurance is issued is never informed of this exclusion clause. He learns about it only when he is denied the claim.

Disgusted with this kind fraud being played on the consumer, two owners of mobile handsets filed cases before the consumer court. In its verdict delivered on May 15, the apex consumer court asked the insurance company to pay not only the insured amount but also compensation and costs of litigation.

The detailed order which examines the exclusion clause and also the regulations pertaining to the protection of policy holders’ interest drawn up by the insurance regulator, the Insurance Regulatory and Development Authority (IRDA), is of far-reaching significance. More so because the order goes well beyond this particular case and lays down a general principle that the insurance companies which violate the IRDA regulations on the protection of policy holders’ interest have to take responsibility for the consequences of such action.

The IRDA (Protection of Policy Holders’ Interest) Regulations, 2002, mandate says that the insurance companies or their agents or intermediaries clearly and explicitly explain to the policy holder at the time of selling the policy all the terms and conditions, including the exclusion clauses. If insurance companies fail to follow this, then later they cannot use that clause to deny the consumer his claim, the apex consumer court has said.

The apex consumer further adds:"If the regulations are ignored and the procedure prescribed (by the IRDA) before issuing a policy cover is not followed, then the unexplained exclusion clauses are required to be ignored". This order should really makes insurance companies sit up and follow stringently the laws and regulations laid down by the insurance regulator.

The order has its origin in two revision petitions filed by the insurance company in two cases. In the case of D.P.Jain, he purchased a Nokia handset costing Rs 6,100 for his daughter in 2004. When the cellphone was stolen from his daughter’s handbag and he made a claim with the insurance company, it argued that in the absence of ‘actual or threatened force’ involving the theft, it could not indemnify the loss.

In the case of Manjeet Kumar, he had purchased a Nokia set for Rs 17,150, also in 2004. When someone broke open the door of his car and stole the mobile, he sought reimbursement of the cost of the mobile from the insurance company . Here again, he was told that in the absence of ‘forced and violent entry or exit’, he would not get the money.

In both the cases, the District Forum asked the insurance company—-National Insurance—-to reimburse the amount and also pay Rs 1000 towards compensation and Rs 1000 towards the cost of litigation. When the insurance company’s appeal was dismissed by the consumer court at the state level, it filed revision petitions before the apex consumer court, arguing that consumer courts cannot nullify the exclusion clauses in the policy.
Before the apex consumer court, the insurance company also argued that if it had violated the IRDA regulations, it was for the regulator to take action . The court cannot declare as null and void the exclusion clause pertaining to a policy. The apex consumer court dismissed the argument and said the insurance companies cannot ignore the law with impunity. If the insurance company did not follow the regulations, then the unexplained or unnoticed exclusion clauses would not be binding on the insured.

As I said earlier, this is an extremely important order from the point of consumers and will not only help consumers similarly placed in respect of mobile phones and even car radios (similar insurance covers are issued by dealers selling car radios) but also other policy holders in general. For too long, insurance companies have escaped liability by pointing to exclusion clauses that have never been brought to the notice of the consumer. This order of the apex consumer court should put a stop to such practices. (National Insurance Company vs D.P.Jain, RP No 186 of 2007, and National Insurance Company vs Manjeet Kumar, RP NO 187 of 2007, decided on May 15, 2007).

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