When Abhay Neelawarne's Maruti Suzuki Baleno met with an accident within just six months of purchase and was completely damaged, Neelwarne's only hope was the insurance cover on the car. However, he was in for a big disappointment there, too. The settlement offered by the insurance company was inadequate to cover his losses, and when he said he would accept the money ‘under protest’ so that he could retain his right to seek the intervention of consumer courts in the matter, the insurance company refused to pay.
The apex court's criticism of the behaviour of the insurer in this case will hopefully force insurance companies to change their ways. Whenever an insurance company settles a claim, the claimant is asked to sign a paper, saying that the amount is being received as a ‘full and final’ settlement, and that there is no further claim vis-a-vis the policy. It is only after the consumer signs this paper, do insurers give the cheque.
If the claimant is satisfied with the settlement, then there is no problem with signing on the dotted line. The problem, however, arises when the consumer is not happy with the settlement. In such a case, he has an option to either refuse the amount and take up the issue before the court or a law court, or accept whatever is being offered as partial payment, or ‘under protest’ so that he does not lose his right to seek legal redress.
Since recourse to courts takes time, most consumers prefer the latter option, so that they can at least receive partial payment and then seek the intervention of the courts for the enhancement of the claim amount. But this is easier said than done because insurers refuse to pay unless the ‘full and final’ settlement is accepted unconditionally. That's exactly what happened with Neelawarne. The insurance company offered him Rs 6,25,000. Saying that it was inadequate to cover his losses, Neelawarne said he would accept the settlement under protest and said he reserved his right to any lawful action in protecting his interests.
As can be expected, the insurance company refused to pay unless he gave an unconditional acceptance of the amount as ‘full and final’ settlement. Expressing its displeasure at the attitude of the insurance company, the apex court said the insurance company's refusal to pay the amount unless the claimant signed an unconditional acceptance, amounted to ‘coercive bargaining’, and directed the insurer to pay Rs 6.25 lakh and an additional Rs 1,17,000 along with interest calculated at the rate of 10 per cent per annum (on both the amounts).
The National Consumer Disputes Redressal Commission said : "An officer of the insurance company cannot harass the consumer by compelling him to sign a voucher and accept whatever amount of reimbursement is offered by the insurance company in full and final settlement of claim." It also pointed out that after pressuring the claimant to sign the ‘full and final’ settlement, the insurance companies used it to prevent him from seeking legal redress by arguing that the signature on the dotted line extinguished the consumer's right to any further claim on the insurance company.
Emphasising that this type of coercive method adopted by insurance companies required to be curtailed or stopped, the apex court urged the insurance regulator to take appropriate action that would ensure that the client's right to legal recourse for just settlement of the insurance claim is not frustrated or curtailed by insurance companies.
In some earlier cases, where the insurance companies had argued that once the consumer signed the ‘full and final’ settlement voucher, he had lost the right to seek legal recourse for enhancement of the claim amount, the court had said that the mere acceptance of the ‘full and final’ settlement would not debar a client from seeking the help of the court. If the consumer can show that he was forced to sign the discharge voucher either because of certain circumstances (such as financial hardship), or under undue influence or coercion on the part of the insurance company, then the signing on the ‘full and final’ voucher would not prevent him or her from seeking legal remedy, the court had said.
Supreme Court had also observed in another case that mere execution of
a discharge voucher and acceptance of insurance claim would not stop
the insured from making further claim from the insurer in certain
circumstances which could be termed as 'exercise of undue influence'
or 'coercion ' on the part of the insurer.