Know the law on vehicle insurance

Pushpa Girimaji
Pushpa Girimaji

Buying a vehicle is always a matter of joy. But in Sanjeev Kumar’s case, that joy was really shortlived. The day after he took delivery of his brand new vehicle, it got stolen. What added to his woes was the fact that he had undervalued the vehicle for the purpose of insurance, on the advice of the dealer from whom he had bought the vehicle. However, he soon found that the insurance company that had insured his vehicle was not willing to pay even that amount.

On the pretext that the vehicle had not yet been registered with the Regional Transport Officer, it offered to indemnify his loss on a ‘non-standard’ basis, and pay only Rs 2,91,000. The price that Kumar had paid for the vehicle was Rs 4,11,797.

Eventually, Kumar had to wage a long legal battle before consumer courts to get what was due to him. The national consumer disputes redressal commission, in response to his revision petition, directed the insurance company to pay the insured amount of Rs 3,89,473, along with 12 per cent interest calculated from three months after the loss of the vehicle. It also awarded Rs 25,000 as costs (Sanjeev Kumar vs the branch manager, United India Insurance, revision petition no 309 of 2007).

I quote this case to highlight the need for customers to understand the law vis-`E0-vis motor vehicle insurance. Under the old motor tariff regime prior to 2002, insurance companies would allow vehicle owners to estimate the cost of the vehicle and collect the premium on the basis of that estimate. It was called the insured’s
estimated value (IEV).

In case of Kumar, for example, he undervalued the vehicle, but in most cases, the vehicle owners’ estimate would be what they perceived to be the value of the vehicle. On the basis of that value, the insurance company would collect the premium.

However, if the vehicle got stolen or completely damaged, and the insured made a claim, the insurance company would come up with its own estimate of the market value of the vehicle and offer to pay only that. Since this would invariably be much lower than the insured amount, it often led to legal battles that ended up in courts.

Under the new India Motor Tariff regime, the insurance premium is collected on the basis of what is called the insured’s declared value (IDV), and the insurer has no option but to pay the value (IDV) fixed at the commencement of the annual policy.

How is this IDV to be fixed? If you look up the India Motor Tariff, you will find a schedule of tariff that will help you calculate the value of your vehicle for the purpose of insurance. This is based on the manufacturer’s listed selling price and adjusted for depreciation as per the schedule specified in the tariff, up to five years of the age of the vehicle. Beyond five years, the IDV will be determined on the basis of an understanding between the insured and the insurer.

Once the IDV is fixed at the commencement of the policy period, it will be treated as the market value, and will not change during the currency of the policy. In case of theft of a vehicle or total damage, the insurer has to pay the full IDV amount. He cannot reduce it or apply further depreciation.

So if you own a motor vehicle or intend to buy one, I would suggest that you first read the India Motor Tariff (IMT) on the Insurance Regulatory and Development Authority (IRDA) website (click on the Insurance Information Bureau icon on the left side to get to this information). Armed with this information, you can tackle the insurance company better. In fact, now you also have a toll-free grievance cell number provided by the IRDA — 155255.