Late claim payment can be fined

Pushpa Girimaji

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Two years ago, a fire destroyed part of my home and some of the valuables in it. But the insurance company is yet to settle my claim. Is there any law or regulation that compels them to settle claims within a time frame? 

The Insurance Regulatory and Development Authority’s (IRDA) Regulation on the Protection of Policy Holders’ Interests specifies a time-bound procedure for insurance claim settlement and a penalty for delayed payment. 

In case of non-life insurance policies, if the assessment of the loss requires a surveyor, he should be appointed within 72 hours of receipt of intimation of the incident from the insured. Generally, the surveyor is required to submit the report within 30 days, and within a month of this submission, the insurer has to offer a settlement (or intimate repudiation), once the insured accepts it, make the payment in seven days. For any delays in payment, the insurer is liable to pay interest on the amount, calculated at a rate which is 2 per cent above the bank rate.  

Visit the IRDA website (www.irda.gov.in) for full regulation if necessary. You can also get information from the website created by IRDA for policyholders:   www.policholder.gov.in

A couple of months ago, I was informally told by the insurance company that they would  settle my claim, if I am willing to accept only 50 per cent of the amount that I have claimed, as full and final settlement. I had two photocopier machines in a room that was destroyed and I was using these to earn my livelihood.  I have no income and am financially in a very bad state now. Can I accept the offer and later file a consumer complaint against the insurance company for the recovery of the balance amount along with interest, damages and costs?

You certainly can. First of all, the insurance company is guilty of violating the IRDA (Protection of Policy Holders) Regulation and delaying the payment. Second, it is guilty of exploiting your vulnerability and forcing you to accept only partial payment, despite the surveyor’s report accepting your claim. In fact, the insurer should be paying you the full amount along with interest for the delayed settlement of claim.  

The insurer is guilty of deficient service, causing you immense hardship, pain and suffering. It is also guilty of unfair trade practice. You can file a complaint before the insurance ombudsman or seek the intervention of the consumer court. (You can get details of the ombudsman too on the IRDA website.)

In this case, by delaying settlement, the insurance company has created circumstances (such as financial hardship on account of delayed payment) that give you no option but to accept the payment being offered. In such a situation, your signature on the ‘full and final settlement’ receipt will not extinguish your right to make further claims on the insurer.  

In United India Insurance vs Ajmer Singh Cotton and General Mills and others (1999), the Supreme Court made it clear that the mere execution of the ‘discharge voucher’ would not always bar the consumer from preferring a claim before the consumer court. However, in all such cases, the consumer has to prove that the discharge voucher was obtained by the insurance company “by fraud, misrepresentation, undue influence, or coercive bargaining compelled by circumstances,” the court said.   

Subsequently, in United India Insurance vs Gurbachan Kaur (2001), when the insurer argued that the complainant had not satisfied any of these conditions laid down by the Supreme Court, the National Consumer Disputes Redressal Commission pointed out that the mere delay in certain circumstances can be construed as coercion. “When an insurance company decides to settle a widow’s claim after a delay of two years and asks her to sign the printed voucher before handing over the cheque, it could be said that it (signature) was obtained by coercion,” the commission said. 

In your case, you can say that the insurer has indulged in coercive bargaining, exploiting your financial condition as a consequence of delayed payment.