National Consumer Disputes Redressal Commission (NCDRC) has held that once verification of property and policy issuance is done by the insurance company, it cannot raise objections of non-disclosure or misrepresentation of material facts by the Insured. Underwriting at the time of claim settlement is not an option for the Insurer.
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Let’s Look at the Case That Led to This Judgement
The Complainant (Insured) Had Taken a Fire Insurance Policy for his Shack. A shack is typically a simple, rudimentary, and often temporary shelter that is usually constructed with lightweight materials such as wood, corrugated metal, or other readily available resources. Generally speaking, RCC (Reinforced Concrete Cement) structure is considered a more sophisticated and durable building type. RCC structures are engineered to withstand various environmental conditions and are designed for long-term use.
The Case That Sparked the Judgement
Coming back to the case, the complainant had paid a premium of Rs. 26031 and bought a coverage for a Fire policy with a sum insured of Rs. 40 Lakh.
The Fire policy was valid from 11-01-2012 to 10-01-2013. On 15-05-2012, there was a major fire accident that resulted in total loss of the property. The Insured was prompt and informed the Fire Brigade, local police station and the insurance company on time regarding the loss.
Following the intimation, the insurance company deputed a surveyor to assess the loss of the claim. The surveyor arrived at a loss assessment of Rs.17.63 lakhs. The fire department and police department were unable to identify the exact cause of the fire accident.
Claim Rejection and Insurer’s Arguments
The Insurer meanwhile, rejected the claim stating mis-representation and non-disclosure of facts by the Insured.
The Insurance company argued that the Insured has suppressed material facts which would go against the basic principles of insurance. They argued that while taking the policy, the Insured failed to mention the illegality of the structure as it was temporarily and illegally built. In addition, the Insured has received Panchayat’s notice for demolition of the shack and also the Insured has not received No Objection Certificate (NOC) from the Department of Tourism (DoT) for erecting the temporary shack.
The Insured in turn argued that he had obtained an NOC from the DoT before taking the policy. The Insured also put forth the fact that representatives from the Insurer had visited the premises and verified these details before issuing the policy.
The Commission noted that the show-cause notices to the Insured were after the policy was issued. The Insured therefore had no way of knowing these at the time of buying the policy.
The commission concluded that the insurance company failed to prove the misrepresentation and non-disclosure of material facts by the Insured at the time of taking the policy and directed the Insurer to settle the claim.
Conclusion
The crux of the matter, as noted by the judgement, remains that Underwriting of the policy is prudent to the nature of the contract and it cannot happen at the time of claim settlement.
That said, one should substantiate all the information that is material to the underwriting of the proposal at the time of buying the policy. The insured can also ask for a signed/ stamped copy of the proposal form if the process of underwriting is done offline – this ensures proper documentation.
