Insurer liable to pay interest for delay CONSUMER PROTECTION

The insurance regulations provide for a time-bound period for processing of claims. However, invariably there are inordinate delays in settlement.

Magppie International, a Delhi-based company, had obtained a Standard Fire & Special Perils Policy from Oriental Insurance for ~26.74 crore to cover its building, plant and machinery, electrical installations, furniture, fixtures, fittings and office equipment at Sonipat in September 2012.

A fire broke out at Magppie’s factory on May 31, 2013, resulting into complete loss of the property. A claim was lodged for the total sum insured of ~26.74 crore. The insurer appointed Mack Insurance Surveyors and Loss Assessors. In the interim, the insurer released a payment of ~6 crore, on November 2, 2013.

The surveyor assessed the loss at ~17.21 crore and confirmed that Magppie would be willing to this amount in full and final settlement. Thereafter, he submitted the survey report dated May 5, 2014. Subsequently, through an addendum dated July 7, 2014, the surveyor reassessed the claim due to underinsurance. He opined that after considering the interim payment of ~6 crore, a further amount of ~10.67 crore was payable. The insurer, accordingly, released payment of this amount on September 9, 2014.

Since payment of the claim was delayed but no interest was paid, Magppie filed a complaint before the National Commission. The insurer contested the complaint contending that the surveyor had obtained the consent of the insured to accept the amount assessed. Magppie’s director, Vinod Jain, contented that the quantum of the claim was not being disputed, and the only relief being sought was a direction to pay interest for delay in settlement of the claim.

The National Commission considered the insurance regulations, which say a surveyor must generally submit his report within 30 days, but can seek extension if the issue is complicated. However, the report has to be submitted within six months. There is a provision for the insurer to call for a clarification from the surveyor, if necessary.

On receiving the report, the insurer is bound to settle or repudiate the claim within 30 days. If the claim is being settled, payment must be released within seven days. In case of delay, the insurer is liable to pay annual interest at 2 per cent above the bank rate prevalent at the beginning of the financial year in which the claim is received.

The National Commission observed that it was an undisputed fact that the claim was lodged on June 6, 2013. The surveyor had failed to submit his report within six months. Hence, the Commission concluded that both, the surveyor as well as the insurer, had committed a breach of the timeline prescribed under Regulation 9 of the Irdai (Protection of Policyholders’ Interests Regulations), 2002.

Accordingly, by its order of January 23, 2017 delivered by Justice V K Jain, the National Commission concluded that the insured is entitled to 9 per cent interest for the period of delay from January 11, 2014 to September 8, 2014. The Commission further directed Oriental Insurance to pay ~10,000 as litigation costs.

On receipt of the survey report, the insurer is bound to settle or repudiate the claim within a further period of 30 days